| | | • | eligibility criteria for the particular trial; | | | | | • | perceived risks and benefits of the product candidate being tested; | | | | | • | proximity and availability of clinical trial sites for prospective patients; | | | | | • | availability of competing therapies and clinical trials; | | | | | • | efforts to facilitate timely enrollment in clinical trials; | | | | | • | patient referral practices of physicians; | | | | | • | ability to monitor patients adequately during and after treatment; and | | | | | • | the degree of treatment effect in event-driven trials. |
Once enrolled, patients may choose to discontinue their participation at any time during the trial, for any reason. Participants also may be terminated from the study at the initiative of the investigator, for example if they experience serious adverse clinical events or do not follow the study directions. If we are unable to maintain an adequate number of patients in our clinical trials, we may be required to delay or terminate an ongoing clinical trial, which would have an adverse effect on our business. We depend on our license and distribution agreement with Biomet Biologics, LLC, and if we fail to comply with our obligations under this agreement, or if our rights under this agreement are otherwise reduced or terminated, we could lose intellectual property rights that are important to our business. In October 2012, we entered into a license and distribution agreement with Biomet Biologics, LLC under which we obtained an exclusive, nontransferable, worldwide distribution right, patent license and trademark license to Biomet Biologic, LLC’s point of care cell processing platform. Under the terms of the agreement, we are obligated to pay Biomet Biologics, LLC a royalty based on the price of the disposables in the CardiAMP cell processing platform. A breach or termination of this agreement would materially adversely affect the clinical development or commercialization strategy of our CardiAMP therapeutic candidate as currently planned. A reduction or elimination of our rights under this agreement may result in our having to negotiate new or reinstated arrangements on less favorable terms, or our not having sufficient intellectual property rights to operate our business as currently planned. The occurrence of such events could materially harm our business and financial condition.
We rely on third parties to conduct some or all aspects of our product manufacturing, diagnostic protocol development, research, and preclinical and clinical testing, and these third parties may not perform satisfactorily. We do not currently, and do not expect to in the future, independently conduct all aspects of our product manufacturing, anticipated companion diagnostic testing, protocol development, research and monitoring and management of our ongoing preclinical and clinical programs. We currently rely, and expect to continue to rely, on third parties with respect to these items, and control only certain aspects of their activities. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, our commercialization activities or our therapeutic candidate or companion diagnostic development activities may be delayed or suspended. Our reliance on these third parties for research and development activities, including the conduct of any IDE and IND-enabling studies, reduces our control over these activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards and any applicable trial protocols. For example, for therapeutic candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our IDE and IND-enabling studies and clinical trials are conducted in accordance with the trial plan and protocols. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we may be delayed in completing, or unable to complete, the preclinical studies and clinical trials required to support future IDE and IND submissions and approval of our therapeutic candidates. Reliance on third-party manufacturers entails exposure to risks to which we would not be subject if we manufactured the therapeutic candidates or companion diagnostic ourselves, including: we may be unable to negotiate manufacturing agreements with third parties under commercially reasonable terms; reduced control over the manufacturing process for our therapeutic candidates and companion diagnostic as a result of using third-party manufacturers for many aspects of manufacturing activities; termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may be costly or damaging to us or result in delays in the development or commercialization of our therapeutic candidates or companion diagnostic; and disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier. Any of these events could lead to delays in the development of our therapeutic candidates, including delays in our clinical trials, or failure to obtain regulatory approval for our therapeutic candidates, or it could impact our ability to successfully commercialize our current therapeutic candidates, companion diagnostic or any future products. Some of these events could be the basis for FDA or other regulatory action, including injunction, recall, seizure or total or partial suspension of production. We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed. We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA, the Competent Authorities of the Member States of the EEA, and comparable foreign regulatory authorities, enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our therapeutic candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process. Our CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our therapeutic candidates. If any such event were to occur, our financial results and the commercial prospects for our therapeutic candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Further, switching or adding additional CROs involves additional costs and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects. We may also rely on other third parties to store and distribute our products for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our therapeutic candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue. We depend on third party vendors to manufacture some of our components and sub-assemblies, which could make us vulnerable to supply shortages and price fluctuations that could harm our business. We currently manufacture some of our components and sub-assemblies internally and rely on third party vendors for other components and sub-assemblies used in our products and therapeutic candidates. Our reliance on third party vendors subjects us to a number of risks that could impact our ability to manufacture our products and therapeutic candidates and harm our business, including: interruption of supply resulting from modifications to, or discontinuation of, a supplier’s operations; delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s failure to consistently produce quality components; price fluctuations due to a lack of long-term supply arrangements with our suppliers for key components; inability to obtain adequate supply in a timely manner or on commercially reasonable terms; difficulty identifying and qualifying alternative suppliers for components in a timely manner; inability of the manufacturer or supplier to comply with Quality System Regulations, or QSRs, enforced by the FDA and state regulatory authorities; inability to control the quality of products manufactured by third parties; production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications; and delays in delivery by our suppliers due to changes in demand from us or their other customers. Any significant delay or interruption in the supply of components or sub-assemblies, or our inability to obtain substitute components, sub-assemblies or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and harm our business. Our future commercial success depends upon attaining significant market acceptance of our therapeutic candidates, if approved, among physicians, patients and healthcare payors. Even when product development is successful and regulatory approval has been obtained, our ability to generate significant revenue depends on the acceptance of our products by physicians, payors and patients. Many potential market participants have limited knowledge of, or experience with, cell-based products and therapies, so gaining market acceptance and overcoming any safety or efficacy concerns may be more challenging than for more traditional therapies. Our efforts to educate the medical community and third-party payors on the benefits of our therapeutic candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by conventional therapies marketed by our competitors. We cannot assure you that our products will achieve the expected market acceptance and revenue if and when they obtain the requisite regulatory approvals. Alternatively, even if we obtain regulatory approval, that approval may be for indications or patient populations that are not as broad as intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. The market acceptance of each of our therapeutic candidates will depend on a number of factors, including: the efficacy and safety of the therapeutic candidate, as demonstrated in clinical trials; the clinical indications for which the product is approved and the label approved by regulatory authorities for use with the product, including any warnings that may be required on the label; acceptance by physicians and patients of the product as a safe and effective treatment; the cost, safety and efficacy of treatment in relation to alternative treatments; the continued projected growth of markets for our various indications; relative convenience and ease of administration; the prevalence and severity of adverse side effects; and the effectiveness of our sales and marketing efforts. Market acceptance is critical to our ability to generate significant revenue. Any therapeutic candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any approved products are not accepted by the market to the extent that we expect, we may not be able to generate significant revenue and our business would suffer. If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our therapeutic candidates, conduct our clinical trials and commercialize our therapeutic candidates. We are highly dependent on the members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. Any of our executive officers could leave our employment at any time, as all of our employees are “at will” employees. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success. Recruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations. As we mature and expand our research and development and other pre-commercialization activities, we expect to expand our existing full-time employee base and to hire more consultants and contractors. In addition, we currently plan to commercialize the CardiAMP Cell Therapy System, if approved, using an internal sales force to selected cardiologists, interventional cardiologists and third-party payors in the United States. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.
We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.
Our industry is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing number of competitors and potential competitors enter the market. Astra Zeneca/Moderna,Zeneca, Bayer, Blue Rock Therapeutics, Bristol-Myers Squibb, Caladrius Biosciences, Capricor Therapeutics, Celixr, Cesca Therapeutics, Celyad, Daichii Sankyo, Fuji Film, Mesoblast, Moderna, Sana Biotechnology, Takeda Pharmaceuticals, Tenaya Therapeutics, Terumo, Vericel Corp, and Uniqure, among others. Many of our competitors, potentially including the aforementioned, have significantly greater development, financial, manufacturing, marketing, technical and human resources than we do. Large pharmaceutical and medical device companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing pharmaceutical and medical device products. Recent and potential future merger and acquisition activity in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Established companies may also invest heavily to accelerate discovery and development of novel products that could make our therapeutic candidates obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing our therapeutic candidates or competitors to our therapeutic candidates before we do. Specialized, smaller or early-stage companies may also prove to be significant competitors, particularly those with a focus and expertise in the stem cell industry and/or those with collaboration arrangements and other third-party payors. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. If we are not able to compete effectively against potential competitors, our business will not grow, and our financial condition and results of operations will suffer.
Even if we obtain regulatory approval for a product candidate, including our CardiAMP and CardiALLO Cell Therapy System therapeutic candidates, these products or therapies, along with our other regulated products, will be subject to ongoing regulatory scrutiny. Even if we obtain regulatory approval or clearance in a jurisdiction, regulatory authorities may still impose significant restrictions on the indicated uses or marketing of our therapeutic candidates or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. For example, once a product receives regulatory approval or clearance for sale, we are obligated to monitor and report adverse events and any failure of a product to meet the specifications in the applicable regulatory approval or clearance. We must also submit new or supplemental applications and obtain FDA approval or clearance for certain changes to the approved or cleared product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with good manufacturing practices or QSRs and adherence to commitments made in the applicable regulatory approval. If we or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we fail to comply with applicable regulatory requirements following approval of any of our therapeutic candidates, a regulatory agency may impose the following: restrictions on the marketing or manufacturing of our products, withdrawal of our products from the market, or voluntary or mandatory product recalls; costly regulatory inspections; fines, warning letters, or holds on clinical trials; refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our collaborators, or suspension or revocation of applicable regulatory approvals; product seizure or detention, or refusal to permit the import or export of products; and injunctions or the imposition of civil or criminal penalties by FDA or other regulatory bodies. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our therapeutic candidates and generate revenues. Our ability to compete is highly dependent on demonstrating the benefits of CardiAMP to physicians, hospitals and patients. In order to generate sales, we must be able to clearly demonstrate that CardiAMP is both a more effective treatment system and less costly than alternative products and treatments offered by our competitors. If we are unable to convince physicians that CardiAMP leads to significant improvement in functional capacity, improved quality of life and reduced hospitalization, our business will suffer. We may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory agencies. We have not obtained regulatory approval for either our CardiAMP or CardiALLO Cell Therapy System therapeutic candidates. We must conduct extensive testing of our therapeutic candidates to demonstrate their safety and efficacy, including human clinical trials and, if applicable, preclinical animal testing, before we can obtain regulatory approval to market and sell them. Conducting such testing is a lengthy, time-consuming, and expensive process and there is a high rate of failure. Our current and completed preclinical and clinical results for our therapeutic candidates are not necessarily predictive of the results of our ongoing or future clinical trials. Promising results in preclinical studies of a therapeutic candidate may not be predictive of similar results in humans during clinical trials, and successful results from early human clinical trials of a therapeutic candidate may not be replicated in later and larger human clinical trials or in clinical trials for different indications. If the results of our ongoing or future clinical trials are negative or inconclusive with respect to the efficacy of our therapeutic candidates or if we or they do not meet the clinical endpoints with statistical significance or if there are safety concerns or adverse events associated with our therapeutic candidates, we may be prevented or delayed in obtaining marketing approval for our therapeutic candidates.
If we fail to obtain and maintain necessary regulatory clearances or approvals for our therapeutic candidates or products, or if clearances or approvals for our therapeutic candidates or products in additional indications are delayed or not issued, our commercial operations would be harmed. We are required to timely file various reports with the FDA, require that we report to the regulatory authorities if our therapeutic candidates or products may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not filed timely, regulators may impose sanctions and sales may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business. If we initiate a correction or removal to reduce a risk to health posed, we would be required to submit a publicly available Correction and Removal report to the FDA and in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a product recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality and safety of our therapeutic candidates or products. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation. The FDA and the Federal Trade Commission, or FTC, also regulate the advertising and promotion of our therapeutic candidates or products to ensure that the claims we make are consistent with our regulatory approvals, that there are adequate and reasonable data to substantiate the claims and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any of our advertising or promotional claims are misleading, not substantiated or not permissible, we may be subject to enforcement actions, including warning letters, and we may be required to revise our promotional claims and make other corrections or restitutions. FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by FDA or state agencies, which may include any of the following sanctions: | • | adverse publicity, warning letters, fines, injunctions, consent decrees and civil penalties; | | | | | • | repair, replacement, refunds, recall or seizure of our products; | | | | | • | operating restrictions, partial suspension or total shutdown of production; | | | | | • | refusing our requests for premarket approval of new products, new intended uses or modifications to existing products; | | | |
| • | withdrawing premarket approvals that have already been granted; and | | | | | • | criminal prosecution. |
If any of these events were to occur, our business and financial condition would be harmed. Serious adverse events or other safety risks could require us to abandon development and preclude, delay or limit approval of our therapeutic candidates or products or limit the scope of any approved indication or market acceptance. Participants in clinical trials of our investigational cell-based therapies and products may experience adverse reactions or other undesirable side effects. While some of these can be anticipated, others may be unexpected. We cannot predict the frequency, duration, or severity of adverse reactions or undesirable side effects that may occur during clinical investigation. If any of our therapeutic candidates or products, prior to or after any approval for commercial sale, cause adverse events or are associated with other safety risks, a number of potentially significant negative consequences could result, including: regulatory authorities may suspend (e.g., through a clinical hold) or terminate clinical trials; regulatory authorities may deny regulatory approval of our therapeutic candidates or products; regulatory authorities may restrict the indications or patient populations for which a therapeutic candidate or products is approved; regulatory authorities may require certain labeling statements, such as warnings or contraindications or limitations on the indications for use, and/or impose restrictions on distribution in the form of a Risk Evaluation and Mitigation Strategy, or REMS, in connection with approval, if any; regulatory authorities may withdraw their approval, require more onerous labeling statements or impose a more restrictive REMS than any therapeutic candidate or product that is approved; we may be required to change the way the therapy or therapeutic candidate or product is administered or conduct additional clinical trials; patient recruitment into our clinical trials may suffer; we could be required to provide compensation to subjects for their injuries, e.g., if we are sued and found to be liable or if required by the laws of the relevant jurisdiction or by the policies of the clinical site; or our reputation may suffer. There can be no assurance that adverse events associated with our therapeutic candidates or products will not be observed, even where no prior adverse events have occurred. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants or if preliminary data demonstrate that our therapeutic candidates or products are unlikely to receive regulatory approval or are unlikely to be successfully commercialized. Regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. If we elect or are forced to suspend or terminate a clinical trial for any reason this would have an adverse effect on our business.
Our therapeutic candidates are intended to treat patients who are extremely ill, and patient deaths that occur in our clinical trials could negatively impact our business even if they are not shown to be related to our therapeutic candidates. Generally, patients remain at high risk following their treatment with our CardiAMP and CardiALLO therapeutic candidates. As a result, it is likely that we will observe severe adverse outcomes during our clinical trials for these therapeutic candidates, including patient death. If a significant number of study subject deaths were to occur, regardless of whether such deaths are attributable to our therapeutic candidates, our ability to obtain regulatory approval for the applicable therapeutic candidate may be adversely impacted and our business could be materially harmed. If we or our suppliers fail to comply with the FDA’s QSRs, our manufacturing operations could be delayed or shut down and product sales could suffer. Our manufacturing processes and those of our third-party suppliers are required to comply with the FDA’s QSRs, which covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping. We are also subject to similar state requirements and licenses. In addition, we must engage in extensive record keeping and reporting and must make available our manufacturing facilities and records for periodic unannounced inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries. If we fail a Quality System inspection, our operations could be disrupted and our manufacturing interrupted. Failure to take adequate corrective action in response to an adverse Quality System inspection could result in, among other things, a shut-down of our manufacturing operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls, operating restrictions and criminal prosecutions, any of which would cause our business to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays and cause our revenues to decline. We have registered with the FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Health Services, or CDHS. The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of CDHS to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. If the FDA or CDHS inspect our facility and discover compliance problems, we may have to shut down our facility and cease manufacturing until we can take the appropriate remedial steps to correct the audit findings. Taking corrective action may be expensive, time consuming and a distraction for management and if we experience a shutdown or delay at our manufacturing facility we may be unable to produce our products, which may have an adverse impact on our business. The requirements to obtain regulatory approval of the FDA and regulators in other jurisdictions can be costly, time-consuming, and unpredictable. If we are unable to obtain timely regulatory approval for our therapeutic candidates, our business may be substantially harmed. The regulatory approval process is expensive, and the time and resources required to obtain approval from the FDA or other regulatory authorities in other jurisdictions to sell any therapeutic candidate or product is uncertain and approval may take years. Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the discretion of the regulatory authorities. For example, governing legislation, approval policies, regulations, regulatory policies, or the type and amount of preclinical and clinical data necessary to gain approval may change during the course of a therapeutic candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing or future therapeutic candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval. Further, regulatory requirements governing cell-based therapy products in particular have changed frequently and may continue to change in the future. For example, in November 2014, Japan’s parliament enacted new legislation to promote the safe and accelerated development of treatments using stem cells. The new Pharmaceuticals, Medical Devices and Other Therapeutic Products Act, or PMD Act, establishes a framework for expedited approval in Japan for regenerative medical products. As this is a new regulation, it is not clear yet what impact it will have on the operation of our business. Any regulatory review committees and advisory groups and any contemplated new guidelines may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our therapeutic candidates or products or lead to significant post-approval limitations or restrictions. As we advance our therapeutic candidates or products, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of our therapeutic candidates or products. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a therapeutic candidate or product to market could decrease our ability to generate sufficient revenue to maintain our business. Our therapeutic candidates could fail to receive regulatory approval for many reasons, including the following: we may be unable to successfully complete our ongoing and future clinical trials of therapeutic candidates; we may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities that a therapeutic candidate is safe, pure, and potent for any or all of a therapeutic candidate’s proposed indications; we may be unable to demonstrate that a therapeutic candidate’s benefits outweigh the risk associated with the therapeutic candidate; the FDA or other regulatory authorities may disagree with the design or implementation of our clinical trials; the results of clinical trials may not meet the level of statistical significance required by the FDA or other regulatory authorities for approval; the FDA or other regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; a decision by the FDA, other regulatory authorities or us to suspend or terminate a clinical trial at any time; the data collected from clinical trials of our therapeutic candidates may be inconclusive or may not be sufficient to obtain regulatory approval in the United States or elsewhere; the inability to obtain sufficient quantities of the therapeutic candidates for use in clinical trials; our third-party manufacturers of supplies needed for manufacturing therapeutic candidates may fail to satisfy FDA or other regulatory requirements and may not pass inspections that may be required by FDA or other regulatory authorities; the failure to comply with applicable regulatory requirements following approval of any of our therapeutic candidates may result in the refusal by the FDA or similar foreign regulatory agency to approve a pending PMA or a biologics license application, or BLA, or supplement to a PMA or BLA submitted by us for other indications or new therapeutic candidates or products; and the approval policies or regulations of the FDA or other regulatory authorities outside of the United States may significantly change in a manner rendering our clinical data insufficient for approval. We may gain regulatory approval for any of our therapeutic candidates in some but not all of the territories available and any future approvals may be for some but not all of the target indications, limiting their commercial potential. Regulatory requirements and timing of product approvals vary from country to country and some jurisdictions may require additional testing beyond what is required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. In addition, regulatory approval does not specify pricing or reimbursement which may not match our expectations based on the results of our clinical data. Even if we obtain and maintain approval for our therapeutic candidates or products from the FDA, we may never obtain approval for our therapeutic candidates or products outside of the United States, which would limit our market opportunities and adversely affect our business. Approval in the United States by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of our therapeutic candidates or products, if approved, outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a therapeutic candidate or product must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge, if approved, is also subject to approval. While we may decide to submit a request to the EMA for approval of our therapeutic candidates, including CardiAMP, as Advanced Therapeutic Medicinal Products, or ATMPs, in Europe, obtaining such approval is a lengthy and expensive process and the EMA has its own procedures for approval. Even if a therapeutic candidate or product is approved, the FDA or the EMA, as the case may be, may limit the indications for which it may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of therapeutic candidates or products with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval may be withdrawn. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our therapeutic candidates or products will be harmed and our business will be adversely affected. We may face competition from biosimilars due to changes in the regulatory environment. We may face competition for the CardiALLO Cell Therapy System from biosimilars due to the changing regulatory environment. In the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products that are demonstrated to be “highly similar,” or biosimilar to, or “interchangeable” with an FDA-approved innovator (original) biological product. This new pathway could allow competitors to reference data from innovator biological products already approved after 12 years from the time of approval. In Europe, a competitor may reference data from biological products already approved but will not be able to get on the market until 10 years after the time of approval. This 10-year period will be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilars in other countries that could compete with CardiALLO, if approved. Additionally, the FDA may approve our competitors’ products through a PMA pathway, similar to CardiAMP. If competitors are able to obtain marketing approval for biosimilars referencing CardiALLO, if approved, it may become subject to competition from such biosimilars with the attendant competitive pressure and consequences.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business. We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations may also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. We do not currently carry biological or hazardous waste insurance coverage. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. We are subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act.
Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse will be applicable to our business. Healthcare fraud and abuse regulations are complex and can be subject to varying interpretations as to whether or not a statute has been violated. The laws that may affect our ability to operate include: the federal Anti-Kickback Statute which prohibits, among other things, the knowing and willful payment of remuneration to induce or reward patient referrals or the generation of business involving any item or service which may be payable by the federal health care programs (e.g., drugs, supplies, or health care services for Medicare or Medicaid patients); the federal False Claims Act which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment for government funds (e.g., payment from Medicare or Medicaid) or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim for government funds; the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HIPAA imposes civil and criminal liability for the wrongful access or disclosure of protected health information; the federal Physician Payments Sunshine Act, created under Section 6002 of the Patient Protection and Affordable Care Act, as amended, the ACA, requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, those physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members; the federal Food, Drug and Cosmetic Act which prohibits, among other things, the adulteration or misbranding of drugs and devices; the U.S. Foreign Corrupt Practices Act which prohibits corrupt payments, gifts or transfers of value to non-U.S. officials; and non-U.S. and U.S. state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers. The federal fraud and abuse laws have been interpreted to apply to arrangements between medical device and pharmaceutical manufacturers and a variety of health care professional. Although the federal Anti-Kickback Statute has several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, all elements of the potentially applicable exemption or safe harbor must be met in order for the arrangement to be protected, and prosecutors have interpreted the federal healthcare fraud statutes to attack a wide range of conduct by medical device and pharmaceutical companies. In addition, most states have statutes or regulations similar to the federal anti-kickback and federal false claims laws, which apply to items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative, civil and criminal sanctions may be imposed under these federal and state laws. Further, the ACA, among other things, amended the intent standard under the Anti-Kickback Statute such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA makes clear that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the federal False Claims Act. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could harm our ability to operate our business and our results of operations. In addition, the clearance or approval and commercialization of any of our products outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. A failure to adequately protect private health information could result in severe harm to our reputation and subject us to significant liabilities, each of which could have a material adverse effect on our business. Throughout the clinical trial process, we may obtain the private health information of our trial subjects. There are a number of state, federal and international laws protecting the privacy and security of health information and personal data. As part of the American Recovery and Reinvestment Act of 2009, or ARRA, Congress amended the privacy and security provisions of HIPAA. HIPAA imposes limitations on the use and disclosure of an individual’s healthcare information by healthcare providers conducting certain electronic transactions, healthcare clearinghouses, and health insurance plans, collectively referred to as covered entities. The HIPAA amendments also impose compliance obligations and corresponding penalties for non-compliance on certain individuals and entities that provide services to or perform certain functions on behalf of healthcare providers and other covered entities involving the use or disclosure of individually identifiable health information, collectively referred to as business associates. ARRA also made significant increases in the penalties for improper use or disclosure of an individual’s health information under HIPAA and extended enforcement authority to state attorneys general. The amendments also create notification requirements to federal regulators, and in some cases local and national media, for individuals whose health information has been inappropriately accessed or disclosed. Notification is not required under HIPAA if the health information that is improperly used or disclosed is deemed secured in accordance with certain encryption or other standards developed by the U.S. Department of Health and Human Services, or HHS. Most states have laws requiring notification of affected individuals and state regulators in the event of a breach of personal information, which is a broader class of information than the health information protected by HIPAA. Many state laws impose significant data security requirements, such as encryption or mandatory contractual terms to ensure ongoing protection of personal information. Activities outside of the United States implicate local and national data protection standards, impose additional compliance requirements and generate additional risks of enforcement for noncompliance. The European Union’s Data Protection Directive, Canada’s Personal Information Protection and Electronic Documents Act and other data protection, privacy and similar national, state/provincial and local laws may also restrict the access, use and disclosure of patient health information abroad. We may be required to expend significant capital and other resources to ensure ongoing compliance with applicable privacy and data security laws, to protect against security breaches and hackers or to alleviate problems caused by such breaches. A recall of any of our commercialized products, or the discovery of serious safety issues, could have a significant negative impact on us. The FDA and other relevant regulatory agencies have the authority to require or request the recall in the event of material deficiencies or defects in design or manufacture or in the event an unacceptable risk to health. Manufacturers may, under their own initiative, also initiate a recall. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls would divert managerial and financial resources and have an adverse effect on our reputation, financial condition and operating results. Further, under the FDA’s reporting regulations, we are required to report to the FDA any event that reasonably suggests that our products may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction of the same or similar product marketed by us were to recur, would likely cause or contribute to death or serious injury. The FDA also requires reporting of serious, life-threatening, unexpected and other adverse experiences and the submission of periodic safety reports and other information. Malfunctions or other adverse event reports may result in a voluntary or involuntary recall and other adverse actions, which could divert managerial and financial resources, impair our ability to manufacture in a cost-effective and timely manner and have an adverse effect on our reputation, financial condition and operating results. Similar reporting requirements exist in Europe and other jurisdictions. Any adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results. For example, in 2014 we notified the FDA that we were going to initiate a voluntary recall of our Morph AccessPro product based on a manufacturing observation, which was completed to the FDA’s satisfaction in the same year, and in 2017 we updated our instructions for use for the HelixHelix™ and Morph catheter products to provide guidance on known potential risks. There can be no guarantee that we will not experience similar product recalls or changes in the future with these products or our other products or therapeutic candidates, if approved. Modifications to our products may require reclassifications, new regulatory approvals or clearances, or may require us to cease marketing or recall the modified products until new CE marking is obtained. Currently there are sixeight Morph product family model numbers that have been approved for commercial use in the United States via a 510(k) clearance and three in Europe under CE Mark.clearance. A modification to these products could lead to a reclassification and could result in further requirements (including additional clinical trials) to maintain each respective clearance or approval. If we fail to comply with such further requirements, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. The financial performance of our enabling and delivery products may be adversely affected by medical device tax provisions in the healthcare reform laws in the United States.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, imposes, among other things, an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States beginning with tax year 2013. Under these provisions, the Congressional Research Service predicts that the total cost to the medical device industry may be up to $20 billion over the next decade. On December 18, 2015, President Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029), which includes a two-year moratorium on the medical device excise tax. It amended section 4191 of the Internal Revenue Code to exempt medical device sales during the period of January 1, 2016 to December 31, 2017. On January 22, 2018, President Trump signed legislation that suspended the medical device excise tax through December 31, 2019. Absent further legislative action, the tax will be automatically reinstated for medical device sales starting on January 1, 2020. The financial impact this tax may have on our business is unclear and there can be no assurance that our business will not be materially adversely affected by it.
We work with outside scientists and their institutions in developing therapeutic candidates and products. These scientists may have other commitments or conflicts of interest, which could limit our access to their expertise. We work with scientific advisors and collaborators at academic research institutions in connection with our development programs. These scientific advisors serve as our link to the specific pools of trial participants we are targeting in that these advisors may: identify individuals as potential candidates for study; obtain their consent to participate in our research; perform medical examinations and gather medical histories; conduct the initial analysis of suitability of the individuals to participate in our research based on the foregoing; and collect data and biological samples from trial participants periodically in accordance with our study protocols. These scientists and collaborators are not our employees, rather they serve as either independent contractors or the primary investigators under research collaboration agreements that we have with their sponsoring academic or research institution. Such scientists and collaborators may have other commitments that would limit their availability to us. Although our scientific advisors generally agree not to do competing work, if an actual or potential conflict of interest between their work for us and their work for another entity arises, we may lose their services. It is also possible that some of our valuable proprietary knowledge may become publicly known through these scientific advisors if they breach their confidentiality agreements with us, which would cause competitive harm to our business.
The use, misuse or off-label use of our products or therapies, if approved, may result in injuries that lead to product liability suits, which could be costly to our business. We are not permitted to make claims about the use of our marketed products and will not be permitted to make claims about the use of our therapeutic candidates, if approved, outside of their approved indications. Further, we are not and will not be able to proactively discuss or provide information on off-label uses of such products, with very specific and limited exceptions. However, we cannot prevent a physician from using our products or therapeutic candidates, if approved, for off-label applications. Off-label use of our products or therapies, if approved, is more likely to result in complications that have serious consequences. Product liability claims are especially prevalent in our industry and could harm our reputation, divert management’s attention from our core business, be expensive to defend and may result in sizable damage awards against us. Although we maintain product liability insurance, the amount or breadth of our coverage may not be adequate for the claims that may be made against us. In addition, failure to follow FDA rules and guidelines relating to promotion and advertising can result in, among other things, the FDA’s refusal to approve a product or therapeutic candidate, the suspension or withdrawal of an approved product or therapy from the market, product recalls, fines, disgorgement of money, operating restrictions, injunctions or criminal prosecutions. Our employees, principal investigators, consultants and collaboration partners may engage in misconduct or other improper activities, including noncompliance with laws and regulatory standards and requirements and insider trading. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of activity relating to pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation, or a breach of insider trading laws. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our therapeutic candidates, if approved, we may be unable to generate any revenues. We currently have a limited organization for the sales, marketing and distribution of products and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may be approved, including CardiAMP and CardiALLO Cell Therapy Systems, we must build our sales, distribution, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We have limited prior experience in the marketing, sale or distribution of approved products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our therapeutic candidates. Our strategy is to obtain FDA approval and market the CardiAMP Cell Therapy System for potential heart failure and chronic myocardial ischemia indications using a dedicated direct sales model focused on selected cardiologists and interventional cardiologists. We may in the future, choose to align ourselves with collaborators as part of our commercialization strategy, particularly outside of the United States, and our future collaboration partners, if any, may not dedicate sufficient resources to the commercialization of our therapeutic candidates or companion diagnostic or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective collaborations to enable the sale of our therapeutic candidates and companion diagnostic to healthcare professionals and in geographical regions, including the United States, that will not be covered by our own marketing and sales force, or if our potential future collaboration partners do not successfully commercialize our therapeutic candidates or companion diagnostic, our ability to generate revenues from product sales, including sales of CardiAMP and CardiALLO Cell Therapy Systems, will be adversely affected. Building an internal sales force involves many challenges, including: | • | recruiting and retaining talented people; | | | | | • | training employees that we recruit; | | | | | • | setting the appropriate system of incentives; | | | | | • | managing additional headcount; and | | | | | • | integrating a new business unit into an existing corporate architecture. |
If we are unable to build our own sales force or negotiate a strategic partnership for the commercialization of CardiAMP or CardiALLO Cell Therapy Systems in the United States, we may be forced to delay the potential commercialization of these therapies or reduce the scope of our sales and marketing activities for CardiAMP or CardiALLO Cell Therapy Systems. To fund commercialization activities, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring CardiAMP or CardiALLO Cell Therapy Systems to market or generate product revenue. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies. In addition, there are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any launch. If the commercial launch of a therapeutic candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. We have limited experience manufacturing our therapeutic candidates or products in commercial quantities, which could harm our business. Because we have only limited experience in manufacturing therapeutic candidates or products in commercial quantities, we may encounter production delays or shortfalls. Such production delays or shortfalls may be caused by many factors, including the following: we intend to significantly expand our manufacturing capacity, and our production processes may have to change to accommodate this growth; key components and sub-assemblies of our products and therapeutic candidates are currently provided by a single supplier or limited number of suppliers, and we do not maintain large inventory levels of these components and sub-assemblies; if we experience a shortage in any of these components or sub-assemblies, we would need to identify and qualify new supply sources, which could increase our expenses and result in manufacturing delays; we may experience a delay in completing validation and verification testing for new controlled-environment rooms at our manufacturing facilities; we have limited experience in complying with FDA’s QSRs, which applies to the manufacture of our products and therapeutic candidates; and to increase our manufacturing output significantly, we will have to attract and retain qualified employees, who are in short supply, for our manufacturing operations. If we are unable to keep up with demand for our products, our revenues could be impaired, market acceptance for our products could be harmed and our customers might instead purchase our competitors’ products. Our inability to successfully manufacture our products would materially harm our business.
If we fail to obtain and sustain an adequate level of reimbursement for our products by third-party payors, sales and profitability would be adversely affected. Our ability to commercialize any therapeutic candidates or products successfully will depend, in part, on the extent to which coverage and reimbursement for our therapeutic candidates or products and related treatments will be available from government healthcare programs, private health insurers, managed care plans, and other organizations. Additionally, even if there is a commercially viable market, if the level of third-party reimbursement is below our expectations, our revenue and profitability could be materially and adversely affected. Third-party payors, such as government programs, including Medicare in the United States, or private healthcare insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved therapies or products. Reimbursement rates and coverage from private health insurance companies vary depending on the company, the insurance plan and other factors. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our therapeutic candidates to each private health insurance company separately, with no assurance that adequate coverage and reimbursement will be obtained. A current trend in the U.S. healthcare industry as well as in other countries around the world is toward cost containment, including a number of legislative and regulatory changes to the health care system that could impact our ability to sell our approved therapies or products profitably. In particular, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 revised the payment methodology for many products under Medicare in the United States, which has resulted in lower rates of reimbursement. In 2010, the Affordable Care Act was enacted. This expansion in the government’s role in the U.S. healthcare industry may further lower rates of reimbursement. Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. President Donald Trump has made statements that suggest he plans to seek repeal of all or portions of the Affordable Care Act, and has stated that he will ask Congress to replace the current legislation with new legislation. There is uncertainty with respect to the impact President Trump’s Administration may have, if any, and any changes likely will take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the Affordable Care Act. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 20152027 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our products, if approved, and accordingly, on our financial operations. In 2017, the European Union released new regulations to ensure patient safety with the use of pharmaceuticals, medical devices and in-vitro diagnostics that will go into effect over a three-year period from 2020 to 2022. The new regulations replace predecessor directives and emphasize a global convergence of regulations. Marketing authorization timelines will become more protracted and the costs of operating in Europe will increase. A significantly more costly path to regulatory compliance is anticipated. Adjusting to the new Medical Device Regulation may prove to be costly and disruptive to our business. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish, which could result in revenue and profitability being lower than anticipated. There may be significant delays in obtaining coverage and reimbursement for newly approved therapies or products, and coverage may be more limited than the purposes for which the therapy or product is approved by the FDA or other regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a therapy or product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels, if applicable, may also be insufficient to cover our and any partner’s costs and may not be made permanent. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved therapies or products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize therapies or products and our overall financial condition. Furthermore, reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, therapies or products cannot be commercially launched until reimbursement is approved and the negotiation process in some countries can exceed 12 months. In addition, pricing and reimbursement decisions in certain countries can be affected by decisions taken in other countries, which can lead to mandatory price reductions and/or additional reimbursement restrictions across a number of other countries, which may thereby adversely affect our sales and profitability. In the event that countries impose prices which are not sufficient to allow us to generate a profit, this would adversely affect sales and profitability. Price controls may be imposed in foreign markets, which may adversely affect our future profitability. In some countries, particularly European Union member states, Japan, Australia and Canada, the pricing of therapies and products is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a therapy or product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our partners may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our therapeutic candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our therapies or products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, revenues or profitability could be adversely affected.
If the market opportunities for our therapeutic candidates or products are smaller than we believe they are, our revenues may be adversely affected and our business may suffer. It is very difficult to estimate the future commercial potential of the CardiAMP Cell Therapy System, the CardiALLO Cell Therapy System, and our commercialized products due to factors such as safety and efficacy compared to other available treatments, changing standards of care, third-party payor reimbursement standards, patient and physician preferences, and the availability of competitive alternatives that may emerge. We believe that approximately 70% of the NYHA Class II and Class III ischemic systolic heart failure patients in the United States will be eligible for CardiAMP due to a sufficient CardiAMP potency assay score. However, if considerably less than approximately 70% of NYHA Class II and Class III ischemic heart failure patients are eligible for CardiAMP due to an insufficient CardiAMP potency assay score, it would significantly and negatively impact our business, financial condition and results of operations. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our therapeutic candidates or products. We face an inherent risk of product liability as a result of the human clinical use of our therapeutic candidates and products and will face an even greater risk if we continue to commercialize our therapeutic candidates and products. For example, we may be sued if any therapy or product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of inherent dangers, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: decreased demand, even if such products or therapies are approved; injury to our reputation; withdrawal of clinical trial participants; costs to defend the related litigations; a diversion of management’s time and our resources; substantial monetary awards to trial participants or patients; recalls, withdrawals, or labeling, marketing or promotional restrictions; increased cost of liability insurance; the inability to receive regulatory approvals or commercialize our approved products or therapies; and a decline in our share price. Although we maintain product liability insurance with coverage that we believe is consistent with industry norms for companies at our stage of development, the amount or breadth of our coverage may not be adequate for the claims that may be made against us. Failure to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products or therapies we develop. Additionally, our insurance policies have various exclusions, and we may be subject to a product liability claim for which we have no coverage or reduced coverage. Any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Our business and operations would suffer in the event of system failures. Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants and potential collaborators are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. For example, our systems have been impacted by computer viruses in the past, and while we have not experienced any material system failure, accident or security breach that has resulted in lasting impacts to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for manufacturing our therapeutic candidates and conducting clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our therapeutic candidates could be delayed.
Interruptions in supply or inventory loss may adversely affect our operating results and financial condition. Our therapeutic candidates and products are manufactured and distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of these processes, as well as strict company and government standards for manufacture and storage, subjects us to production risks. While batches released for use in clinical trials or for commercialization undergo sample testing, some defects may only be identified following release. In addition, process deviations or unanticipated effects of approved process changes may result in these intermediate products not complying with stability requirements or specifications. The investigation and remediation of any identified problems can cause production delays, substantial expense, lost sales and delays of new product or therapy launches. Any supply interruption or the loss thereof could hinder our ability to timely distribute our approved products and satisfy demand. Any unforeseen storage failure or loss in supply could delay our clinical trials and, if our therapeutic candidates are approved, result in a loss of our market share and negatively affect our revenues and operations. We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. A majority of our management operates in our principal executive offices located in San Carlos, California and we currently manufacture our HelixHelix™ and Morph products at this facility and use it for storage of our clinical trial materials.materials and biobanking. If our San Carlos offices were affected by a natural or man-made disaster, particularly those that are characteristic of the region, such as wildfires and earthquakes, or other business interruption, our ability to manage our domestic and foreign operations could be impaired, which could materially and adversely affect our results of operations and financial condition. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. The ultimate impact of any such events on us, our significant suppliers and our general infrastructure is unknown. The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our preclinical studies and clinical trials. Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”), surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States. In response to the spread of COVID-19, we have closed our executive offices with our administrative employees continuing their work outside of our offices, restricted on-site staff to only those required to execute their job responsibilities and limited the number of staff in any given research and development laboratory. As a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could severely impact our business, preclinical studies and clinical trials, including: delays or difficulties in enrolling patients in our clinical trials; delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; delays or disruptions in non-clinical experiments due to unforeseen circumstances at contract research organizations and vendors along their supply chain; increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits; diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints; interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact approval timelines; interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions. These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results. In addition, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 epidemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Risks RelatedRelating to Our Intellectual Property
We may not be able to protect our proprietary technology in the marketplace. Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary rights of others. We rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect the intellectual property of our therapeutic candidates and products. Patents might not be issued or granted with respect to our patent applications that are currently pending, and issued or granted patents might later be found to be invalid or unenforceable, be interpreted in a manner that does not adequately protect our current therapeutic candidates or products or any future therapeutic candidates or products, or fail to otherwise provide us with any competitive advantage. As such, we do not know the degree of future protection that we will have on our therapeutic candidates or products and technology, if any, and a failure to obtain adequate intellectual property protection with respect to our therapeutic candidates or products could have a material adverse impact on our business. Filing, prosecuting and defending patents throughout the world would be prohibitively expensive, so our policy is to patent technology in jurisdictions with significant or otherwise relevant commercial opportunities or activities. However, patent protection may not be available for some of the therapeutic candidates or products we are developing. If we must spend significant time and money protecting or enforcing our patents, designing around patents held by others or licensing, potentially for large fees, patents or other proprietary rights held by others, our business, results of operations and financial condition may be harmed.
The patent protection of biotherapeutics is complex and uncertain. The scope and extent of patent protection for our therapeutic candidates and products are particularly uncertain. To date, our principal therapeutic candidates have been based on specific subpopulations of known and naturally occurring adult stem cells. We anticipate that the therapeutic candidates or products we develop in the future will continue to include or be based on the same or other naturally occurring stem cells or derivatives or products thereof. Although we have sought and expect to continue to seek patent protection for our therapeutic candidates and products, their methods of use, methods of manufacture, and methods of delivery, any or all of them may not be subject to effective patent protection. Publication of information related to our therapeutic candidates and products by us or others may prevent us from obtaining or enforcing patents relating to these products and therapeutic candidates. Furthermore, others may independently develop similar therapeutic candidates or products, may duplicate our therapeutic candidates or products, or may design around our patent rights. In addition, any of our issued patents may be declared invalid. If we fail to adequately protect our intellectual property, we may face competition from companies who attempt to create a generic therapeutic candidate or product to compete with our therapeutic candidates or products. Filing, prosecuting and defending patents on therapeutic candidates or products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own therapeutic candidates or products and further, may export otherwise infringing therapeutic candidates or products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These therapeutic candidates or products may compete with our current or future therapeutic candidates or products, if any, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing therapeutic candidates or products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. We may be unable to adequately prevent disclosure of trade secrets and other proprietary information. We maintain certain of our proprietary know-how and technological advances as trade secrets, especially where we do not believe patent protection is appropriate or obtainable, including, but not exclusively, with respect to certain aspects of the manufacturing of our therapeutic candidates or products. However, trade secrets are difficult to protect. We take a number of measures to protect our trade secrets including, limiting disclosure, physical security and confidentiality and non-disclosure agreements. We enter into confidentiality agreements with our employees, consultants, outside scientific collaborators, contract manufacturing partners, sponsored researchers and other advisors and third parties to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection, or failure to adequately protect our intellectual property could enable competitors to develop generic products or use our proprietary information to develop other therapeutic candidates or products that compete with our therapeutic candidates or products or cause additional, material adverse effects upon our business, results of operations and financial condition. We may be forced to litigate to enforce or defend our intellectual property rights, and/or the intellectual property rights of our licensors. We may be forced to litigate to enforce or defend our intellectual property rights against infringement by competitors, and to protect our trade secrets against unauthorized use. In so doing, we may place our intellectual property at risk of being invalidated, unenforceable, or limited or narrowed in scope and may no longer be used to prevent the manufacture and sale of competitive product. Further, an adverse result in any litigation or other proceedings before government agencies such as the United States Patent and Trademark Office, or the USPTO, may place pending applications at risk of non-issuance. Further, interference proceedings, derivation proceedings, entitlement proceedings, ex parte reexamination, inter partes reexamination, inter partes review, post-grant review, and opposition proceedings provoked by third parties or brought by the USPTO or any foreign patent authority may be used to challenge inventorship, ownership, claim scope, or validity of our patent applications. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential and proprietary information could be compromised by disclosure during this type of litigation.
Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and/or management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of litigation proceedings more effectively than we can because of their greater financial resources and personnel. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to conduct our clinical trials, continue our internal research programs, in-license needed technology or enter into strategic collaborations that would help us bring our therapeutic candidates to market. As a result, uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent reform legislation and recent court decisions could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO has and continues to develop and implement regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act. The full effect of these changes is currently unclear as the USPTO has not yet adopted all pertinent final rules and regulations, the courts have yet to address these provisions and the applicability of the Leahy-Smith Act and new regulations on specific patents, including our patents discussed herein, have not been determined and would need to be reviewed. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. As a result, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents, all of which could have a material adverse effect on our business and financial condition. On June 13, 2013, the U.S. Supreme Court decision in Association for Molecular Pathology v. Myriad Genetics, Inc., held that isolated DNA sequences are not patentable because they constitute a product of nature. The Supreme Court did not address stem cells in particular, and as a result, it is not yet clear what, if any, impact this Supreme Court decision or future decisions will have on the operation of our business.
If third parties claim that our therapeutic candidates or other products infringe upon their intellectual property, commercialization of our therapeutic candidates or products and our operating profits could be adversely affected. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biopharmaceutical industry. We may, from time to time, be notified of claims that we are infringing upon patents, trademarks, copyrights, or other intellectual property rights owned by third parties, and we cannot provide assurances that other companies will not, in the future, pursue such infringement claims against us or any third-party proprietary technologies we have licensed. Any such claims could also be expensive and time consuming to defend and divert management’s attention and resources and could delay or prevent us from commercializing our therapeutic candidates or products. Our competitive position could suffer as a result. Although we have reviewed certain third-party patents and patent filings that we believe may be relevant to our therapeutic candidates or products, we have not conducted a freedom-to-operate search or analysis for our therapeutic candidates or products, and we may not be aware of patents or pending or future patent applications that, if issued, would block us from commercializing our therapeutic candidates or products. Thus, we cannot guarantee that our therapeutic candidates or products, or our commercialization thereof, do not and will not infringe any third party’s intellectual property. From time to time, we have reviewed the claims of specific patents owned by third parties. While we have concluded that no claims of any of these patents would be infringed by our products, that all relevant claims would expire before our products would be commercialized, or both, we cannot guarantee that the patent owners would not disagree and conclude that our products would infringe these claims.
If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of our marketing exclusivity of our therapeutic candidates or products, our business may be materially harmed. Depending on the timing, duration and specifics of FDA marketing approval of our therapeutic candidates or products, if any, one of the U.S. patents covering each of such approved therapeutic candidate or product or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product. Patent term extension also may be available in certain foreign countries upon regulatory approval of our therapeutic candidates, including by the EMA in the European Union or the Pharmaceutical and Medical Devices Agency in Japan. Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request. In addition, if a patent we wish to extend is owned by another party and licensed to us, we may need to obtain approval and cooperation from our licensor to request the extension. If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our therapeutic candidates or products will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially. Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. Because we rely on third parties for manufacturing, and because we collaborate with various organizations and academic institutions on the advancement of our clinical trials, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business. In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with in the future will usually expect to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future we may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business. Risks Related to Our Common Stock There is not now, and there may never be, anAn active liquid and orderly trading market may not develop for our Common Stock, whichsecurities or what the market price of our securities will be and as a result it may make itbe difficult for you to sell your shares of our Common Stock.securities.
Our Common Stock is quotedAlthough our common stock and warrants to purchase common stock are listed on the OTC Markets Group Inc.'s over-the-counter inter-dealer quotation system, known as OTC Markets,Nasdaq Capital Market under the symbols “BCDA” and there is not any significant trading activity in our Common Stock or market for shares of our Common Stock, and“BCDAW,” respectively, an active trading market for our sharescommon stock or warrants may never develop or be sustained. As a result, investors in our Common Stock must bear the economic risk of holding those shares for an indefinite period of time. Before this filing, we do not, andYou may not in the future, meet the initial listing standards of any national securities exchange, and our Common Stock may be quoted on the OTC Market'sable to sell your shares quickly or another over-the-counter quotation system for the foreseeable future. In these marketplaces, our stockholders may find it difficult to obtain accurate quotations as toat the market value of theirprice if trading in shares of our Common Stock and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors, investors may be unable to resell shares of our Common Stock at or above the price for which they purchased them, at or near quoted bid prices, or at all.securities is not active. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the futureshares of our securities and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our Common Stocksecurities as consideration.consideration, which could have a material adverse effect on our business, financial condition, and results of operations.
The market price and trading volume of our Common Stocksecuritiesmay be volatile and may be affected by economic conditions beyond our control. The market price of our Common Stocksecurities is likely to be volatile. Some specific factors that could negatively affect the price of our Common Stocksecurities or result in fluctuations in its price and trading volume include: results of clinical trials of our therapeutic candidates; results of clinical trials of our competitors’ products; regulatory actions with respect to our therapeutic candidates or products or our competitors’ products; actual or anticipated fluctuations in our quarterly operating results or those of our competitors; publication of research reports by securities analysts about us or our competitors in the industry; our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; issuances by us of debt or equity securities; litigation involving our company, including stockholder litigation; investigations or audits by regulators into the operations of our company; or proceedings initiated by our competitors or clients; strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; the passage of legislation or other regulatory developments affecting us or our industry; fluctuations in the valuation of companies perceived by investors to be comparable to us; trading volume of our Common Stock;common stock and warrants; sales or perceived potential sales of our Common Stockcommon stock and/or warrants by us, our directors, senior management or our stockholders in the future; short selling or other market manipulation activities; announcement or expectation of additional financing efforts; terrorist acts, acts of war or periods of widespread civil unrest; natural disasters and other calamities; changes in market conditions for biopharmaceutical stocks; and conditions in the U.S. financial markets or changes in general economic conditions. Our Common Stock may be subject to the “penny stock” rules of the SEC, and the trading market in our Common Stock is limited, which makes transactions cumbersome and may reduce the value of an investment in the stock.
Rule 15g-9 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks in accordance with the provisions of Rule 15g-9; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased, provided that any such purchase shall not be effected less than two business days after the broker or dealer sends such written agreement to the investor.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information, investment experience and investment objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) in highlight form, confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our Common Stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information regarding the limited market in penny stocks. As a result, it may be more difficult to execute trades of our Common Stock which may have an adverse effect on the liquidity of our Common Stock.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stockthe price and trading volume of our securities could decline. The trading market for our Common Stocksecurities will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stocksecurities would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, the price of our stock pricesecurities would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stockthe price or trading volume of our securities to decline.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. As of December 31, 2018,2019, our executive officers, directors, 5% stockholders and their affiliates beneficially ownowned approximately 54.6%69.8% of our voting stock. Therefore, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our Common Stockstock that you may believe are in your best interest as one of our stockholders.
OurWe have identified a material weakness in our internal control over financial reporting. If our remediation of this material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls and proceduresin the future, we may not be sufficient able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our Common Stock.common stock.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on internal control over financial reporting. The Sarbanes-Oxley Act also requires that our management report on internal control over financial reporting be attested to by our independent registered public accounting firm. The effectiveness of our controls and procedures may in the future be limited by a variety of factors, including: faulty human judgements and simple errors, omissions or mistakes; fraudulent actions of an individual or collusion of two or more people; inappropriate management override of procedures; and the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information. In connection with the preparation of our quarterly report on Form 10-Q for the period ended September 30, 2019, we identified a material weakness in our internal control over financial reporting as of September 30, 2019, which remains unremediated at December 31, 2019. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weakness related to a lack of sufficient technical resources to appropriately perform effective and timely review of the accounting for and disclosure of non-routine transactions, including the adoption of new accounting standards. We have taken certain steps to remediate this material weakness, including increasing the utilization of external technical accounting resources and designing and implementing improved processes and internal controls. We cannot provide assurance that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. If our efforts are not successful, if we identify other material weaknesses in our internal control over financial reporting in the future, if we are unable to comply with the requirements of Section 404 in a timely manner, or if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm iswe may be unable to express an opinion asreport our financial results accurately on a timely basis, which could cause our reported financial results to the effectiveness of our internal control over financial reporting,be materially misstated, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.
As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects. Currently, we are a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act. As a “smaller reporting company,” we are able to provide simplified executive compensation disclosures in our filings and have certain other decreased disclosure obligations in our filings with the SEC, including being required to provide only two years of audited financial statements in annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects. Furthermore, we are a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, and, as such, are not required to provide an auditor attestation of management’s assessment of internal control over financial reporting, which is generally required for SEC reporting companies under Section 404(b) of the Sarbanes-Oxley Act. Because we are not required to, and have not, had our auditor’s provide an attestation of our management’s assessment of internal control over financial reporting, a material weakness in internal controls may remain undetected for a longer period. We may be exposed to additional risks as a result of our reverse merger transaction. We may be exposed to additional risks as a result of our “reverse merger” transaction and rules and regulations relating to shell companies or former shell companies. There has been increased focus in recent years by government agencies on transactions such as the reverse merger transaction, and we may be subject to increased scrutiny and/or restrictions by the SEC and other government agencies and holders of our securities as a result of the completion of that transaction. This may make it more difficult for us to obtain coverage from securities analysts of major brokerage firms. The occurrence of any such event could cause our business or stock price to suffer.
Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline. We expect our operating results to be subject to annual and quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including: variations in the level of expenses related to our therapeutic candidates, products or future development programs; if any of our therapeutic candidates receives regulatory approval, the level of underlying demand for these therapeutic candidates and wholesalers’ buying patterns; addition or termination of clinical trials or funding support; our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; any intellectual property infringement lawsuit in which we may become involved; regulatory developments affecting our therapeutic candidates or products or those of our competitors; the timing and cost of, and level of investment in, research and development activities relating to our therapeutic candidates, which may change from time to time; our ability to attract, hire and retain qualified personnel; expenditures that we will or may incur to acquire or develop additional therapeutic candidates and technologies; future accounting pronouncements or changes in our accounting policies; the timing and success or failure of clinical studies for our therapeutic candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; the risk/benefit profile, cost and reimbursement policies with respect to our therapeutic candidates, if approved, and existing and potential future therapies or biologics that compete with our products or therapeutic candidates; and the changing and volatile U.S., European and global economic environments. If our annual or quarterly operating results fall below the expectations of investors or securities analysts, the price of our Common Stocksecurities could decline substantially. Furthermore, any annual or quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that annual and quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
Raising additional funds through debt or equity financing could be dilutive and may cause the market price of our Common Stock to decline. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic collaborations or partnerships, or marketing, distribution or licensing arrangements with third parties, we may be required to limit valuable rights to our intellectual property, technologies, therapeutic candidates or future revenue streams, or grant licenses or other rights on terms that are not favorable to us. Furthermore, any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our therapeutic candidates.
Sales of a substantial number of shares of our Common Stock in the public market could cause our stock price to fall. Sales of a substantial number of shares of our Common Stockcommon stock in the public market or the perception that these sales might occur, could depress the market price of our Common Stockcommon stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our Common Stock.common stock.
Future sales and issuances of our Common Stockcommon stock or rights to purchase our Common Stock,common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell our Common Stock,common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell our Common Stock,common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders. We are at risk of securities class action litigation. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. We have incurred substantial losses during our history and do not expect to become profitable in the near future and we may never achieve profitability. None of our pre-Merger tax attributes remain available after the Merger as a result of limitations Section 382 due to lack of business continuity. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Losses generated after 2017 do not have an expiration date. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. The Merger, ourOur prior equity offerings and other changes in our stock ownership may have resulted in ownership changes. We have not performed an analysis to assess whether an ownership change has occurred. If we have experienced an ownership change at any time since our formation, utilization of our net operating loss carryforwards would be subject to an annual limitation under Section 382 of the Code. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which are outside of our control. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Recent U.S. tax legislation and future changes to applicable U.S. or foreign tax laws and regulations may have a material adverse effect on our business, financial condition and results of operations. We are subject to income and other taxes in the U.S. Changes in laws and policy relating to taxes or trade may have an adverse effect on our business, financial condition and results of operations. For example, the U.S. government recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. Changes include, but are not limited to, a federal corporate tax rate decrease from 34% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a more generally territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections and will be subject to interpretations and implementing regulations by the Treasury and Internal Revenue Service, any of which could mitigate or increase certain adverse effects of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation. Generally, future changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application could have an adverse effect on our business, financial conditions and results of operations. Changes with respect to the transition to a territorial tax system are generally expected to have little impact given our lack of foreign operations. We do not intend to pay dividends on our Common Stockcommon stock so any returns will be limited to the value of our stock. We have never declared or paid any cash dividends on our Common Stock.common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our principal executive office is located at 125 Shoreway Road, Suite B, San Carlos, CA 94070 in a facility we lease encompassing 13,718 square feet of office, lab, and manufacturing space. The lease for this facility expires in 2021. We believe that our existing facilities are adequate for our current needs. If we determine that additional or new facilities are needed in the future, we believe that sufficient options would be available to us on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS The Company may be subject to various claims, complaints, and legal actions that arise from time to time in the normal course of business. Management does not believe that the Company iswe are a party to any currently pendingmaterial legal proceedings, except as described below. We currently do not expect the proceedings described below to have a material adverse effect on our business, financial position, results of December 31, 2018.operations, or cash flows at this time. Regardless of the outcome, proceedings such as these can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not become material or have a material adverse effect on the Company’sour business, financial position, results of operations, or cash flows. On April 9, 2019, BioCardia sent a letter to Ms. Surbhi Sarna, nVision Medical and Boston Scientific based on BioCardia’s discovery in January 2019 that Ms. Sarna had assigned to a company she founded, nVision Medical, a patent and patent applications she had filed while a BioCardia employee. nVision subsequently was acquired by Boston Scientific. BioCardia made various claims, including that the patent and patent application rightfully belonged to BioCardia pursuant to Ms. Sarna’s invention assignment agreement, that the proceeds from the sale of nVision to Boston Scientific rightfully belonged to BioCardia because they were the direct result of Ms. Sarna’s breach of her obligation to assign to BioCardia the patent and patent applications, and correction of inventorship on the patents and patent applications. Correspondence was exchanged and possible ways to resolve BioCardia’s claims were discussed among the parties over the next few months. When it appeared that negotiations had been unsuccessful, BioCardia filed a request for arbitration against Ms. Sarna on August 6, 2019, as required by Ms. Sarna’s invention assignment agreement. On September 6, 2019, Boston Scientific Corporation, Boston Scientific Scimed Inc, and Fortis Advisors LL (the “Boston Scientific Parties”) filed a complaint against BioCardia in the United States District Court Northern District of California, Case no. 3:19-05645-VC, seeking declarations that the claims made in BioCardia’s correspondence were without basis (the “Federal Action”). Ms. Sarna filed an action in San Mateo Superior Court later that month seeking to enjoin the arbitration BioCardia initiated, and instead to require litigation of BioCardia’s claims against Ms. Sarna in state court. All parties subsequently agreed that BioCardia would withdraw its demand for arbitration, Ms. Sarna would withdraw her complaint seeking to enjoin that arbitration, and the parties would litigate all of their disputes in the Federal Action. Pursuant to that agreement, on October 31, 2019, BioCardia filed a counterclaim in the Federal Action against the Boston Scientific Parties and Ms. Sarna for breach of contract, misappropriation of trade secrets and correction of inventorship on the patents naming Ms. Sarna as an inventor. BioCardia seeks imposition of constructive trusts both on the patents naming Ms. Sarna as an inventor and the proceeds received from the sale of nVision to Boston Scientific, as well as damages, including unjust enrichment damages measured by the proceeds received from the sale of nVision to Boston Scientific. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for our Common Stock Our common stock trades on the OTCQB tier of OTC Markets Group, Inc.Nasdaq Capital Market under the symbol “BCDA.” The following table sets forth the quarterly high and low sales prices of our common stock for the fiscal years 2018 and 2017, as quoted on OTC Markets. This information represents prices between dealers and does not include retail mark-ups, markdowns or commissions and may not represent actual transactions. Fiscal Year 2018 | | High | | | Low | | First Quarter | | $ | 3.15 | | | $ | 1.70 | | Second Quarter | | $ | 1.97 | | | $ | 1.28 | | Third Quarter | | $ | 3.58 | | | $ | 1.12 | | Fourth Quarter | | $ | 2.85 | | | $ | 0.90 | |
Fiscal Year 2017 | | High | | | Low | | First Quarter | | $ | 14.88 | | | $ | 4.08 | | Second Quarter | | $ | 8.40 | | | $ | 3.96 | | Third Quarter | | $ | 8.40 | | | $ | 4.56 | | Fourth Quarter | | $ | 6.24 | | | $ | 2.22 | |
On November 2, 2017, we executed a one-for-twelve reverse stock split of our common stock. All per share amounts included in the above table are presented as if the one-for-twelve reverse stock split had been effective at the beginning of the earliest period presented.Holders
As of December 31, 20182019, there were approximately 310201 holders of record of our common stock. Because manyThe number of record holders was determined from the records of our sharestransfer agent and does not include beneficial owners of our common stock whose shares are held byin the names of various security brokers, dealers, and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.registered clearing agencies. Dividend Policy We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any determination to declare or pay dividends in the future will be at the discretion of our board of directors and will depend on a number of factors, including our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Sales of Unregistered Securities Except as previously reported by the Company on its current reports on Form 8-K, we did not sell any securities during the period covered by this Annual Report that were not registered under the Securities Act. Securities Authorized for Issuance Under Equity Compensation Plans The information required by this item is incorporated by reference to Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of Part III of this Annual Report on Form 10-K. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains certain forward-looking statements that involve risk and uncertainties. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the Section entitled “Risk Factors” in Item 1A, and other documents we file with the Securities and Exchange Commission. Historical results are not necessarily indicative of future results. Special Note Regarding Smaller Reporting Company Status As a result of having been a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended), we are allowed and have elected to omit certain information, including three years of year-to-year comparisons and tabular disclosure of contractual obligations, from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate and necessary. Overview On August 22, 2016, the Company, Icicle Acquisition Corp., a Delaware corporation and our direct wholly-owned subsidiary, and BioCardia Lifesciences, Inc. (at the time, named BioCardia, Inc.) entered into an Agreement and Plan of Merger, or the Merger Agreement. On October 24, 2016, pursuant to the Merger Agreement, Icicle Acquisition Corp. merged with and into BioCardia Lifesciences, with BioCardia Lifesciences continuing as the surviving company. BioCardia Lifesciences was determined to be the accounting acquirer, and following the completion of the Merger, we assumed the business and operations of BioCardia Lifesciences and changed our name to BioCardia, Inc.
We are a clinical-stage regenerative medicine company developing novel therapeutics for cardiovascular diseases with large unmet medical needs. Our lead therapeutic candidate is the investigational CardiAMP Cell Therapy System, or CardiAMP, which provides an autologous bone marrow derived cell therapy (using a patient’s own cells) for the treatment of two clinical indications: heart failure that develops after a heart attack and chronic myocardial ischemia. We are committed to applying our expertise in the fields of autologous and allogeneic cell-based therapies to improve the lives of patients with cardiovascular conditions. As we engage in clinical trials of our therapeutic candidates, we have compensated and intend to compensate all parties performing the trials or studies only on terms that are standard and customary in clinical study arrangements. To date, we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates and biotherapeutic delivery systems, including conducting clinical trials, developing manufacturing and sales capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting our intellectual property. We have also generated modest revenues from sales of our approved products. We have funded our operations primarily through the sales of equity and convertible debt securities, and certain government and private grants. CardiAMP Cell Therapy System We initiated our U.S. Food and Drug Administration, or FDA, accepted Phase III pivotal trial for CardiAMP Cell Therapy in ischemic systolic heart failure, in December 2016. The CardiAMP Heart Failure Trial is a Phase III, multi-center, randomized, double-blinded, sham-controlled study of up to 260 patients at 40 centers nationwide, which includes a 10-patient roll-in cohort. The Phase III pivotal trial is designed to provide the primary support for the safety and efficacy of the CardiAMP Cell Therapy System. The trial’s primary endpoint is a clinical composite of six-minute walk distance and major adverse cardiac and cerebrovascular events. In September 2017,events and functional capacity as measured by six minute walk distance. Based on the independent Data Safety Monitoring Board (DSMB) completed the pre-specified interim analysis of safety outcomes for the first 10 patients treatedresults achieved in the Phase II trial, our Phase III pivotal trial is designed to have more than 95% probability of its investigationalachieving a positive result with statistical significance. The ongoing CardiAMP cell therapy product.Heart Failure Trial is enrolling today at 25 clinical sites. The trial investigators have enrolled 74 patients to date. On March 31, 2020, the Company announced that the DSMB indicatedcompleted a prespecified data review, and that based on the DSMB’s review of all available safety data for patients randomized in the trial to date, there were no significant safety concerns with the CardiAMP study results and recommended that the DSMB recommended continuing the trial continue, as planned. Currently 21 world class medical centers are actively enrolling inIn the study. We anticipatefourth quarter of 2020, a prespecified DSMB interim readout from the trial will include all patients enrolled at that trial enrollment will be completed in Q3 2020.time point, and include our first DSMB review of efficacy on 60 patients at the one year follow-up, which includes the primary endpoint. In January 2018,Enrollment remains our primary focus and challenge. We have recently identified two barriers for patients to participate in the trial. The first of these is that prospective patients are interested in receiving therapy and are concerned about being in a non-treated control arm that does not have a path to receive therapy. Secondly, the requirement for patient out of pocket copays in our Medicare reimbursed trial presents an additional impediment to patient follow-up. To address these barriers to patient participation, we submitted an Investigational Device Exemption (IDE) supplement to the FDA with changes to enable patients in the control arm to “Cross Over” to therapy after certain follow-up visits in the trial have been completed, which assures the trial control arm patients early access to therapy if the trial meets its primary endpoint and is deemed appropriate for the patients by their physicians, and to enable BioCardia to cover the costs of all patient co-pays so that participation in the investigational trial is free for insured patients. The FDA has recently approved this IDE supplement. These changes, coupled with site specific plans intended to further accelerate enrollment, are being actively rolled out. We have been excited by an enormous uptick in the number of patient informed consents received for participation in the CardiAMP Heart Failure trial in March 2020 and a number of centers finally coming online, however this solid progress has been delayed by COVID-19.
We are currently assessing the impact of COVID-19 on the enrollment in the CardiAMP Heart Failure Trial. A number of clinical centers have already advised the Company that they will not be performing elective procedures for some period of time. Many centers may also delay patient follow-up visits during this period out of concern for patient exposure to COVID-19. In alignment with recent FDA guidance on clinical trials, “FDA Guidance on Conduct of Clinical Trials of Medical Products during COVID-19 Pandemic Guidance for Industry, Investigators, and Institutional Review Boards”, the Company is taking steps to address unavoidable protocol deviations due to COVID-19 illness and/or COVID-19 control measures. The FDA has approved a second IDE for the randomized controlled pivotal trial of autologous bone marrow mononuclear cells using the CardiAMP Cell Therapy System in patients with refractory chronic myocardial ischemia for up to 343 patients at up to 40 clinical sites in the United States. This therapeutic approach uses many of the same novel aspects as the CardiAMP Heart Failure Trial and leveragesis expected to leverage our experience and investment in the heart failure trial. We anticipate that many of the investigators and sites will be the same for both the heart failure and chronic myocardial ischemia indications. We are working to initiate this trial with a 5-patient roll-in cohort. Timing is entirely dependent on the course of COVID-19 and the response in the United States. CardiALLO Cell Therapy System Our second therapeutic candidate is the CardiALLO Cell Therapy System, an investigational culture expanded bone marrow derived “off the shelf” mesenchymal cell therapy. We are actively working to secure FDA acceptance of an Investigational New Drug (“IND”) application for a Phase I/II trial for CardiALLO Cell Therapy System for the treatment of ischemic systolic heart failure. To date we have completed manufacturing validation runs of these cells at BioCardia to support future clinical studies and have received written input from the FDA on the protocol design and the chemistry manufacturing and controls. Our goal is to receive FDA acceptance of the IND in the second quarter of 2019.2020. We are committedHelix™ Biotherapeutic Delivery System
BioCardia’s Helix Biotherapeutic Delivery System or “Helix” is believed to applying our expertisebe the leading percutaneous catheter delivery system for cardiovascular regenerative medicine. It enables investigational studies of local delivery of cell and gene-based therapies, including CardiAMP and CardiALLO cell therapies to treat cardiovascular indications. Helix is in use or has potential to be used to treat many cardiac diseases including heart failure with reduced ejection fraction, heart failure with preserved ejection fraction, obstructive hypertrophic cardiomyopathy, myocardial infarction, chronic myocardial ischemia, and cardiac conduction disorders. The Helix’s small hollow, distal helical needle is advanced, similar to an angioplasty catheter, and is passed over the aortic arch and across the aortic valve through the Company’s Morph guide catheter or “Morph”. The Helix is then advanced from within the Morph, and its helical needle is rotated into the heart tissue to provide active fixation during therapeutic delivery, similar to the active fixation electrodes used in cardiac pacing. This fixation to the beating heart wall provides for stability and control during the delivery procedure. It uses simplified fluoroscopic imaging, crosses the aortic arch and valve over a guide wire, and provides the operator with three degrees of freedom to maximize operator control. The Helix is approved in Europe with CE Mark and is under investigational use in the fieldsUnited States and is being used in pre-clinical and clinical investigations of autologouscell, gene, and allogeneic cell-based therapies to improve the lives of patients with cardiovascular conditions. As we engage in clinical trials of our therapeutic candidates, we have compensated and intend to compensate all parties performing the trials or studies (including all the parties identified in our Annual Report on Form 10-K) only on terms that are standard and customary in clinical study arrangements.protein therapies. To date, weMorph Deflectable Guide and Sheaths Product
BioCardia’s Morph catheter is designed to enable physicians to navigate through tortuous anatomy, customize the shape of the catheter to the patient’s anatomy and their clinical needs during the procedure, and to have devoted substantiallystellar back up support once positioned. Morph catheters enable all Helix procedures and have been commercially available to treat more than ten thousand patients. A number of our resources to researchMorph guides and development efforts relating to our therapeutic candidatessheaths are approved for commercial sale in the United States, including the AVANCE™ steerable introducer which received FDA clearance in May 2019 and biotherapeutic deliverywas first used commercially in September 2019 and the Morph DNA guide, which received clearance in January 2020. Certain Morph catheter systems including conducting clinical trials, developing manufacturing and sales capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting our intellectual property. We have also generated modest revenues from sales of ourare approved products. We have funded our operations primarily through the sales of equity and convertible debt securities, and certain government and private grants.in Europe with CE Mark. We have incurred net losses in each year since our inception. Our net losses were approximately $14.7 million, $14.0 million $12.3 million and $10.3$12.3 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. As of December 31, 2018,2019, we had an accumulated deficit of approximately $86.4$101.1 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, building our manufacturing and sales capabilities, and from general and administrative costs associated with our operations. As discussed in more detail under “Liquidity and Capital Resources”, we have determined that there is substantial doubt about the Company's ability to continue as a going concern, and we plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. There can be no assurances as to the availability of capital or the terms on which capital will be available, if at all. Financial Overview Revenue We currently have a portfolio of enabling and delivery products, from which we have generated modest revenue. TheseNet product revenues include commercial sales of our Morph vascular access system in the US and EU and collaboration agreement revenues include revenue from partnering agreements with corporate and academic institutions. Under these partnering agreements, we provide our Helix biotherapeutic delivery system and customer training and support for use in preclinical and clinical studies. Cost of Goods Sold Cost of goods sold includes the costs of raw materials and components, manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our commercial enabling and delivery products.products, which generate net product revenue. Research and Development Expenses Our research and development expenses consist primarily of: salaries and related overhead expenses, which include share-based compensation and benefits for personnel in research and development functions; fees paid to consultants and contract research organizations, or CROs, including in connection with our preclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial management and statistical compilation and analysis; costs related to acquiring and manufacturing clinical trial materials; costs related to compliance with regulatory requirements; and payments related to licensed products and technologies. We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress of completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed. We plan to increase our research and development expenses for the foreseeable future as we continue the Pivotal CardiAMP Heart Failure Trial and the Pivotal CardiAMP Chronic Myocardial Ischemia Trial, further develop CardiAMP and CardiALLO Cell Therapy Systems, and subject to the availability of additional funding, further advance the development of other therapeutic candidates for additional indications. We typically use our employee and infrastructure resources across multiple research and development programs, and accordingly, we have not historically allocated resources specifically to our individual programs. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, sales, corporate development and administrative support functions, including share-based compensation expenses and benefits. Other selling, general and administrative expenses include sales commissions, rent, accounting and legal services, obtaining and maintaining patents, the cost of consultants, occupancy costs, insurance premiums and information systems costs. Other Income (Expense) Other income and expense consist primarily of interest income we earn on our cash, cash equivalents and investments, changes in fair value of redemptive features embedded in convertible notes, loss on extinguishment of convertible notes, and interest charges we incurred in periods during 2019 when we have convertible debt outstanding, and changes in the fair value of our warrant and convertible shareholder note derivative liabilities in periods when we have warrants orhad convertible debt outstanding. Subsequent to the Merger, we have no interest charges related to the convertible debt and changes in the fair value of our warrant and convertible shareholder note derivative liabilities as such instruments were converted, cancelled or exchanged as part of the Merger. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various judgements that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We define our critical accounting policies as those that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. The following discussion addresses what we believe to be the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments. Research and Development—Clinical Trial Accruals As part of the process of preparing our financial statements, we are required to estimate our expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our clinical trial accrual is dependent upon the timely and accurate reporting of expenses of our CROs and other third-party vendors. Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of completion of clinical trials, or the services completed. During the course of a clinical trial, we adjust the rate of clinical trial expense recognition if actual results differ from the estimates. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. Although we do not expect that our estimates will be materially different from amounts actually incurred, our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period. Through December 31, 2018,2019, there had been no material adjustments to our prior period estimates of accrued expenses for clinical trials. However, due to the nature of estimates, we cannot provide assurance that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials. Share-Based Compensation We measure and recognize share-based compensation expense for equity awards to employees, directors and consultants based on fair value at the grant date. We use the Black-Scholes-Merton option-pricing model, or BSM, to calculate the fair value of stock options, which includes subjective assumptions such as the risk free interest rate, the expected volatility in the value of the Company'sCompany’s common stock, and the expected term of the option. Restricted stock units (RSUs) are measured based on the fair market values of the underlying stock on the dates of grant. Share-based compensation expense recognized in the statements of operations is based on awards at the time of grant and is reduced for actual forfeitures at the time that the forfeitures occur. Compensation cost for employee share-based awards will be recognized over the vesting period of the applicable award on a straight-line basis. For options granted to nonemployees, we revalue the unearned portion of the share-based compensation and the resulting change in fair value is recognized in the statements of operations over the period the related services are rendered.
Results of Operations The following table set forth below summarizes our results of operations for the years ended December 31, 20182019 and 20172018 (in thousands):. The results of operations from 2018 compared to 2017 and related discussion can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on April 2, 2019, and such results and related discussion are incorporated herein by reference.
| | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Revenue: | | | | | | | | | | | | | | | | | Net product revenue | | $ | 282 | | | $ | 389 | | | $ | 182 | | | $ | 282 | | Collaboration agreement revenue | | | 343 | | | | 90 | | | | 528 | | | | 343 | | Total revenue | | | 625 | | | | 479 | | | | 710 | | | | 625 | | Costs and expenses: | | | | | | | | | | | | | | | | | Cost of goods sold | | | 517 | | | | 690 | | | | 358 | | | | 517 | | Research and development | | | 8,453 | | | | 5,799 | | | | 8,562 | | | | 8,453 | | Selling, general and administrative | | | 5,757 | | | | 6,395 | | | | 6,003 | | | | 5,757 | | Total costs and expenses | | | 14,727 | | | | 12,884 | | | | 14,923 | | | | 14,727 | | Operating loss | | | (14,102 | ) | | | (12,405 | ) | | | (14,213 | ) | | | (14,102 | ) | Other income (expense): | | | | | | | | | | | | | | | | | Interest income | | | 118 | | | | 95 | | | | 87 | | | | 118 | | Gain on change in fair value of redemption feature embedded in convertible notes | | | | 52 | | | | — | | Interest expense | | | | (112 | ) | | | — | | Loss on extinguishment of convertible notes | | | | (521 | ) | | | — | | Other expense | | | | (2 | ) | | | (3 | ) | Other income (expense) | | | (3 | ) | | | 2 | | | | (496 | ) | | | 115 | | Total other income, net | | | 115 | | | | 97 | | | Net loss | | $ | (13,987 | ) | | $ | (12,308 | ) | | $ | (14,709 | ) | | $ | (13,987 | ) |
Revenue. Revenue increased by approximately $146,000$85,000 in 20182019 compared to 20172018 primarily due to an increase in collaboration agreement revenues, which offset decreases in net product revenues. We expect collaboration agreement revenues to continue to increase modestly.modestly depending on progress in these existing collaborative programs and the initiation of new partnership relationships. Net product revenue is expected to be limited during the year and will be subject to customer demand, the availability of production resources for our new Morph product family members, for which we are seekingand the timing of FDA clearance for market release inof different models and sizes during the second quarter of 2019.year. Cost of Goods Sold. Cost of goods sold decreased by approximately $173,000$159,000 in 20182019 compared to 2017,2018, primarily due to the decrease in net product revenue. We expect cost of goods sold to decrease in 20192020 as manufacturing resources are focused on supporting clinical partners, development activities and the ongoing pivotal CardiAMP Heart Failure Trial. Research and Development Expenses. Research and development expenses increased by approximately $2.7 million$100,000 in 20182019 compared to 20172018 primarily due to expenses incurred in the execution of the pivotal CardiAMP Heart Failure Trial, development of the CardiALLO Cell Therapy System and our other therapeutic programs, including fees paid to consultants and contract research organizations (CRO), additional personnel costs and increased stock compensation expense. We expect research and development expenses to increase moderately as we continue enrolling and treating patients in the CardiAMP Heart Failure Trial and further develop the CardiAMP and CardiALLO cell processing and delivery platforms. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreasedincreased by approximately $0.6 million$200,000 in 20182019 compared to 2017,2018, primarily due to lower costs foradditional stock-based compensation expense related to the modification of certain stock option awards during the year coupled with higher corporate expenses, including business insurance premiums, additional accounting consulting expensestaff and personnel costs and other corporate expenses.audit related fees. We expect selling, general and administrative expenses for 2019 to remain relatively consistent with 2018. decrease modestly in 2020 relative to 2019. Interest Income.Other Income (Expense). Other income (expense) consisted primarily of amounts recognized in relation to the accounting for the convertible notes, including a gain on change in fair value of the embedded redemption feature of $52,000, interest expense associated with the accretion of the debt discount of $104,000, and a loss upon extinguishment of $521,000. There were no similar transactions entered into by the Company during 2018. Interest income of $87,000 and $112,000 was earned on cash and cash equivalents for the yearyears ended December 31, 2019 and 2018, consisted primarily of interest income earned on cash equivalents and short-term investments.respectively.
Liquidity and Capital Resources We have incurred net losses each year since our inception and as of December 31, 2018,2019, we had an accumulated deficit of approximately $86.4$101.1 million. We anticipate that we will continue to incur net losses for at least the next several years. We have funded our operations principally through the sales of equity and convertible debt securities as well as the cash acquired through the Merger. As of December 31, 2018,2019, we had cash and cash equivalents of approximately $5.4$5.6 million. The following table shows a summary of our cash flows for the periods indicated (in thousands): | | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Net cash provided by (used in): | | | | | | | | | | | | | | | | | Operating activities | | $ | (11,069 | ) | | | (8,671 | ) | | $ | (9,445 | ) | | $ | (11,069 | ) | Investing activities | | | (66 | ) | | | (136 | ) | | | (146 | ) | | | (66 | ) | Financing activities | | | 3,804 | | | | 144 | | | | 9,818 | | | | 3,804 | | Net decrease in cash and cash equivalents | | $ | (7,331 | ) | | $ | (8,663 | ) | | Net increase (decrease) in cash and cash equivalents | | | $ | 227 | | | $ | (7,331 | ) |
Cash Flows from Operating Activities. The increasedecrease in overall spendingcash used for operating activities of $2.4$1.6 million in 20182019 compared to 20172018 related primarily to increasedincreases in noncurrent customer deposits and deferred revenue, and board cash outflowscompensation that was deferred during the year, coupled with 2018 management bonuses being settled in equity in 2019 instead of cash. Non-cash expenses recognized in 2019 in operations included reduction of the operating lease right-of-use asset of $440,000, extinguishment of debt related to conductconvertible notes payable of $521,000, interest expense totaling $112,000, which included accretion of the pivotal CardiAMP Heart Failure Trial, further develop the CardiAMP and CardiALLO programs anddebt discount of approximately $104,000, partially offset by a gain of $52,000 to build the supporting infrastructuremark derivatives to sustain these efforts and support operations as a public company.fair value upon settlement. We expect spending to increase as we continue enrolling and treating patients in the CardiAMP Heart Failure Trial, further develop the CardiAMP and CardiALLO cell processing and delivery platforms and continue to strengthen and enhance the supporting organization. Cash Flows from Investing Activities. Net cash used in investing activities of $146,000 and $66,000 during the yearyears ended December 31, 2019, and 2018, respectively consists of the purchases of property and equipment, primarily lab equipment and related infrastructure. Cash Flows from Financing Activities. Net cash provided by financing activities of $9.8 and $3.8 million during the yearyears ended December 31, 2019, and 2018, respectively consists of the proceeds from the sale of common stock and related warrants. Future Funding Requirements To date, we have generated modest revenue from sales of our approved products. We do not know when, or if, we will generate any revenue from our development stage biotherapeutic programs. We do not expect to generate any revenue from sales of our CardiAMP or CardiALLO therapeutic candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. In addition, subject to obtaining regulatory approval for any of our therapeutic candidates and companion diagnostic, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations. Based upon our current operating plan, we believe that the cash and cash equivalents of $5.4$5.6 million as of December 31, 20182019 are not sufficient to fund our operations beyond the second quarter of 2019.2020. In order to continue to further the development of our lead therapeutic candidates, the CardiAMP Cell Therapy System, and our second therapeutic candidate, the CardiALLO Cell Therapy System, through and beyond the second quarter of 2019,2020, we will be required to raise additional capital. We plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our therapeutic candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our therapeutic candidates. Our future capital requirements will depend on many factors, including: the progress, costs, results and timing of our CardiAMP and CardiALLO clinical trials and related development programs; FDA acceptance of our CardiAMP and CardiALLO therapies for heart failure and for other potential indications; the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals; the costs associated with securing, establishing and maintaining commercialization and manufacturing capabilities; the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development; the ability of our product candidates to progress through clinical development successfully; our need to expand our research and development activities; the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies; our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; the general and administrative expenses related to bebeing a public company; our need and ability to hire additional management and scientific, medical and sales personnel; the effect of competing technological and market developments; and our need to implement additional internal systems and infrastructure, including financial and reporting systems. Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our Common Stockcommon stock holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our Common Stockcommon stock holders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, products or therapeutic candidates or to grant licenses on terms that may not be favorable to us. Our consolidated financial statements as of December 31, 20182019 have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Due to the factors described above, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. Our ability to continue as a going concern will depend in a large part, on our ability to raise additional capital. If adequate funds are not available, we may be required to reduce operating expenses, delay or reduce the scope of our product development programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. While we believe in the viability of our strategy to raise additional funds, there can be no assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our operating needs. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to continue as a going concern, we may be forced to liquidate assets. In such a scenario, the values received for assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the Securities and Exchange Commission. Recent Accounting Pronouncements See Note 2 of our notes to consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potential significance to us. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2018,2019, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates or credit conditions. We believe that the interest rate risk related to our accounts receivable is not significant. We manage the risk associated with these accounts through periodic reviews of the carrying value for non-collectability and establishment of appropriate allowances. We operate primarily in the United States and are not exposed to foreign exchange risk with respect to recognized assets and liabilities. We do not enter into hedging transactions and do not purchase derivative instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | Page | Report of Independent Registered Public Accounting Firm | 6461
| Consolidated Balance Sheets | 6562
| Consolidated Statements of Operations | 6663
| Consolidated Statements of Stockholders’ Equity (Deficit) | 6764
| Consolidated Statements of Cash Flows | 6865 | Notes to Consolidated Financial Statements | 6966
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors BioCardia, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of BioCardia, Inc. and its subsidiary (the Company) as of December 31, 20182019 and 2017,2018, the related consolidated statements of operations, stockholders’ equity, (deficit), and cash flows for each of the years in the three-year period ended December 31, 2018,2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018,2019, in conformity with U.S. generally accepted accounting principles. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurringincurred net losses and negative cash flows from operations since its inception and has a net capital deficiencyhad an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of FASB Accounting Standards Update 2016-02, Leases (Topic 842) andFASB Accounting Standards Update 2018-11, Leases (Topic 842): Targeted Improvements. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. (signed) KPMG LLP
We have served as the Company’s auditor since 2012. San Francisco, California April 1, 20198, 2020
BIOCARDIA, INC. Consolidated Balance Sheets (In thousands, except share and per share data) | | December 31, | | | December 31, | | | December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 5,358 | | | $ | 12,689 | | | $ | 5,585 | | | $ | 5,358 | | Accounts receivable, net of allowance for doubtful accounts of $9 and $6 at December 31, 2018 and 2017, respectively | | | 274 | | | | 95 | | | Accounts receivable, net of allowance for doubtful accounts of $2 and $9 at December 31, 2019 and December 31, 2018 | | | | 147 | | | | 274 | | Inventory | | | 141 | | | | 191 | | | | 4 | | | | 141 | | Prepaid expenses | | | 445 | | | | 340 | | | Prepaid expenses and other current assets | | | | 642 | | | | 445 | | Total current assets | | | 6,218 | | | | 13,315 | | | | 6,378 | | | | 6,218 | | Property and equipment, net | | | 145 | | | | 169 | | | | 181 | | | | 145 | | Operating lease right-of-use asset, net | | | | 1,065 | | | | — | | Other assets | | | 54 | | | | 54 | | | | 54 | | | | 54 | | Total assets | | $ | 6,417 | | | $ | 13,538 | | | $ | 7,678 | | | $ | 6,417 | | Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | Accounts payable | | $ | 1,020 | | | $ | 902 | | | $ | 914 | | | $ | 743 | | Accrued expenses and other current liabilities | | | 1,528 | | | | 1,263 | | | | 2,561 | | | | 1,805 | | Operating lease liability - current | | | | 528 | | | | — | | Total current liabilities | | | | 4,003 | | | | 2,548 | | Operating lease liability - noncurrent | | | | 614 | | | | — | | Deferred revenue | | | — | | | | 167 | | | | 691 | | | | — | | Total current liabilities | | | 2,548 | | | | 2,332 | | | Deferred rent | | | 77 | | | | 81 | | | | — | | | | 77 | | Total liabilities | | | 2,625 | | | | 2,413 | | | | 5,308 | | | | 2,625 | | Stockholders’ equity: | | | | | | | | | | | | | | | | | Preferred stock, $0.001 par value, 25,000,000 shares authorized as of December 31, 2018 and 2017; no shares issued and outstanding as of December 31, 2018 and 2017 | | | | | | | | | | Common stock, $0.001 par value, 100,000,000 shares authorized as of December 31, 2018 and 2017; 43,611,240 and 38,218,660 shares issued and outstanding as of December 31, 2018 and 2017, respectively | | | 43 | | | | 38 | | | Preferred stock, $0.001 par value, 25,000,000 shares authorized as of December 31, 2019 and December 31, 2018; no shares issued and outstanding as of December 31, 2019 and December 31, 2018 | | | | — | | | | — | | Common stock, $0.001 par value, 100,000,000 shares authorized as of December 31, 2019 and December 31, 2018; 6,825,183 and 4,845,697 shares issued and outstanding as of December 31, 2019 and December 31, 2018 | | | | 7 | | | | 5 | | Additional paid-in capital | | | 90,110 | | | | 83,537 | | | | 103,433 | | | | 90,148 | | Accumulated deficit | | | (86,361 | ) | | | (72,450 | ) | | | (101,070 | ) | | | (86,361 | ) | Total stockholders’ equity | | | 3,792 | | | | 11,125 | | | | 2,370 | | | | 3,792 | | Total liabilities and stockholders’ equity | | $ | 6,417 | | | $ | 13,538 | | | $ | 7,678 | | | $ | 6,417 | |
See accompanying notes to consolidated financial statements. |
BIOCARDIA, INC. Consolidated Statements of Operations (In thousands, except share and per share amounts) | | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | Net product revenue | | $ | 282 | | | $ | 389 | | | $ | 517 | | | $ | 182 | | | $ | 282 | | | $ | 389 | | Collaboration agreement revenue | | | 343 | | | | 90 | | | | 59 | | | | 528 | | | | 343 | | | | 90 | | Total revenue | | | 625 | | | | 479 | | | | 576 | | | | 710 | | | | 625 | | | | 479 | | Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | Cost of goods sold | | | 517 | | | | 690 | | | | 746 | | | | 358 | | | | 517 | | | | 690 | | Research and development | | | 8,453 | | | | 5,799 | | | | 3,330 | | | | 8,562 | | | | 8,453 | | | | 5,799 | | Selling, general and administrative | | | 5,757 | | | | 6,395 | | | | 4,108 | | | | 6,003 | | | | 5,757 | | | | 6,395 | | Total costs and expenses | | | 14,727 | | | | 12,884 | | | | 8,184 | | | | 14,923 | | | | 14,727 | | | | 12,884 | | Operating loss | | | (14,102 | ) | | | (12,405 | ) | | | (7,608 | ) | | | (14,213 | ) | | | (14,102 | ) | | | (12,405 | ) | Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | Interest income | | | 118 | | | | 95 | | | | — | | | | 87 | | | | 118 | | | | 95 | | Gain on change in fair value of redemption feature embedded in convertible notes | | | | 52 | | | | — | | | | — | | Interest expense | | | — | | | | — | | | | (1,736 | ) | | | (112 | ) | | | — | | | | — | | Change in fair value of convertible preferred stock warrant liability | | | — | | | | — | | | | 250 | | | Change in fair value of maturity date preferred stock warrant liability | | | — | | | | — | | | | 10 | | | Change in fair value of convertible shareholder notes derivative liability | | | — | | | | — | | | | (1,224 | ) | | Loss on extinguishment of convertible notes | | | | (521 | ) | | | — | | | | — | | Other expense | | | (3 | ) | | | 2 | | | | (2 | ) | | | (2 | ) | | | (3 | ) | | | 2 | | Other income (expense), net | | | 115 | | | | 97 | | | | (2,702 | ) | | Total other income (expense) | | | | (496 | ) | | | 115 | | | | 97 | | Net loss | | $ | (13,987 | ) | | $ | (12,308 | ) | | $ | (10,310 | ) | | $ | (14,709 | ) | | $ | (13,987 | ) | | $ | (12,308 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net loss per share, basic and diluted | | $ | (0.36 | ) | | $ | (0.32 | ) | | $ | (1.23 | ) | | $ | (2.61 | ) | | $ | (3.28 | ) | | $ | (2.90 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-average shares used in computing net loss per share, basic and diluted | | | 38,377,606 | | | | 38,160,543 | | | | 8,368,284 | | | | 5,644,328 | | | | 4,264,178 | | | | 4,240,060 | |
See accompanying notes to consolidated financial statements. |
BIOCARDIA, INC. Consolidated Statements of Stockholders’ Equity (In thousands, except share data) | | Common stock | | | Additional | | | Accumulated | | | | | | | | Shares | | | Cost | | | paid in capital | | | deficit | | | Total | | Balance at December 31, 2016 | | | 4,236,813 | | | $ | 4 | | | $ | 80,720 | | | $ | (60,142 | ) | | $ | 20,582 | | Exercise of stock options | | | 9,706 | | | | — | | | | 144 | | | | — | | | | 144 | | Share-based compensation | | | — | | | | — | | | | 2,707 | | | | — | | | | 2,707 | | Net loss | | | — | | | | — | | | | — | | | | (12,308 | ) | | | (12,308 | ) | Balance at December 31, 2017 | | | 4,246,519 | | | $ | 4 | | | $ | 83,571 | | | $ | (72,450 | ) | | $ | 11,125 | | Adjustments to opening balance for change in accounting principle | | | — | | | | — | | | | — | | | | 76 | | | | 76 | | Sale of common stock and warrants, net of issuance costs of $200 | | | 592,597 | | | | 1 | | | | 3,799 | | | | — | | | | 3,800 | | Restricted stock units vested and issued | | | 6,344 | | | | — | | | | — | | | | — | | | | — | | Exercise of stock options | | | 237 | | | | — | | | | 4 | | | | — | | | | 4 | | Share-based compensation | | | — | | | | — | | | | 2,774 | | | | — | | | | 2,774 | | Net loss | | | — | | | | — | | | | — | | | | (13,987 | ) | | | (13,987 | ) | Balance at December 31, 2018 | | | 4,845,697 | | | $ | 5 | | | $ | 90,148 | | | $ | (86,361 | ) | | $ | 3,792 | | Reverse stock split fractional share true up | | | (494 | ) | | | — | | | | — | | | | — | | | | — | | Restricted stock units vested and issued | | | 27,426 | | | | — | | | | — | | | | — | | | | — | | Issuance of sale of stock and warrants, net of issuance costs of $1,259 | | | 1,741,667 | | | | 2 | | | | 9,194 | | | | — | | | | 9,196 | | Issuance of stock and warrants from conversion of convertible notes | | | 210,887 | | | | — | | | | 1,204 | | | | — | | | | 1,204 | | Issuance of restricted stock units in lieu of 2018 cash bonus | | | — | | | | — | | | | 165 | | | | — | | | | 165 | | Share-based compensation | | | — | | | | — | | | | 2,722 | | | | — | | | | 2,722 | | Net loss | | | — | | | | — | | | | — | | | | (14,709 | ) | | | (14,709 | ) | Balance at December 31, 2019 | | | 6,825,183 | | | $ | 7 | | | $ | 103,433 | | | $ | (101,070 | ) | | $ | 2,370 | |
See accompanying notes to consolidated financial statements. |
BIOCARDIA, INC. Consolidated Statements of Cash Flows (in thousands) | | Years ended December 31, | | | | 2019 | | | 2018 | | | 2017 | | Operating activities: | | | | | | | | | | | | | Net loss | | $ | (14,709 | ) | | $ | (13,987 | ) | | $ | (12,308 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | Write-off of inventory | | | 1 | | | | — | | | | — | | Depreciation | | | 111 | | | | 88 | | | | 78 | | Reduction in the carrying amount of right-of-use assets | | | 440 | | | | — | | | | — | | Gain on change in fair value of redemption feature embedded in convertible notes | | | (52 | ) | | | — | | | | — | | Loss on extinguishment of convertible notes | | | 521 | | | | — | | | | — | | Non-cash interest expense on convertible shareholder notes | | | 112 | | | | — | | | | — | | Share-based compensation | | | 2,722 | | | | 2,774 | | | | 2,707 | | Changes in operating assets and liabilities: | | | | | | | | | | | | | Accounts receivable | | | 127 | | | | (179 | ) | | | (21 | ) | Inventory | | | 136 | | | | 49 | | | | (56 | ) | Prepaid expenses and other current assets | | | (198 | ) | | | (104 | ) | | | 16 | | Accounts payable | | | 171 | | | | 119 | | | | 377 | | Accrued liabilities excluding accrued interest on convertible note | | | 922 | | | | 240 | | | | 415 | | Operating lease liability - current | | | 88 | | | | — | | | | — | | Deferred revenue | | | 691 | | | | (65 | ) | | | 96 | | Operating lease liability - noncurrent | | | (528 | ) | | | — | | | | — | | Deferred rent | | | — | | | | (4 | ) | | | 25 | | Net cash used in operating activities | | | (9,445 | ) | | | (11,069 | ) | | | (8,671 | ) | Investing activities: | | | | | | | | | | | | | Purchase of property and equipment | | | (146 | ) | | | (66 | ) | | | (136 | ) | Purchase of short-term investments | | | — | | | | — | | | | (1,800 | ) | Maturity of short-term investments | | | — | | | | — | | | | 1,800 | | Net cash used in investing activities | | | (146 | ) | | | (66 | ) | | | (136 | ) | Financing activities: | | | | | | | | | | | | | Proceeds from sale of common stock and warrants | | | 10,452 | | | | 4,000 | | | | — | | Issuance costs from sales of common stock and warrants | | | (1,259 | ) | | | (200 | ) | | | — | | Proceeds from convertible loan payable | | | 625 | | | | — | | | | — | | Proceeds from the exercise of common stock options | | | — | | | | 4 | | | | 144 | | Net cash provided by financing activities | | | 9,818 | | | | 3,804 | | | | 144 | | Net change in cash and cash equivalents | | | 227 | | | | (7,331 | ) | | | (8,663 | ) | Cash and cash equivalents at beginning of period | | | 5,358 | | | | 12,689 | | | | 21,352 | | Cash and cash equivalents at end of period | | $ | 5,585 | | | $ | 5,358 | | | $ | 12,689 | | | | | | | | | | | | | | | Supplemental disclosure for noncash investing and financing activities: | | | | | | | | | | | | | Conversion of notes and interest payable to stock and warrants | | $ | 633 | | | $ | — | | | $ | — | | Issuance of restricted stock units in lieu of 2018 cash bonus | | $ | 165 | | | $ | — | | | $ | — | | Right-of-use asset obtained in exchange for lease obligation | | $ | 1,505 | | | $ | — | | | $ | — | |
See accompanying notes to consolidated financial statements.
BIOCARDIA, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands, except share data)
| | Convertible preferred stock | | | Common stock | | | Additional | | | Accumulated | | | | | | | | Shares | | | Cost | | | Shares | | | Cost | | | paid in capital | | | deficit | | | Total | | Balance at December 31, 2015 | | | 110,500,514 | | | | 46,030 | | | | 1,578,962 | | | | 2 | | | | 358 | | | | (49,832 | ) | | | (3,442 | ) | Exchange of convertible preferred stock warrants to common stock | | | — | | | | — | | | | 10,807 | | | | — | | | | 25 | | | | — | | | | 25 | | Reclassification of convertible shareholder notes derivative liability | | | — | | | | — | | | | — | | | | — | | | | 2,268 | | | | — | | | | 2,268 | | Conversion of convertible notes into common stock | | | — | | | | — | | | | 8,091,103 | | | | 8 | | | | 12,148 | | | | — | | | | 12,156 | | Conversion of preferred stock into common stock | | | (110,500,514 | ) | | | (46,030 | ) | | | 9,208,376 | | | | 9 | | | | 46,021 | | | | — | | | | — | | Issuance of common stock upon reverse merger | | | — | | | | — | | | | 19,228,595 | | | | 19 | | | | 18,902 | | | | — | | | | 18,921 | | Exercise of stock options | | | — | | | | — | | | | 13,460 | | | | — | | | | 22 | | | | — | | | | 22 | | Share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 942 | | | | — | | | | 942 | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (10,310 | ) | | | (10,310 | ) | Balance at December 31, 2016 | | | — | | | $ | — | | | | 38,131,303 | | | $ | 38 | | | $ | 80,686 | | | $ | (60,142 | ) | | $ | 20,582 | | Exercise of stock options | | | — | | | | — | | | | 87,357 | | | | — | | | | 144 | | | | — | | | | 144 | | Share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 2,707 | | | | — | | | | 2,707 | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12,308 | ) | | | (12,308 | ) | Balance at December 31, 2017 | | | — | | | $ | — | | | | 38,218,660 | | | $ | 38 | | | $ | 83,537 | | | $ | (72,450 | ) | | $ | 11,125 | | Adjustments to opening balance for change in accounting principle | | | — | | | | — | | | | — | | | | — | | | | — | | | | 76 | | | | 76 | | Sale of common stock and warrants, net of issuance costs of $200 | | | — | | | | — | | | | 5,333,332 | | | | 5 | | | | 3,795 | | | | — | | | | 3,800 | | Restricted stock units vested and issued | | | | | | | | | | | 57,108 | | | | 0 | | | | — | | | | — | | | | 0 | | Exercise of stock options | | | — | | | | — | | | | 2,140 | | | | 0 | | | | 4 | | | | — | | | | 4 | | Share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 2,774 | | | | — | | | | 2,774 | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (13,987 | ) | | | (13,987 | ) | Balance at December 31, 2018 | | | — | | | $ | — | | | | 43,611,240 | | | $ | 43 | | | $ | 90,110 | | | $ | (86,361 | ) | | $ | 3,792 | |
See accompanying notes to consolidated financial statements.
BIOCARDIA, INC.
Consolidated Statements of Cash Flows
(In thousands)
| | Years ended December 31, | | | | 2018 | | | 2017 | | | 2016 | | Operating activities: | | | | | | | | | | | | | Net loss | | $ | (13,987 | ) | | $ | (12,308 | ) | | $ | (10,310 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | Write-off of inventory | | | — | | | | — | | | | 597 | | Depreciation and amortization | | | 88 | | | | 78 | | | | 39 | | Change in fair value of convertible preferred stock warrant liability | | | — | | | | — | | | | (250 | ) | Change in fair value of maturity date preferred stock warrant liability | | | — | | | | — | | | | (10 | ) | Change in fair value of convertible shareholder notes derivative liability | | | — | | | | — | | | | 1,224 | | Share-based compensation | | | 2,774 | | | | 2,707 | | | | 942 | | Non-cash interest expense on convertible shareholder notes | | | — | | | | — | | | | 1,736 | | Changes in operating assets and liabilities: | | | | | | | | | | | | | Accounts receivable | | | (179 | ) | | | (21 | ) | | | 33 | | Inventory | | | 49 | | | | (56 | ) | | | 27 | | Prepaid expenses and other current assets | | | (104 | ) | | | 16 | | | | (110 | ) | Other assets | | | — | | | | — | | | | (11 | ) | Accounts payable | | | 119 | | | | 377 | | | | (17 | ) | Accrued liabilities excluding accrued interest on convertible note | | | 240 | | | | 415 | | | | 530 | | Deferred revenue | | | (65 | ) | | | 96 | | | | 32 | | Deferred rent | | | (4 | ) | | | 25 | | | | 26 | | Net cash used in operating activities | | | (11,069 | ) | | | (8,671 | ) | | | (5,522 | ) | Investing activities: | | | | | | | | | | | | | Purchase of property and equipment | | | (66 | ) | | | (136 | ) | | | — | | Cash acquired in reverse merger | | | — | | | | — | | | | 19,017 | | Payment of transaction costs of reverse merger | | | — | | | | — | | | | (96 | ) | Purchase of short-term investments | | | — | | | | (1,800 | ) | | | — | | Maturity of short-term investments | | | — | | | | 1,800 | | | | — | | Net cash (used) provided by investing activities | | | (66 | ) | | | (136 | ) | | | 18,921 | | Financing activities: | | | | | | | | | | | | | Proceeds from sales of common stock and warrants, net of issuance costs of $200 | | | 3,800 | | | | — | | | | — | | Proceeds from issuance of convertible notes and warrants | | | — | | | | — | | | | 4,374 | | Proceeds from the exercise of common stock options | | | 4 | | | | 144 | | | | 22 | | Net cash provided by financing activities | | | 3,804 | | | | 144 | | | | 4,396 | | Net (decrease) increase in cash and cash equivalents | | | (7,331 | ) | | | (8,663 | ) | | | 17,795 | | Cash and cash equivalents at beginning of period | | | 12,689 | | | | 21,352 | | | | 3,557 | | Cash and cash equivalents at end of period | | $ | 5,358 | | | $ | 12,689 | | | $ | 21,352 | | | | | | | | | | | | | | | Supplemental disclosure for noncash investing and financing activities: | | | | | | | | | | | | | Exchange of convertible preferred stock warrants for common stock | | $ | — | | | $ | — | | | $ | 25 | | Conversion of convertible shareholder notes and related interest payable | | $ | — | | | $ | — | | | $ | 12,156 | | Reclassification of convertible shareholder notes derivative liability | | $ | — | | | $ | — | | | $ | 2,268 | | Conversion of preferred stock | | $ | — | | | $ | — | | | $ | 46,030 | |
See accompanying notes to consolidated financial statements.
(1)(1)
| Summary of Business |
| (a) | Description of Business |
BioCardia, Inc., or the Company, is a clinical-stage regenerative medicine company developing novel therapeutics for cardiovascular diseases with large unmet medical needs. Its lead therapeutic candidate is the CardiAMP cell therapy system and its second therapeutic candidate is the CardiALLO cell therapy system. To date, the Company has devoted substantially all of its resources to research and development efforts relating to its therapeutic candidates and biotherapeutic delivery systems including conducting clinical trials, developing manufacturing and sales capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting its intellectual property. The Company has three enabling device product lines: (1) the CardiAMP cell processing system; (2) the Helix biotherapeutic delivery system, or Helix; and (3) the Morph vascular access product line, or Morph. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. (2)(2)
| Significant Accounting Policies |
| (a) | Basis of Presentation and Consolidation |
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All material intercompany accounts and transactions have been eliminated during the consolidation process. The Company manages its operationsCertain changes in the prior period consolidated balance sheet have been made to conform to the current period presentation. Specifically, accounts payable was decreased by $277,000 and accrued expenses increased by the same amount as a single segmentof December 31, 2018 to reflect the reclassification of amounts owed to board members for board service. In addition, December 31, 2018, 2017, and 2016 balances for common stock and additional paid-in capital have been changed by $39,000 to reflect the purposesimpact of assessing performance and making operating decisions.the 2019 reverse stock split. These changes had no effect on the Consolidated Statement of Operations or Consolidated Statement of Cash Flows. | (b) | Liquidity - Going Concern |
The Company has incurred net losses and negative cash flows from operations since its inception and had an accumulated deficit of $86.4$101.1 million as of December 31, 2018.2019. Management expects operating losses and negative cash flows to continue through at least the next several years. The Company expects to incur increasing costs as the pivotal CardiAMP Heart Failure trial is advanced and development of the CardiAMP and CardiALLO Cell Therapy Systems continue. Therefore, absent additional funding, management believes cash and cash equivalents of $5.4$5.6 million as of December 31, 20182019 are not sufficient to fund the Company beyond the second quarter of 2019.2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern beyond one year from the date these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company’s ability to continue as a going concern and to continue further development of its therapeutic candidates through and beyond the second quarter of 2019,2020, will require the Company to raise additional capital. The Company plans to raise additional capital, potentially including debt and equity arrangements, to finance its future operations. While management believes this plan to raise additional funds will alleviate the conditions that raise substantial doubt, these plans are not entirely within its control and cannot be assessed as being probable of occurring. If adequate funds are not available, the Company may be required to reduce operating expenses, delay or reduce the scope of its product development programs, obtain funds through arrangements with others that may require the Company to relinquish rights to certain of its technologies or products that the Company would otherwise seek to develop or commercialize itself, or cease operations. The preparation of the financial statements in accordance with U.S. GAAP requires Company management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment;equipment, right-of-use assets and related liabilities, allowances for doubtful accounts and sales returns; inventory valuation;valuation, derivative instruments, clinical accruals, and share-based compensation. The Company classifies all highly liquid investments with an original maturity date of 90 days or less at the date of purchase as cash equivalents. The Company maintains its cash and cash equivalents with reputable financial institutions. | (e) | Concentration of Credit Risk |
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company maintains its cash at financial institutions, which at times, exceed federally insured limits. At December 31, 2018,2019, the Company’s cash was held by one financial institution and the amount on deposit was in excess of FDIC insurance limits. The Company has not recognized any losses from credit risks on such accounts since inception. The Company believes it is not exposed to significant credit risk on cash.cash and cash equivalents. | (f) | Accounts Receivable and Allowance for Doubtful Accounts |
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company considers the creditworthiness of its customers but does not require collateral in advance of a sale. The Company evaluates collectability and maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio when necessary. The estimate is based on the Company’s historical write-off experience, customer creditworthiness, facts and circumstances specific to outstanding balances and payment terms. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $9,000$2,000 and $6,000$9,000 as of December 31, 20182019 and 2017,2018, respectively. Inventory is stated at the lower of cost or net realizable value. Cost is determined using the average-cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company analyzes its inventory levels quarterly and writes down inventory that has become obsolete or has a cost basis in excess of its expected net realizable value or inventory quantities in excess of expected requirements. Excess requirements are determined based on comparison of existing inventories to forecasted sales, with consideration given to inventory shelf life. Expired inventory is disposed of and the related costs are recognized in cost of goods sold. | (h)(h)
| Property and Equipment, Net |
Property and equipment, net, are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, as described in the table below. Maintenance and repairs are expensed as incurred. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the accompanying consolidated statements of operations. Asset | | Estimated useful lives (in years) | | Computer equipment and software | | | 3 | | Laboratory and manufacturing equipment | | | 3 | | Furniture and fixtures | | | 3 | | Leasehold improvements | | 5 years or lease term, if shorter | |
| (i)(i)
| Long-LivedRight-of-Use Assets
|
Operating lease right-of-use asset and liabilities - The Company will determine if an arrangement is a lease at the inception of the arrangement. All leases are assessed for classification as an operating lease or finance lease. The Company will recognize a lease liability and a ROU asset for all leases, including operating leases, with a term greater than 12 months. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. The Company’s lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. Variable lease payments are expensed as incurred and are not included the computation of the lease liability. The lease liability discount rate is generally the Company’s incremental borrowing rate unless the lessor’s rate implicit in the lease is readily determinable, in which case the lessor’s implicit rate is used. The Company's ROU assets are also recognized at the applicable lease commencement date. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor, if any. The Company reduces a right-of-use (ROU) asset, and the periodic reduction is the difference between the straight-line total lease cost for the period (including reduction of initial direct costs) and the periodic accretion of the lease liability using the effective interest method. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise any such options. Operating lease cost for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease contracts often include lease and non-lease components. The Company has elected the practical expedient offered by the standard to not separate lease from non-lease components and accounts for them as a single lease component. The Company has elected not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term. Impairment assessment of long-lived assets - The carrying value of long-lived assets, including property and equipment and operating lease right-of-use assets, is reviewed for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss is recognized when the total of estimated future undiscounted cash flows, expected to result from the use of the asset and its eventual disposition, are less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. Through December 31, 2018,2019, there have been no such impairment losses. | (jk) | Clinical Trial Accruals |
As part of the process of preparing its consolidated financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiation and may result in payment flows that do not match the periods over which materials or services are provided by the vendor under the contracts. The Company’s objective is to reflect the clinical trial expenses in its consolidated financial statements by matching those expenses with the period in which the services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company makes estimates of its accrued expenses as of each balance sheet date in its consolidated financial statements based on the facts and circumstances known at that time. Although, the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services relative to the actual status and timing of services performed may vary and may result in reported amounts that differ from the actual amounts incurred. The Company accounts for its derivative instruments as either assets or liabilities on the consolidated balance sheet and measures them at fair value. Derivatives are adjusted to fair value through other (expense) income, net in the consolidated statements of operations. Prior to the adoption of ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, deferred rent consisted of the difference between cash payments and the recognition of rent expense on a straight-line basis. The Company’s lease for its facility provides for fixed increases in minimum annual rental payments. The total amount of rental payments due over the lease term iswas charged to rent expense ratably over the life of the lease. Deferred rent consists of the difference between cash payments and the recognition of rent expense on a straight-line basis. Net product revenue – WeBioCardia currently havehas a portfolio of enabling and delivery products. Revenue from product sales is recognized generally upon shipment to the end customer, which is when control of the product is deemed to be transferred. Product sale transactions are evidenced by customer purchase orders, customer contracts, invoices and/or related shipping documents. Collaboration agreement revenue – Collaboration agreement revenue is income from agreements under partnering programs with corporate and academic institutions, wherein we providethe Company provides biotherapeutic delivery systems and customer training and support for their use in clinical trials and studies. These programs provide additional clinical data, intellectual property rights and opportunities to participate in the development of combination products for the treatment of cardiac disease. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. This evaluation is subjective and requires the Company to make judgments about the promised goods and services and whether those goods and services are separable from other aspects of the contract. Further, determining the standalone selling price for performance obligations requires significant judgment, and when an observable price of a promised good or service is not readily available, the Company considers relevant assumptions to estimate the standalone selling price, including, as applicable, market conditions, development timelines, probabilities of technical and regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations to the selling price of the product and discount rates. The Company applies judgment in determining whether a combined performance obligation is satisfied at a point in time or over time, and, if over time, concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, as estimates related to the measure of progress change, related revenue recognition is adjusted accordingly. Changes in the Company’s estimated measure of progress are accounted for prospectively as a change in accounting estimate. The Company recognizes collaboration revenue by measuring the progress toward complete satisfaction of the performance obligation using an input measure. The Company will re-evaluate the estimate of expected costs to satisfy the performance obligation each reporting period and make adjustments for any significant changes. Amounts received from customers in advance ofprior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. The Company receives payments from its customers as established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. The Company does not assess whether a contract with a customer has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. At December 31, 2019, deferred revenue consisted of $691,000 of future service revenues of approximately $191,000 and future license fee revenues of $500,000 to be recognized at a point in time before July 2021. Multiple contracts with the same customer - When two or more contracts are entered into with the same customer at or near the same time, the Company evaluates the contracts to determine whether the contracts should be accounted for as a single arrangement. Contracts are combined and accounted for as a single arrangement if one or more of the following criteria are met: (i) the contracts are negotiated as a package with a single commercial objective; (ii) the amount of consideration to be paid in one contract depends on the consolidated balance sheets.price or performance of the other contract; or (iii) the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation. Contract costs - The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered. The Company has elected a practical expedient wherein it recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that it otherwise would have recognized is one year or less. To date, the Company has not incurred any material incremental costs of obtaining a contract with a customer. Contract modifications - Contract modifications, defined as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment, exist when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. Depending on facts and circumstances, the Company accounts for a contract modification as one of the following: (i) a separate contract; (ii) a termination of the existing contract and a creation of a new contract; or (iii) a combination of the preceding treatments. A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised goods or services that are distinct and the price of the contract increases by an amount of consideration that reflects the Company’s standalone selling prices of the additional promised goods or services. When a contract modification is not considered a separate contract and the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification, the Company accounts for the contract modification as a termination of the existing contract and a creation of a new contract. When a contract modification is not considered a separate contract and the remaining goods or services are not distinct, the Company accounts for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis. Costs incurred for the shipping of products to customers totaled approximately $6,000, $5,000$6,000 and $7,000$5,000 for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively, and are included in cost of goods sold in the accompanying consolidated statements of operations. The Company provides a standard warranty of serviceability on all its products for the duration of the product’s shelf life, which is two years for Helix and Morph products currently. Estimated future warranty costs, if any, are accrued and charged to costs of goods sold in the period that the related revenue is recognized. Historical data and trends of product reliability and costs of repairing or replacing defective products are considered. Due to the low historical warranty claims experience, a general warranty accrual has not been required or recorded as of December 31, 20182019 and 2017.2018. | (pq) | Research and Development |
The Company’s research and development costs are expensed as incurred. Research and development expense include the costs of basic research activities as well as other research, engineering, and technical effort required to develop new products or services or make significant improvement to an existing product or manufacturing process. Research and development costs also include pre-approval regulatory and clinical trial expenses and support costs for collaborative partnering programs wherein the Company provides biotherapeutic delivery systems and customer training and support for their use in clinical trials and studies. The Company’s research and development costs consist primarily of: Salaries, benefits and other personnel-related expenses, including share-based compensation Fees paid for services provided by clinical research organizations, research institutions, consultants and other outside service providers Costs to acquire and manufacture materials used in research and development activities and clinical trials Laboratory consumables and supplies Facility-related expenses allocated to research and development activities Fees to collaborators to license technology Depreciation expense for equipment used for research and development and clinical purposes. Cost of goods sold includes the costs of raw materials and components, manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our commercial enabling and delivery products, which generate net product revenue.
| (s) | Share-Based Compensation |
The Company measures and recognizes share-based compensation expense for equity awards to employees, directors and consultants based on fair value at the grant date. The Company uses the Black-Scholes option pricing model to calculate fair value. Share-based compensation expense recognized in the consolidated statementsvalue of operations is based on the period the services are performed. The Company accounts for forfeitures as they occur.its stock option grants. The compensation cost for restricted stock awards is based on the closing price of the Company’s common stock on the date of grantgrant. Share-based compensation expense recognized in the consolidated statements of operations is based on the period the services are performed and recognized as compensation expense on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur. For options granted to nonemployees,Measurement of nonemployee awards - The measurement of equity-classified nonemployee awards is fixed at the grant date, and the Company revaluesmay use the unearned portionexpected term to measure nonemployee options or elect to use the contractual term as the expected term, on an award-by-award basis. This differs from the guidance in ASC 505-50 that requires the use of the share-based compensation and the resulting change in fair value iscontractual term. Forfeitures of nonemployee awards will be recognized in the consolidated statements of operations over the period the related services are rendered.as they occur.
The Black-Scholes option pricing model (BSM) requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility in the value of the Company’s common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, ourthe share-based compensation expense could be materially different in the future. These assumptions are estimated as follows: Risk-free Interest Rate The risk-free interest rate assumption is based on the zero-coupon U.S. Treasury instruments appropriate for the expected term of the stock option grants. Expected Volatility The Company has limited historical data of its own to utilize in determining expected volatility. As such wethe Company based ourthe volatility assumption on a combined weighted average of ourthe Company’s own historical data and that of a selected peer group. The peer group was developed based on companies in the biotechnology and medical device industries whose shares are publicly-traded. Expected Term The expected term represents the period of time that options are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock options awards granted, the expected life is determined using the simplified method, which is an average of the contractual terms of the option and its ordinary vesting period. The Company accounts for income taxes based on the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets, liabilities, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, forecasts of future taxable income, and ongoing tax planning. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. The Company recognizes and measures benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than not to be sustained upon audit, the second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions quarterly. Evaluations are based upon a number of factors, including the technical merits of the tax position, changes in facts or circumstances, changes in tax law, interactions with tax authorities during the course of audits, and effective settlement of audit issues. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense in the consolidated statements of operations and accrued interest and penalties within accrued liabilities in the consolidated balance sheets. No such interest and penalties have been recorded to date. | (s(u)
| Fair Value of Financial Instruments |
The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value in the consolidated financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments complexity. The Company’s financial assets and liabilities consist principally of cash and cash equivalents, accounts receivable, and accounts payable. The fair value of the Company’s cash equivalents is determined based on quoted prices in active markets for identical assets. The recorded values of the Company’s accounts receivable and accounts payable approximate their current fair values due to the relatively short-term nature of these accounts. Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. Common stock equivalents are comprised of restricted stock units, warrants to purchase common stock and options outstanding under ourthe stock option plans. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding since the effects of potentially dilutive securities are antidilutive due to ourthe net loss position. | (u(w)
| Recently Adopted Accounting Pronouncements |
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The amended guidance required lessees to recognize a majority of their leases on the balance sheet as a ROU asset and a lease liability. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, or ASU No. 2018-11. In issuing ASU No. 2018-11, the FASB is permitting another transition method for ASU 2016-02, which allows the transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company elected this available transition method. The Company adopted the new standard using the cumulative-effect method on January 1, 2019. The Company's adoption included lease codification improvements that were issued by the FASB through March 2019. The FASB made available several practical expedients in adopting the amended lease accounting guidance. The Company elected the package of practical expedients permitted under the transition guidance, which among other things, allowed registrants to carry forward historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that exist prior to adoption of the new standard. BioCardia also elected to keep leases with an initial term of 12 months or less off the consolidated balance sheet, and to recognize the associated lease payments in the statements of operations on a straight-line basis over the lease term. The most significant impact was the recognition of ROU assets and related lease liabilities for operating leases on the condensed consolidated balance sheet. The Company recognized ROU assets and related lease liabilities of $1,505,000 and $1,593,000 respectively, related to operating lease commitments, as of January 1, 2019. The operating lease ROU asset represents the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received. The amended guidance did not have a material impact on the Company's cash flows or results of operations. See Note 6 of the condensed consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. ASU 2018-07 expands the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. No longer will nonemployee awards be marked-to-market every reporting period, nor will the expected term be required to be the contractual term. However, forfeitures will continue to be recognized when incurred. ASU 2018-07 supersedes Subtopic 505-50, Equity-Based Payments to Non-Employees. The Company adopted ASU 2018-07 effective January 1, 2019 using the cumulative-effect method for equity-classified nonemployee awards for which a measurement date has not been established as of the adoption date. The cumulative effect did not have a material impact on the condensed consolidated balance sheet, statement of operations or statement of cash flows. In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. In 2015 and 2016, the FASB issued additional ASUs related to Topic 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients. The Company adopted this new standard on January 1, 2018 using the cumulative-effect method. The impact of adoption was immaterial to the consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted ASU 2016-01 on January 1, 2018, and the adoption did not have a material impact on its financial statements. | ((xv)
| Recent Accounting Pronouncements |
In February 2016, the FASB issued ASU No. 2016-02—Leases, (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, or ASU No. 2018-11. In issuing ASU No. 2018-11, the FASB is permitting another transition method for ASU 2016-02, which allows the transition to the new lease standard by recognizing a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. We will elect this transition method and package of practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. We will also elect to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the statements of operations on a straight-line basis over the lease term. We will adopt the ASU on January 1, 2019 using the cumulative-effect method and are finalizing our assessment of the impact of the adoption of the ASU and expect to record a right-of-use asset of approximately $1.5 million and a corresponding lease liability of approximately $1.6 million to account for our facility lease.
In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. ASU 2018-07 expands the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU 2018-07 supersedes Subtopic 505-50, Equity-Based Payments to Non-Employees. ASU 2018-07 is effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year and early adoption is permitted. The Company is currently assessing the impact of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.Measurement. ASU 2018-13 considers cost and benefits, and removes, modifies and adds disclosure requirements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty is to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented. ASU 2018-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year and early adoption is permitted. The Company is currently assessing the impactManagement does not expect that adoption of this standardguidance will have a significant impact on its consolidatedthe Company’s financial statements. In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606 (“(“ASU 2018-18”). ASU 2018-18 clarifies when certain transactions between collaborative arrangement participants should be accounted for under Topic 606 and incorporates unit-of-account guidance consistent with Topic 606 to aid in this determination. ASU 2018-18 is effective for public companies for annual and interim periods beginning after December 15, 2019, with early adoption permitted. ASU 2018-18 should generally be applied retrospectively to the date of initial application of Topic 606. Management does not expect that adoption of this guidance will have a significant impact on the Company’s financial statements. In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for intra period allocations, recognizing deferred taxes for investments and calculating income taxes in interim periods. This ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Management is currently assessing the impact ASU 2018-18 will haveof this standard on the Company’s financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. For smaller reporting companies the guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. Management does not expect that adoption of this guidance will have a significant impact on the Company’s financial statements. Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, and the American Institute of Certified Public Accountants did not or are not believed by management to have a material impact on the Company’s financial statement presentation or disclosures. On October 24, 2016, we completed the Merger as discussed in Note 1. For financial reporting purposes, the Merger is accounted for as an asset acquisition by BioCardia Lifesciences rather than a business combination because we did not meet the definition of a business as defined by US GAAP as of immediately prior to the Merger. The fair value of the purchase consideration, consisting of Company common stock, was determined based on the fair value of the cash acquired by BioCardia Lifesciences of $19 million, which is considered the best indicator for the fair value of the purchase consideration. No other assets or liabilities were acquired by BioCardia Lifesciences. Transaction costs of $96,000 were recorded as a reduction to additional paid in capital. Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, the Company assumed all of BioCardia Lifesciences, Inc. options outstanding immediately prior to the Merger at the same Exchange Ratio.
The Merger is considered a tax free reverse triangular merger for tax purposes pursuant to Internal Revenue Code Sections 368(a) and 368(a)(2)(E) in which the Company continues as the parent and BioCardia Lifesciences as the wholly owned subsidiary and is therefore treated as an acquisition of stock of BioCardia Lifesciences by the Company. Despite the stock acquisition treatment, none of our pre-Merger tax attributes remain available after the Merger as a result of limitations under Internal Revenue Code Section 382 due to lack of business continuity.
(4)
| Fair Value Measurements |
The fair value of financial instruments reflects the amounts that the Company estimates to receive in connection with the sale of an asset or paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The Company follows a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels: Level 1 – quoted prices in active markets for identical assets and liabilities Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table sets forth the fair value of ourthe financial assets measured on a recurring basis as of December 31, 20182019 and 20172018 and indicates the fair value hierarchy utilized to determine such fair value (in thousands). | | As of December 31, 2018 | | | As of December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Money market funds | | $ | 5,358 | | | $ | — | | | $ | — | | | $ | 5,358 | | | $ | 4,637 | | | $ | — | | | $ | — | | | $ | 4,637 | |
| | As of December 31, 2017 | | | As of December 31, 2018 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Money market funds | | $ | 12,689 | | | $ | — | | | $ | — | | | $ | 12,689 | | | $ | 5,358 | | | $ | — | | | $ | — | | | $ | 5,358 | |
Inventories are stated at the lower of cost or net realizable value using the average cost method. Inventories consist of the following (in thousands): | | December 31, | | | December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Raw materials | | $ | 79 | | | $ | 70 | | | $ | — | | | $ | 79 | | Work in process | | | 39 | | | | 92 | | | | — | | | | 39 | | Finished goods | | | 23 | | | | 29 | | | | 4 | | | | 23 | | Total | | $ | 141 | | | $ | 191 | | | $ | 4 | | | $ | 141 | |
Write downs for excess or expired inventory are based on management’s estimates of forecasted usage of inventories and are included in cost of goods sold. A significant change in the timing or level of demand for certain products as compared to forecasted amounts may result in recording additional write downs for excess or expired inventory in the future. Charges to cost of goods sold for inventory write-downs, reserve adjustments, scrap, shrinkage and expired inventories totaled approximately $36,000, $12,000 $33,000 and $52,000$33,000 for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. (65) | Property and Equipment, Net |
Property and equipment, net consist of the following (in thousands): | | December 31, | | | December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Computer equipment and software | | $ | 119 | | | | 106 | | | $ | 132 | | | $ | 119 | | Laboratory and manufacturing equipment | | | 481 | | | | 447 | | | | 550 | | | | 481 | | Furniture and fixtures | | | 55 | | | | 48 | | | | 55 | | | | 55 | | Leasehold improvements | | | 332 | | | | 326 | | | | 332 | | | | 332 | | Construction in progress | | | 3 | | | | — | | | | 69 | | | | 3 | | Property and equipment, gross | | | 990 | | | | 927 | | | | 1,138 | | | | 990 | | Less accumulated depreciation | | | (845 | ) | | | (758 | ) | | | (957 | ) | | | (845 | ) | Property and equipment, net | | $ | 145 | | | | 169 | | | $ | 181 | | | $ | 145 | |
Depreciation expense totaled approximately $111,000, $88,000 $78,000 and $39,000$78,000 for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. All of the Company’s property and equipment is located in the United States. In November 2016,The Company adopted the Company entered into an amendment to itsnew lease with respect to its office and laboratory space. The extended term of this lease is 60 months and commencedstandard on January 1, 20172019 using the cumulative-effect method. Prior periods were not retrospectively adjusted and will expirecontinue to be reported under the accounting standards in effect for those periods.
The Company determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company’s operating lease is primarily related to a property lease for its laboratory and corporate offices. BioCardia’s lease agreement does not contain any material residual guarantees or material restrictive covenants, nor does it contain an additional lease extension. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s lease does not provide an implicit rate. The Company used an adjusted historical incremental borrowing rate, based on the information available at the approximate lease commencement date, to determine the present value of lease payments. The net lease asset was adjusted for deferred rent, lease incentives, and prepaid rent. Variable rent expense is made up of expenses for common area maintenance and shared utilities and were not included in the determination of the present value of lease payments. The Company has no finance leases. The new lease standard did not materially impact its condensed consolidated statements of operations. The components of lease expense for the year ended December 31, 2021. Rent2019 was as follows (in thousands, except years and percentages): | | December 31, | | | | 2019 | | Straight-line rent expense recognized for operating lease | | $ | 601 | | Variable rent expense recognized for operating lease | | | 264 | | Total rent expense | | $ | 865 | | | | | | | Weighted average remaining lease term (in years) | | | 2.0 | | Weighted average discount rate | | | 12.05 | % |
Supplemental cash flow information related to the operating lease was as follows (in thousands): | | December 31, | | | | 2019 | | Cash paid for amounts included in the measurement of lease liabilities | | $ | 612 | | Cash lease expense (imputed interest expense component of net income) | | $ | 161 | |
Future minimum lease payments under the operating lease as of December 31, 2019 are as follows (in thousands): For the years ended December 31, | | 2019 | | 2020 | | $ | 630 | | 2021 | | | 649 | | Total undiscounted lease payments | | | 1,279 | | Less imputed interest | | | 137 | | Total operating lease liabilities | | $ | 1,142 | |
Prior to the Company’s adoption of the new lease standard, future minimum lease payments as of December 31, 2018, which were undiscounted, were as follows (in thousands): For the years ended December 31, | | 2018 | | 2019 | | $ | 612 | | 2020 | | | 630 | | 2021 | | | 649 | | Total undiscounted lease payments | | $ | 1,891 | |
Prior to the Company’s adoption of the new lease standard, rent expense iswas recognized on a straight-line basis over the life of the lease. Rental expense was approximately $601,000 for theboth years ended December 31, 2018 and 2017, and $321,000 for the year ended December 31, 2016. Future minimum lease payments under the lease as of December 31, 2018 are as follows (in thousands): Years ending December 31: | | | | | 2019 | | $ | 612 | | 2020 | | | 630 | | 2021 | | | 649 | | Total | | $ | 1,891 | |
2017. (87) | Collaborative Agreements |
The Company has entered into various collaborations related to clinical development. These agreements allow partners to utilize the Company’s enabling biotherapeutic delivery systems, including training and support during clinical and pre-clinical delivery of biotherapeutics. Under the terms of these agreements, the Company typically receives a use fee and payments for the systems and services provided. The Company gains access to certain data generated by its partners for use in its own product development efforts and also receives nonexclusive patent rights to any partner-discovered BioCardia technology improvement inventions. Revenue from collaborative agreements is recognized in the Consolidated Statements of Operations in the line “Collaboration agreement revenue”. (98) | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities consisted of the following (in thousands): | | December 31, | | | December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Accrued expenses | | $ | 495 | | | $ | 465 | | | $ | 10 | | | $ | 127 | | Accrued salaries and employee benefits | | | | 652 | | | | 368 | | Accrued director compensation | | | | 648 | | | | 277 | | Accrued clinical trial costs | | | 276 | | | | 74 | | | | 519 | | | | 276 | | Grant liability | | | 645 | | | | 663 | | | | 630 | | | | 645 | | Customer deposits | | | 112 | | | | 61 | | | | 102 | | | | 112 | | Total | | $ | 1,528 | | | $ | 1,263 | | | $ | 2,561 | | | $ | 1,805 | |
(10)(9)
| Sales of Unregistered SecuritiesStockholders’ Equity
|
Public Offering on Form S-1 Registration Statement - In April 2019, the Company submitted a Form S-1 Registration Statement (S-1) to the Securities and Exchange Commission (SEC), which was subsequently amended. On August 2, 2019, the Company entered into an underwriting agreement with Maxim Group LLC, as representative of the several underwriters named therein, relating to a firm commitment underwritten public offering pursuant to the S-1, of 1,666,667 units consisting of one share of common stock, par value of $0.001 per share, and a warrant to purchase one share of common stock. The offering price to the public was $6.00 per unit. The warrants, which are equity classified, are immediately exercisable for shares of common stock at a price of $6.30 per share and expire five years from the date of issuance. In addition, the underwriters were granted 11,958 warrants exercisable at a per warrant exercise price of $6.60 as part of their compensation. The underwriters were granted a 45-day option to purchase up to 250,000 additional shares of common stock, and/or 250,000 additional warrants to cover over-allotments, if any. The closing of the offering occurred on August 6, 2019. After deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, BioCardia realized net proceeds of approximately $8.84 million. On September 4, 2019, the underwriters exercised the over-allotment and purchased 75,000 shares of common stock and 250,000 warrants for net proceeds of approximately $420,000, after deducting underwriting discounts of approximately $32,000.
Up List to Nasdaq - On August 2, 2019 the Company’s common stock and warrants to purchase common stock began trading on the Nasdaq Capital Market. Previously the common stock was quoted on the OTCQB Marketplace (OTCQB) under the symbol, “BCDA”. “BCDA” and “BCDAW” are the trading symbols for the Company’s common stock and warrants to purchase common stock, respectively, on the Nasdaq Capital Market. Convertible Note Financing - On July 5, 2019, BioCardia entered into a note purchase agreement pursuant to which the Company issued on such date $625,000 in aggregate principal amount of convertible promissory notes to accredited investors, a portion of which were certain of the Company’s officers and directors and a principal stockholder (or their respective affiliates). The notes accrued 14.0% simple interest and mature six months from the issue date, on January 5, 2020. If at any time prior to the maturity date, the Company closes a public stock offering for the purpose of raising capital in which the Company’s common stock is listed or quoted on the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market, the outstanding principle and interest would automatically convert into the securities offered in the financing at a unit price equal to a 50% discount to the qualified financing price. The convertible notes conversion features were determined to be an embedded derivative requiring bifurcation and separate accounting at estimated fair value. The fair value of the derivative was treated as a discount on the notes, which is subject to accretion over the term of the note. The change in fair value of the derivative liability was approximately $52,000. The loss on extinguishment of the convertible notes approximated $521,000. Interest expense on the notes for the year ended December 31, 2019 totaled $112,000 and included $104,000 of accretion of the discount. Upon the closing of the Company’s public offering of units on August 6, 2019 the unpaid principal and interest on the convertible notes totaling approximately $633,000, converted into 210,887 units, each unit consisting of one share of common stock and a warrant to purchase one share of common stock, at a conversion price of $3.00 per unit. Holders of the convertible notes had the option of converting the notes into units of one share of common stock and a warrant at a unit price of $8.00 prior to the automatic conversion in the Company’s public offering. The warrants have the same terms, including exercise price and expiration date, as the warrants issued in the public offering.
Reverse Stock Split - On June 6, 2019 the Company effected a 1-for-9 reverse stock split of the Company’s common stock. Neither the par value nor the authorized number of shares was adjusted as a result of the reverse stock split. All issued and outstanding common stock, warrants, stock options, restricted stock units and per share amounts contained in the accompanying consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to give effect to the reverse stock split for all periods presented. Sales of Unregistered Common Stock and Warrants - On December 24, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with entities affiliated with itsBioCardia’s existing investors (the “Investors”), relating to an offering and sale (the “Offering”) of an aggregate of 5,333,332592,592 shares (as adjusted) of the Company’s common stock at a purchase price of $0.75$6.75 per share (as adjusted), and warrants to purchase up to one-half of the number of shares of common stock sold to an Investor, up to an aggregate for all Investors of 2,666,666296,296 shares (as adjusted) of Common Stock (the “Warrant Shares”) at an exercise price of $0.75 per share,common stock, for aggregate net proceeds of $3.8 million net of $200,000 expenses. Both the common stock and the common stockThe warrants are classified as equityexercisable immediately for cash and, recordedbecause six months have passed, are also exercisable on a relative fair value basis.cashless basis until an effective registration statement has been filed registering the resale of the shares issuable upon exercise of the warrants. At December 31, 2019 no effective registration statement has been filed. Warrants can be settled in unregistered shares. The warrants have an exercise price of $6.75 per share and will expire on December 24, 2023. The issued warrants contain customary adjustmentsare standalone financial instruments and are exercisable immediately for cash and after six months will also be exercisable on a cashless basis if there is no effective registration statement registering the resale of the Warrant Shares. The Investors do not have registration rightswere equity classified in connectionaccordance with any securities purchased in the Offering. The closing of the Offering took place on December 24, 2018.US GAAP. Warrants – Set forth below is a table of activity of warrants for common stock and the related weighted average exercise price per warrant. | | Number of Common Stock Warrants | | | Weighted Average Exercise Price | | Balance, December 31, 2018 | | | 296,296 | | | $ | 6.75 | | Warrants for common stock sold | | | 2,139,512 | | | $ | 6.30 | | Warrants for common stock exercised | | | - | | | | | | Balance, December 31, 2019 | | | 2,435,808 | | | $ | 6.36 | |
(1110) | Share-Based Compensation |
BioCardia Lifesciences adopted, and the BioCardia Lifesciences shareholders approved, the 2002 Stock Plan in 2002 (the “2002 Plan”), and the Company assumed the 2002 Plan in the Merger. We haveThe Company has not granted or do not intend to grant any additional awards under the 2002 Plan following the Merger. In 2016, BioCardia Lifesciences adopted, and the BioCardia Lifesciences shareholders approved, the 2016 Equity Incentive Plan (the “2016 Plan”), and the Company assumed the 2016 Plan in the Merger. We haveBioCardia has granted awards, including incentive stock options and nonstatutorynon-qualified stock options, under the 2016 Plan following the Merger. Under the 2002 Plan and the 2016 Plan, the number of shares, terms, and vesting periods are determined by the Company’s board of directors or a committee thereof on an option-by-option basis. Options generally vest ratably over service periods of four years and expire ten years from the date of grant. The per share exercise price shall be no less than the fair market value on the date of grant. Compensation cost for employee share-based awards is based on the grant-date fair value and is recognized over the vesting period of the applicable award on a straight-line basis. The number of shares reserved for issuance or transfer pursuant to awards under the 2016 Plan will be increased by (i) the number of shares represented by awards outstanding under 2016 Plan that are returned to the plan because they are either forfeited or lapse unexercised or that are repurchased for the original purchase price thereof, (ii) if approved by the Administrator of the 2016 Plan, an annual increase on the first day of each fiscal year equal to at least (A) 4% of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year; (B) 268,997 shares (as adjusted for the reverse stock split of common stock on June 6, 2019); or (C) such other amount as the board of directors may determine no later than the last day of the immediately preceding fiscal year. As of December 31, 2018, 7,932,4942019, 461,605 shares have been authorized and available for awards under the 2016 Plan. The Company recognizes in the consolidated statements of operations the grant-date fair value of stock options and other equity-based compensation. Share-based compensation expense for the years ended December 31, 2019, 2018 2017 and 20162017 was recorded as follows (in thousands): | | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | | Cost of goods sold | | $ | 143 | | | $ | 140 | | | $ | 14 | | | $ | 191 | | | $ | 143 | | | $ | 140 | | Research and development | | | 953 | | | | 678 | | | | 127 | | | | 1,115 | | | | 953 | | | | 678 | | Selling, general and administrative | | | 1,678 | | | | 1,889 | | | | 801 | | | | 1,416 | | | | 1,678 | | | | 1,889 | | Share-based compensation expense | | $ | 2,774 | | | $ | 2,707 | | | $ | 942 | | | $ | 2,722 | | | $ | 2,774 | | | $ | 2,707 | |
The following table summarizes activity under the Company’s stock option plans, including the 2002 Plan and the 2016 Plan and related information (in thousands, except share and per share amounts and term): | | Options outstanding | | | | | | | | | | | Options outstanding | | | | | | | | | | | | Number of shares | | | Weighted average exercise price | | | Weighted average remaining contractual term (years) | | | Aggregate intrisinsic value (in thousands) | | | Number of shares | | | Weighted average exercise price | | | Weighted average remaining contractual term (years) | | | Aggregate intrisinsic value (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2017 | | | 4,213,100 | | | $ | 2.96 | | | | 8.1 | | | $ | 1,890 | | | Balance, December 31, 2018 | | | | 608,547 | | | $ | 25.20 | | | | 7.8 | | | | | | Stock options granted | | | 1,698,452 | | | | 2.41 | | | | | | | | | | | | 254,785 | | | | 5.28 | | | | | | | | | | Stock options exercised | | | (2,488 | ) | | | 1.80 | | | | | | | | | | | | — | | | | — | | | | | | | | | | Stock options canceled | | | (431,700 | ) | | | 2.92 | | | | | | | | | | | | (41,868 | ) | | | 26.86 | | | | | | | | | | Balance, December 31, 2018 | | | 5,477,364 | | | $ | 2.80 | | | | 7.8 | | | $ | - | | | Exercisable and vested, December 31, 2018 | | | 2,346,990 | | | $ | 2.72 | | | | 6.9 | | | $ | - | | | Balance, December 31, 2019 | | | | 821,464 | | | $ | 18.99 | | | | 7.6 | | | $ | - | | Exercisable and vested, December 31, 2019 | | | | 428,793 | | | $ | 23.62 | | | | 6.6 | | | $ | - | |
The aggregate intrinsic value represents the difference between the total pre-tax value (i.e., the difference between the Company’s stock price and the exercise price) of stock options outstanding as of December 31, 2019, based on the Company’s common stock closing price of $3.68 per share, which would have been received by the option holders had all their in-the-money options been exercised as of that date. The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 2017 and 20162017 was approximately zero, $3,000 $400,000 and $144,000,$400,000, respectively. The weighted average grant-date fair value of options granted during the years ended December 31, 2019, 2018 and 2017 was $3.87, $15.48 and 2016 was $1.72, $5.80 and $1.33$52.20 per share, respectively. Employee, Director and Non-employee Share-Based Compensation During the years ended December 31, 20182019 and 2017,2018, the Company granted stock options to certain employees, non-employee directors and employeesnon-employees to purchase 1,698,452254,785 and 796,399188,716 shares of common stock, respectively. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: | | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Risk-free interest rate | | 2.66 | - | 2.89% | | | 1.76 | - | 2.25% | | | 1.28 | - | 1.58% | | | 1.40 | - | 2.14% | | | 2.66 | - | 2.89% | | | 1.76 | - | 2.25% | | Volatility | | 81 | - | 83% | | | 81 | - | 89% | | | | 88% | | | | 74 | - | 94% | | | 81 | - | 83% | | | 81 | - | 89% | | Dividend yield | | None | | | None | | | None | | | | None | | | | | None | | | | | None | | | Expected term (in years) | | | 6.25 | | | | 5.00 | - | 6.25 | | | | 6.25 | | | | 6.25 | - | 10.0 | | | | 6.25 | | | | 5.00 | - | 6.25 | |
Unrecognized share-based compensation for employees, non-employee directors and employeenon-employee options granted through December 31, 20182019 is approximately $5.0$3.4 million to be recognized over a remaining weighted average service period of 2.42.1 years. Non-Employee Director Share-Based Compensation (RSUs)
During the year ended December 31, 2018,2019, the Company granted to certain non-employee directors 226,471members of management 34,713 restricted stock units, or RSUs.RSUs in lieu of paying bonuses. The fair value of each RSU is estimated on the closing market price on the grant date. The following summarizes the activity of non-vested RSUs: | | | | | | Weighted | | | | | | | Weighted | | | | | | | | average | | | | | | | average | | | | | | | | grant date | | | | | | | grant date | | | | Number of | | | fair value | | | Number of | | | fair value | | | | shares | | | per share | | | shares | | | per share | | Balance, December 31, 2017 | | | 97,996 | | | $ | 8.71 | | | Balance, December 31, 2018 | | | | 29,698 | | | $ | 25.56 | | RSUs granted | | | 226,471 | | | $ | 1.36 | | | | 34,713 | | | | 4.75 | | RSUs vested | | | (57,108 | ) | | $ | 7.03 | | | | (27,430 | ) | | | 19.46 | | RSUs forfeited | | | - | | | | — | | | | - | | | | — | | Balance, December 31, 2018 | | | 267,359 | | | $ | 2.84 | | | Balance, December 31, 2019 | | | | 36,981 | | | $ | 10.56 | |
RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The related compensation expense, which is based on the grant date fair value of the Company’s common stock multiplied by the number of units granted, is recognized ratably over the period during which the vesting restrictions lapse. Unrecognized share-based compensation for employee RSUs granted through December 31, 20182019 was approximately $235,000$171,000 to be recognized over a remaining weighted average service period of 1.0 years.0.1 year. Nonemployee Share-Based Compensation During the year ended December 31, 2019 the Company complied with the requirements of ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expanded the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees are substantially aligned. No longer will nonemployee awards be marked-to-market every reporting period, nor will the expected term be required to be the contractual term. During the years ended December 31, 2018 2017 and 2016,2017, the Company granted options to purchase zero 46,254 and 490,8495,139 shares of common stock to consultants. These options were granted in exchange for consulting services to be rendered and vest over the term specified in the grant, which correlates to the period the services are rendered. The Company recorded nonemployee share-based compensation expense of $176,000 $768,000 and $545,000$768,000 for the years ended December 31, 2018 and 2017 and 2016 respectively. Unrecognized share-based compensation expense for nonemployee options granted throughDuring the years ended December 31, 2018 is approximately $204,000 to be recognized over a remaining weighted average service period of 1.8 years. Theand 2017 the Company accountsaccounted for share-based compensation arrangements with nonemployees, using the Black Scholes option pricing model, based on the fair value as these instruments vest. Accordingly, at each reporting date, the Company revaluesrevalued the unearned portion of the share-based compensation and the resulting change in fair value is recognized in the consolidated statements of operations over the period the related services are rendered. The following assumptions were used to value the awards.
| | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2016 | | | 2018 | | 2017 | | Risk-free interest rate | | 2.80 | - | 2.95% | | | 2.25 | - | 2.40% | | | 1.60 | - | 2.42% | | | | 2.80 | | | | - | | | | 2.95% | | 2.25 | - | 2.40% | | Volatility | | 78 | - | 85% | | | 81 | - | 87% | | | 89 | - | 91% | | | | 78 | | | | - | | | | 85% | | 81 | - | 87% | | Dividend yield | | None | | | None | | | None | | | | | | | | None | | | | | | | None | | | Expected term (in years) | | 7.6 | - | 8.8 | | | 8.6 | - | 9.8 | | | 9.6 | - | 9.9 | | | | 7.6 | | | | - | | | | 8.8 | | 8.6 | - | 9.8 | |
Most of the Company’s customers are located in the United States. Two customers accounted for 43% and 25% of total revenues in 2019. One customer accounted for approximately 29% of revenue in 2018 and no single customer accounted for more than 10% of revenue in 2017 or 2016.2017. One customer accounted for 15% of accounts receivable at December 31, 2019. One customer accounted for 23% of accounts receivable at December 31, 2018, 20% of accounts receivable at December 31, 2017 and another customer accounted for 29% of accounts receivable at December 31, 2016.2018. The following table sets forth the computation of the basic and diluted net loss per share for the years ended December 31, 2019, 2018 2017 and 20162017 (in thousands, except share and per share data): | | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Numerator: | | | | | | | | | | | | | | | | | | | | | | | | | Net loss | | $ | (13,987 | ) | | $ | (12,308 | ) | | $ | (10,310 | ) | | $ | (14,709 | ) | | $ | (13,987 | ) | | $ | (12,308 | ) | Denominator: | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average shares used to compute net loss per share, basic and diluted | | | 38,377,606 | | | | 38,160,543 | | | | 8,368,284 | | | | 5,644,328 | | | | 4,264,178 | | | | 4,240,060 | | Net loss per share, basic and diluted | | $ | (0.36 | ) | | $ | (0.32 | ) | | $ | (1.23 | ) | | $ | (2.61 | ) | | $ | (3.28 | ) | | $ | (2.90 | ) |
The following weighted-average outstanding common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive: | | | Years ended December 31, | | | | December 31, | | | 2019 | | | 2018 | | | 2017 | | | | 2018 | | | 2017 | | | 2016 | | | | | | | | | | | | | | Stock options to purchase common stock | | | 5,477,364 | | | | 4,213,100 | | | | 3,491,937 | | | | 821,464 | | | | 608,547 | | | | 468,122 | | Unvested restricted stock units | | | 267,359 | | | | 97,996 | | | | - | | | | 36,981 | | | | 29,698 | | | | 10,888 | | Common stock warrants | | | 2,666,666 | | | | - | | | | - | | | | 2,435,808 | | | | 296,296 | | | | - | | Total | | | 8,411,389 | | | | 4,311,096 | | | | 3,491,937 | | | | 3,294,253 | | | | 934,541 | | | | 479,010 | |
The Company’s provision for income taxes for the years ended December 31, 2019, 2018 2017 and 20162017 was $0 for all years. The provision for income taxes differs from the amount which would result by applying the federal statutory income tax rate to pre-tax loss for the years ended December 31, 2019, 2018 2017 and 2016.2017. The reconciliation of the provision computed at the federal statutory rate to the Company’s provision (benefit) for income taxes was as follows (in thousands): | | Years ended December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Tax at federal statutory rate | | $ | (2,937 | ) | | $ | (4,185 | ) | | $ | (3,505 | ) | | $ | (3,089 | ) | | $ | (2,937 | ) | | $ | (4,185 | ) | State, net of federal benefit | | | (455 | ) | | | (1,238 | ) | | | (315 | ) | | | (414 | ) | | | (455 | ) | | | (1,238 | ) | Research and development credit | | | (236 | ) | | | (135 | ) | | | (89 | ) | | | (225 | ) | | | (236 | ) | | | (135 | ) | Stock-based compensation | | | 440 | | | | 344 | | | | 136 | | | | 446 | | | | 440 | | | | 344 | | Nondeductible interest | | | — | | | | — | | | | 590 | | | Warrant and derivative revaluation | | | — | | | | — | | | | 328 | | | Change in Federal tax rate | | | — | | | | 8,172 | | | | — | | | Change in Federal Tax Rate | | | | - | | | | - | | | | 8,172 | | Other | | | 22 | | | | 7 | | | | 94 | | | | 5 | | | | 22 | | | | 7 | | Change in valuation allowance | | | 3,166 | | | | (2,965 | ) | | | 2,761 | | | | 3,277 | | | | 3,166 | | | | (2,965 | ) | Total provision for income taxes | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | - | | | $ | - | |
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards, net of any adjustment for unrecognized tax benefits. The components of the net deferred income tax assets as of December 31, 20182019 and 20172018 were as follows (in thousands): | | December 31, | | | | 2018 | | | 2017 | | Accrued compensation | | $ | 84 | | | $ | 110 | | Inventory adjustments | | | 276 | | | | 449 | | Depreciation and amortization - noncurrent | | | 113 | | | | 146 | | Share-based compensation | | | 648 | | | | 558 | | Net operating loss and tax credit carryforwards - noncurrent | | | 20,698 | | | | 17,368 | | Other | | | 12 | | | | 34 | | Gross deferred tax asset | | | 21,831 | | | | 18,665 | | Valuation allowance | | | (21,831 | ) | | | (18,665 | ) | Net deferred tax asset | | $ | — | | | $ | — | |
| | Years ended December 31, | | | | 2019 | | | 2018 | | Accrued compensation | | $ | 148 | | | $ | 84 | | Inventory adjustments | | | 297 | | | | 276 | | Depreciation and amortization | | | 98 | | | | 113 | | Stock-based compensation | | | 744 | | | | 648 | | Net operating loss and tax credit carryforwards | | | 23,809 | | | | 20,698 | | Other | | | 11 | | | | 12 | | Gross Deferred Tax Asset | | | 25,107 | | | | 21,831 | | Valuation Allowance | | | (25,107 | ) | | | (21,831 | ) | Net deferred tax asset | | $ | - | | | $ | - | |
The Company has approximately $69.2$80.5 million and $54.4$58.6 million of federal and state net operating loss carryforwards, respectively, as of December 31, 2018.2019. For tax reporting purposes, operating loss carryforwards are available to offset future taxable income; such carryforwards expire in varying amounts beginning in 2022 and 2028 for federal and state purposes, respectively, with 2019 and 2018 federal NOLs having no expiration date. Under current federal and California law, the amounts of and benefits from net operating losses carried forward may be impaired or limited in certain circumstances. Events which may cause limitations in the amount of net operating losses that the company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Generally, utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by section 382, which discusses limitations on NOL carryforwards and certain built-in losses following ownership changes, and section 383, which discusses, special limitations on certain excess credits, etc., of the Internal Revenue Code (IRC) of 1986, as amended and similar state provisions. Accordingly, ourthe Company’s ability to utilize net operating lossesloss carryforwards may be limited, potentially significantly, as the result of such an “ownership change”. The Company has not yet performed a comprehensive study to determine if it has undergone any ownership changes. If the Company is able to potentially utilize its net operating loss carryforwards, it will perform a comprehensive section 382 study to determine what, if any, limitation on its ability to utilize its NOLs exists. At December 31, 2018,2019, the Company has federal and state research and development credits of approximately $2.0$2.4 million and $1.5$1.8 million available to offset future federal and state income taxes, respectively. The federal tax credit carryforward expires beginning in 2028. The state credit carryforwards have no expiration. The Company does not believe that these assets are realizable on a more-likely than not basis; therefore, the net deferred tax assets have been fully offset by a valuation allowance. The Company did not have deferred tax liabilities as of December 31, 20182019 or 2017.2018. The net increase in the total valuation allowance for the year ending December 31, 2019 is $3.2 million, primarily from the net operating losses generated. The net increase in the total valuation allowance for the year ending December 31, 2018 is $3.2 million, primarily from the net operating losses generated. The net decrease in the total valuation allowance for the year ending December 31, 2017 was $3.0 million, primarily from the decrease in Federal Tax Rate applied to deferred tax assets, with an offsetting increase from net operating losses generated. No liability related to uncertain tax positions is reported in the financial statements. The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands): | | December 31, | | | Years ended December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Balance, beginning of year | | $ | 725 | | | $ | 608 | | | $ | 891 | | | $ | 725 | | Additions based on tax positions related to the current year | | | 166 | | | | 117 | | | | 155 | | | | 166 | | Additions (reductions) for tax positions related to prior years | | | — | | | | — | | | Balance, end of year | | $ | 891 | | | $ | 725 | | | $ | 1,046 | | | $ | 891 | |
Recognition of approximately $636,000$753,000 and $511,000$636,000 of unrecognized tax benefits would impact the effective rate at December 31, 20182019 and 20172018 respectively, if recognized. Contributing to the increase in amount impacting the rate in 20172018 was the consideration of the federal tax rate change as a result of the Tax Act. Increases in 20182019 relate to increased research and development activity. The Company is subject to U.S. federal, California, Colorado, Florida and Minnesota income taxes. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company was incorporated in 2002 and is subject to U.S. federal, state, and local tax examinations by tax authorities for all prior years. US Tax Reform - Impact of the Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including; (i) the reduction of the corporate income tax rate from a maximum rate of 35% to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the one-time transition tax related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) the repeal of the domestic production deduction, (v) additional limitations on the deductibility of interest expense, (vi) expanded limitations on executive compensation, (vii) acceleration of tax revenue recognition, (viii) capitalization of research and development expenditures and (ix) creation of new minimum taxes such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) tax.
After the enactment of the Tax Act, the Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when an entity does not have the necessary information available, prepared or analyzed (including computations) in reasonable details to complete the accounting for certain income tax effects of the Act. The Company has made adjustments to reduce its deferred tax assets and liabilities as of December 31, 2017, based on the reduction of the U.S. federal corporate rate from 34% to 21% and assessed the reliability of its deferred tax assets based on its understanding of the provisions of the new law. As of December 31, 2018, the Company completed its assessment of the impact of the Tax Act and determined no additional adjustments are required.
The Company has considered required policy elections with respect to its treatment of potential base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”). Companies can either account for taxes on BEAT and GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the BEAT and GILTI inclusion upon reversal. The Company has considered the provisions of the Act associated with BEAT and GILTI and noted that these are not applicable as of December 31, 2018. The Company expects to account for any taxes on BEAT and GILTI as incurred if applicable.
(1514) | Contingencies and Uncertainties |
Contingencies - The Company may be subject to various claims, complaints, and legal actions that arise from time to time in the normal course of business. Management is not aware of any current legal or administrative proceedings that are likely to have a materialan adverse effect on the Company’s business, financial position, results of operations, or cash flows. Uncertainties - Prior to December 31, 2019, a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) affected the People’s Republic of China, and the unknown risks to the international community began to escalate as the virus spread globally beyond its point of origin. Disclosures concerning the COVID-19 outbreak by the government of the People’s Republic of China were not extensive prior to December 31, 2019. In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and financial markets worldwide as the virus spreads. If the outbreak continues to spread, it may affect the Company’s operations and those of third parties on which the Company relies, including causing disruptions in the supply of the Company’s product candidates and the conduct of current and planned preclinical and clinical studies. BioCardia may need to limit operations and may experience limitations in employee resources. There are risks that the COVID-19 outbreak may be more difficult to contain if the outbreak reaches a larger population or broader geography, in which case the risks described herein could be elevated significantly. The extent to which the coronavirus impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Additionally, while the potential economic impact brought by, and the duration of, a coronavirus pandemic is difficult to assess or predict, the impact of the coronavirus on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity, and the Company’s ability to complete its preclinical and clinical studies on a timely basis, or at all. The ultimate impact of coronavirus is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing, preclinical and clinical trial activities or the global economy as a whole. However, these effects could have a material, adverse impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which BioCardia relies. In June 2016, the Company entered into a grant agreement with Maryland Technology Development Corporation (“TEDCO”). TEDCO was created by the Maryland State Legislature in 1998 to facilitate the transfer and commercialization of technology from Maryland’s research universities and federal labs into the marketplace. TEDCO administers the Maryland Stem Cell Research Fund to promote State funded stem cell research and cures through financial assistance to public and private entities operating within the State. Under the agreement, TEDCO has agreed to provide the Company an amount not to exceed $750,000 to be used solely to finance the costs to conduct the research project entitled “Heart Failure Trial” over a period of three years. This agreement has been extended for another year to June 2020. As of December 31, 2018,2019, the Company has received approximately $750,000 under the grant which is accounted for as a reduction to research and development expenses as the related qualifying costs are incurred. Approximately $105,000$120,000 of the qualifying costs had been incurred as of December 31, 2018.2019. The remaining $645,000$630,000 was recorded as grant liability on the consolidated balance sheet at December 31, 2018.2019. The amount is recorded as a liability as the amounts are refundable, should a default by the Company, as defined in the agreement, occur prior to incurring the qualifying costs. (1716) | Related Party Transactions |
In August 2016, the Company granted an option to purchase 418,977 shares of common stock, with 4-year vesting periodOPKO
BioCardia, Inc. (the “Company”) and an exercise price of $1.80 per share, to OPKO Health, Inc. (“OPKO”) as consideration for consulting services to be provided by OPKO. The Company recorded $142,000 and $480,000 as share-based compensation expense related to the OPKO stock option during the years ended December 31, 2018 and 2017, respectively. The estimated grant-date fair value of the option was $5.3 million. The term of thepreviously entered into a consulting agreement is 4 yearsdated August 19, 2016, between the Company and will be automatically renewed for successive one year periods.OPKO (the “Consulting Agreement”). The chairman and chief executive officer of OPKO is a beneficial owner of more than 5% of the outstanding shares of the Company’s common stock. Pursuant to the terms of the Consulting Agreement, OPKO was to provide advisory services to the Company in support of strategic transactions, financings and other matters as agreed between the parties from time to time. Also, in August 2016, the Company granted OPKO a ten-year option to purchase 46,553 shares of common stock, with a 4-year vesting period and an exercise price of $16.20 per share, to OPKO as consideration for consulting services to be provided under the Consulting Agreement. The term of the Consulting Agreement was initially for 4 years and was to have been automatically renewed for successive one-year periods. Effective August 29, 2019, the Company and OPKO mutually agreed to terminate the Consulting Agreement without penalty or payment of any kind as the services under the Consulting Agreement were no longer necessary. In connection with the termination of the Consulting Agreement, OPKO’s option grant was amended such that it is unaffected by the termination of the Consulting Agreement and will continue to vest and remain outstanding for the remainder of its ten-year term unless earlier exercised. As a result of this modification of the option grant, all future unrecognized stock-based compensation expense was remeasured and recognized in August 2019. BioCardia recorded $225,000 expense (of which $167,000 pertains to the option modification) in share-based compensation expense related to the OPKO stock option in selling, general and administrative expense during the year ended December 31, 2019. The Company recorded $142,000 and $480,000 as share-based compensation expense related to the OPKO stock option during the years ended December 31, 2018 and 2017, respectively. Convertible Note Financing On July 5, 2019, BioCardia entered into a note purchase agreement pursuant to which the Company issued on such date $625,000 in aggregate principal amount of convertible promissory notes to accredited investors, a portion of which were certain of the Company’s officers and directors and a principal stockholder (or their respective affiliates). See note 9 above. Sales of Unregistered Common Stock and Warrants On December 24, 2018, the Company entered into a Securities Purchase Agreement with entities affiliated with BioCardia’s existing investors (the “Investors”), relating to an offering and sale of an aggregate of 592,592 shares (as adjusted) of the Company’s common stock at a purchase price of $6.75 per share (as adjusted), and warrants to purchase up to one-half of the number of shares of common stock sold to an Investor, up to an aggregate for all Investors of 296,296 shares (as adjusted) of common stock, for aggregate net proceeds of $3.8 million net of $200,000 expenses. See note 9 above. (18(17)
| Employee Benefit Plans |
The Company’s U.S. employees are eligible to participate in a retirement and savings plan that qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 75% of their pretax salary, but not more than statutory limits. The Company did not make anymade matching contributions of $25,000 and $26,000 during the years ended December 31, 20172019 and 2016,2018, respectively, but did not make a $26,000 matching contribution in the year ending December 31, 2018.2017. On November 26, 2019, at BioCardia’s 2019 Annual Meeting of Stockholders, the Company’s stockholders approved a one-time repricing of certain outstanding stock options granted to service providers (covering a total of 515,036 shares of BioCardia’s common stock with per share exercise prices between $10.05 and $97.21) under the 2002 Stock Plan and the 2016 Equity Incentive Plan. Pursuant to such approval, as of January 29, 2020 the exercise price of such options was automatically repriced to $5.32 per share (the “Repricing”). This is being accounted for as a modification and the incremental compensation cost to be recorded in the Consolidated Statement of Operations is not expected to be material. In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and financial markets worldwide as the virus spreads. The extent of the effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the financial effect of the pandemic at this time, if the pandemic continues to evolve into a severe worldwide health crisis, it could have a material adverse effect on the Company’s business, clinical development programs, clinical trials, and ability to raise future equity or debt financing. The financial statements do not reflect any adjustments as a result of the pandemic. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as our controls are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures. In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2018,2019, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation,Due to the material weakness in internal control over financial reporting below, our Chief Executive Officer and our Chief Financial Officer have concluded that as of December 31, 2018, our disclosure controls and procedures were not effective as of December 31, 2019. These conclusions were communicated to the Audit Committee. Notwithstanding the existence of the material weakness described below, management has concluded that the consolidated financial statements in designthis Form 10-K fairly present, in all material respects, the Company’s financial position, results of operations and operation, effective.cash flows for all periods and dates presented. Changes in Internal Control over Financial Reporting ThereOther than those noted below under the section titled “Previously Identified Material Weaknesses in Internal Control Over Financial Reporting,” there were no changes to our internal control over financial reporting identified in connection with the evaluation required by rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Management assessed our internal control over financial reporting as of December 31, 2018.2019. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of the end of the fiscal yearDecember 31, 2019 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors. Previously Identified Material Weaknesses in Internal Control Over Financial Reporting We previously identified a material weakness in internal control over financial reporting as of September 30, 2019. The material weakness resulted from a lack of sufficient technical resources to appropriately perform effective and timely review of the accounting for and disclosure of complex non-routine transactions, including the adoption of new accounting standards. This material weakness remains unremediated as of December 31, 2019. We are implementing measures designed to improve our internal control over financial reporting and remediate the material weakness, including the following: we are enhancing our control processes for identifying and reviewing non-routine transactions, including formalized reviews of these transactions by senior accounting management and more robust documentation of the related conclusions and required accounting; and we are engaging external consultants to provide expertise and assistance sufficient to evaluate, resolve and document the accounting for complex non-routine transactions. Inherent Limitations on Effectiveness of Controls Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10.10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Board of Directors Our business affairs are managed under the direction of our board of directors, which is currently composed of eight members. All of our directors other than Peter Altman are independent within the meaning of the listing standards of the NASDAQ Stock Market LLC. Our board of directors is divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. The following table sets forth the names, ages as of March 28,December 31, 2019, and certain other information for each of the directors with terms expiring at the 20192020 Annual Meeting (who are also nominees for election as a director at the 20192020 Annual Meeting) and for each of the continuing members of our board of directors: | Class | Age | Position | Director Since(4) | Current Term Expires | Directors with Terms expiring at the Annual Meeting | | | | | | Richard Krasno, Ph.D.(3) | III | 77 | Director | 2016 | 2019 | Jay M. Moyes(1)(2) | III | 65 | Director | 2011 | 2019 | Simon H. Stertzer, M.D.(2)(3) | III | 83 | Chairman of the Board of Directors | 2002 | 2019 | | | | | | | Continuing Directors | | | | | | Peter Altman, Ph.D. | I | 52 | President, Chief Executive Officer and Director | 2002 | 2020 | Fernando L. Fernandez(1) | I | 58 | Director | 2016 | 2020 | Thomas Quertermous, M.D.(3) | II | 67 | Director | 2002 | 2021 | Richard Pfenniger, Jr.(2) | II | 63 | Director | 2016 | 2021 | Allan R. Tessler(1) | II | 82 | Director | 2012 | 2021 |
| | Class | | | Age | | Position | | Director Since(4) | | | Current Term Expires | | Directors with Terms expiring at the Annual Meeting | | | | | | | | | | | | | | | | | | Peter Altman, Ph.D. | | | I | | | | 53 | | President, Chief Executive Officer and Director | | | 2002 | | | | 2020 | | Fernando L. Fernandez(1) | | | I | | | | 58 | | Director | | | 2016 | | | | 2020 | | | | | | | | | | | | | | | | | | | | Continuing Directors | | | | | | | | | | | | | | | | | | Jim Allen(3) | | | II | | | | 64 | | Director | | | 2019 | | | | 2021 | | Andrew Blank(1)(2) | | | II | | | | 63 | | Director | | | 2019 | | | | 2021 | | Richard Pfenniger, Jr.(2) | | | II | | | | 64 | | Director | | | 2016 | | | | 2021 | | Richard Krasno, Ph.D.(3) | | | III | | | | 77 | | Director | | | 2016 | | | | 2022 | | Jay M. Moyes(1)(2) | | | III | | | | 65 | | Director | | | 2011 | | | | 2022 | | Simon H. Stertzer, M.D.(3) | | | III | | | | 83 | | Chairman of the Board of Directors | | | 2002 | | | | 2022 | |
(1) | Member of the audit committee | | | (2) | Member of the compensation committee | | | (3) | Member of the nominating and corporate governance committee | | | (4) | Service on our board of directors prior to 2016 noted in the narrative below includes service with BioCardia Lifesciences, Inc., the company we merged with in our reverse merger transaction in October 2016. |
Business Experience of Directors Thomas Quertermous, M.D.Peter Altman, Ph.D. has served as our President and Chief Executive Officer since 2002, where he has global responsibility for the development, manufacture and marketing of our therapeutic candidates and products. He was founding Chief Executive Officer from 1999 to 2003 and board member of CareDx from 1999 to 2014, a developer of a diagnostics to be used in chronic inflammatory diseases, including cardiac transplantation. He was also founding Chief Executive Officer for Lumen Therapeutics from 2004 to 2005, an early-stage pharmaceutical company. He has 33 years of experience in life science research and product development, is named inventor in more than 50 U.S. patents, and has authored 40 scientific publications. Dr. Altman currently serves as a director on ourthe board of directors of Oncocyclist Biotech, since 2002. Dr. Quertermous is the William G. Irwin Professor of Medicine and Director of the Division of Cardiovascular Medicine at Stanford University since 1997. Dr. Quertermous came to Stanford from Vanderbilt University where he served as H.J. Morgan Professor of Medicine and Director of the Division of Cardiology. From 2006 to 2013, Dr. Quertermous served as a board member at Aviir, Inc., a company providing metabolic tests and services for the prevention and management of cardiovascular diseases. Dr. Quertermous2018. He received both a Master of Science degreehis Ph.D. in biophysics and theoretical biology and his Doctor of Medicine degreeBioengineering/Pharmaceutical Chemistry from the University of Chicago, where he also completed residency training in internal medicine. Subsequently, he served as clinical fellow inCalifornia, San Francisco and University of California, Berkeley, his Management of Technology certificate from the Cardiac UnitWalter A. Haas School of Business at the Massachusetts General HospitalUniversity of California, Berkeley, and completed a research fellowshipboth his Master of Science and Bachelor of Science in Mechanical Engineering from the DepartmentColumbia University School of Genetics at Harvard Medical School.Engineering and Applied Sciences. Dr. Altman has been elected Fellow of the American Heart Association.
We believe that Dr. QuertermousAltman possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience in the biotechnology, medical device and diagnostic industries and the operational insight and expertise he has accumulated as our President and Chief Executive Officer. Fernando L. Fernandez was appointed to our board of directors in October 2016. Mr. Fernandez has served as the Vice President of Finance and Chief Financial Officer of United Data Technologies, an information technology company, since November 2016. Mr. Fernandez served as the Market Vice President and Chief Financial Officer of the Care Delivery segment of Humana, Inc., a health and well-being company, from December 2012 to October 2016. From June 2004 to December 2012, Mr. Fernandez served as the Senior Vice President of Finance and Chief Financial Officer of Continucare Corporation, a medical care service company. He currently serves as a director for South Florida Business Forum since January 2018. Mr. Fernandez spent his early career in public accounting and finance functions at other companies, including Whitman Education Group, Inc., Frost-Nevada LP, and PriceWaterhouseCoopers LLP. Mr. Fernandez holds a Bachelor of Business Administration, Accounting from the University of Miami, and is a CPA. We believe that Mr. Fernandez possesses specific attributes that qualify him to serve as a member of our board of directors, including his expertise in the cardiovascular, biotechnologyaccounting and therapeutic development industries.finance. Jim Allen was appointed to our board of directors effective October 1, 2019. Mr. Allen is Chief Executive Officer and President of Sea Star, Inc., a real estate development company, and has served in that capacity since he founded the company in February 1989. Mr. Allen has founded multiple companies from concept to full operation involving the development of various technologies, patents, manufacturing processes, and sales, distribution and maintenance programs. Six of his ventures have resulted in sales to publicly-traded companies. One of his companies was sold to Roper Technologies, Inc. and he is currently serving in a consulting capacity for TransCore Atlantic LLC, a Roper Technologies, Inc. company. He is a named inventor on 29 issued and pending patents. Mr. Allen has studied business at Troy University and Auburn University at Montgomery. We believe that Mr. Allen possesses specific attributes that qualify him to serve as a member of our board of directors, including his operational expertise and extensive track record of successful business ventures. Andrew Scott Blank was appointed to our board of directors effective October 1, 2019. Mr. Blank is President of National Brands, Inc., an investment group that was one of the largest Anheuser-Bush beer distributors prior to divesture of those operations, and has served in that capacity since March 2, 1993. Mr. Blank also currently serves as President of WareITis Technologies, developer of one of the foremost enterprise level content management software suites called Records Studio, President of Archive America, one of the country’s largest family-owned document storage firms, and President of Seaboard Warehouse Terminals, a provider of nationwide third-party logistics services. Mr. Blank also currently serves on the board of directors of Neumentum, Inc. Mr. Blank holds a bachelor’s degree in business from the University of Miami. We believe that Mr. Blank possesses specific attributes that qualify him to serve as a member of our board of directors, including his operational expertise and extensive track record in the management of fast-growth companies. Richard C. Pfenniger, Jr. was appointed to our board of directors in October 2016. From May 2014 to February 2015, Mr. Pfenniger served as Interim Chief Executive Officer of Vein Clinics of America, Inc., a medical group specializing in the treatment of vein disease. From January 2013 to May 2013, Mr. Pfenniger served as Interim Chief Executive Officer of IntegraMed America, Inc., an operator of the largest U.S. network of fertility centers. From October 2003 until October 2011, when it was acquired by Metropolitan Health, Inc., he served as Chairman of the board of directors and President and Chief Executive Officer of Continucare Corporation, a provider of primary care physician and practice management services. Prior thereto, Mr. Pfenniger served as Chief Executive Officer of Whitman Education, Inc. from 1997 to 2003 and as Chief Operating Officer of IVAX Corporation from 1994 to 1997 after having served as the Senior Vice President – Legal Affairs from 1989 to 1994. Mr. Pfenniger currently serves as a director on the board of directors of OPKO Health, Inc., a pharmaceutical and medical diagnostic company, since 2008; on TransEnterix, Inc., a medical device company, since 2005; on GP Strategies, Inc., a corporate training and performance improvement company, since 2005; and on IntegraMed America, Inc. since 2012. Mr. Pfenniger currently serves on the boards of nonprofits Town Square Neighborhood Development Corporation and the Frost Museum of Science. Mr. Pfenniger holds a Juris Doctor degree from the University of Florida and a Bachelor of Business Administration degree from Florida Atlantic University. We believe that Mr. Pfenniger possesses specific attributes that qualify him to serve as a member of our board of directors, including his expertise with public companies and the healthcare industry. Allan R. Tessler has served on our board of directors since 2012. Mr. Tessler has served as Chairman and Chief Executive Officer of International Financial Group, Inc. since 1987. He also serves as a board member of the online brokerage firm TD Ameritrade since November 2006, and as a board member of L Brands since 1987, where he is also Lead Director and Chair of the Finance Committee. Mr. Tessler has also served on the board of directors of Steel Partners Holding, since July 2009 and for Imperva Inc., since 2013. Mr. Tessler was Chief Executive Officer of Epoch Holding Corporation, an investment management company, from February 2000 to June 2004, and Chairman of its board of directors from May 1994 to December 2013; the Co-Chairman and Co-Chief Executive Officer of Interactive Data Corporation, a securities market data supplier, from June 1992 to February 2000; and a co-founder and Chairman of the board of directors of Enhance Financial Services, a public insurance holding company, from 1986 to 2001. Mr. Tessler is a member of the board of governors of the Boys & Girls Clubs of America. Mr. Tessler holds a Bachelor of Arts degree from Cornell University and a Bachelor of Laws degree from Cornell University Law School.
We believe that Mr. Tessler possesses specific attributes that qualify him to serve as a member of our board of directors, including an array of executive management and board positions he has served for publicly traded companies during his career.
Peter Altman, Ph.D. has served as our President and Chief Executive Officer since 2002, where he has global responsibility for the development, manufacture and marketing of our therapeutic candidates and products. He was founding Chief Executive Officer from 1999 to 2003 and board member of CareDx from 1999 to 2014, a developer of a gene based diagnostics to be used in chronic inflammatory diseases, including cardiac transplantation, coronary artery disease and systemic lupus erythematosus. He was also founding Chief Executive Officer for Lumen Therapeutics from 2004 to 2005, an early-stage pharmaceutical company. He has 30 years of experience in life science research and product development, is named inventor in 45 U.S. patents, and has authored 40 scientific publications. Dr. Altman currently serves as a director on the board of directors of Oncocyclist Biotech, since 2018. He received his Ph.D. in Bioengineering/Pharmaceutical Chemistry from the University of California, San Francisco and University of California, Berkeley, his Management of Technology certificate from the Walter A. Haas School of Business at the University of California, Berkeley, and both his Master of Science and Bachelor of Science in Mechanical Engineering from the Columbia University School of Engineering and Applied Sciences. Dr. Altman has been elected Fellow of the American Heart Association.
We believe that Dr. Altman possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive experience in the biotechnology, medical device and diagnostic industries and the operational insight and expertise he has accumulated as our President and Chief Executive Officer.
Fernando L. Fernandez was appointed to our board of directors in October 2016. Mr. Fernandez has served as the Vice President of Finance and Chief Financial Officer of United Data Technologies, an information technology company, since November 2016. Mr. Fernandez served as the Market Vice President and Chief Financial Officer of the Care Delivery segment of Humana, Inc., a health and well-being company, from December 2012 to October 2016. From June 2004 to December 2012, Mr. Fernandez served as the Senior Vice President of Finance and Chief Financial Officer of Continucare Corporation, a medical care service company. He currently serves as a director for South Florida Business Forum since January 2018. Mr. Fernandez spent his early career in public accounting and finance functions at other companies, including Whitman Education Group, Inc., Frost-Nevada LP, and PriceWaterhouseCoopers LLP. Mr. Fernandez holds a Bachelor of Business Administration, Accounting from the University of Miami, and is a CPA.
We believe that Mr. Fernandez possesses specific attributes that qualify him to serve as a member of our board of directors, including his expertise in accounting and finance.
Richard Krasno, Ph.D. was appointed to our board of directors in October 2016. Dr. Krasno has served as a director of Ladenburg Thalmann since March 2015, Castle Brands, Inc. since 2014, and OPKO Health, Inc. since 2017. Dr. Krasno previously served as a director on the board of Ladenburg Thalmann from 2006 until 2020 and on the board of Castle Brands, Inc. from 2014 until 2019. Dr. Krasno served as the executive director of the William R. Kenan, Jr. Charitable Trust from 1999 to 2014 and, from 1999 to 2010, as president of the four affiliated funds. Prior to that, Dr. Krasno was the president of the Monterey Institute of International Studies in Monterey, California. From 2004 to 2012, Dr. Krasno also served as a director of the University of North Carolina Health Care System and served as chairman of the board of directors from 2009 to 2012. From 1981 to 1998, he served as president and chief executive officer of the Institute of International Education in New York. He also served as Deputy Assistant Secretary of Education in Washington, D.C. from 1979 to 1980. Mr. Krasno holds a Bachelor of Science from the University of Illinois and a Ph.D. from Stanford. We believe that Mr. Krasno possesses specific attributes including his qualifications and skills, including financial literacy and expertise, his managerial experience and the knowledge and experience he has attained through his service as a director of publicly-traded corporations, which qualify him to serve as a member of our board of directors. Jay M. Moyes has served on our board of directors since 2011. He has served on the board of directors of Puma Biotechnologies sincefrom April 2012 andto present, on the board of directors of Achieve Life Sciences from 2018 to the present, on the board of directors of Predictive Technology Group, Inc. from February 2019 until December 2019 and on the board of directors and Chairman of the Audit Committee of Osiris Therapeutics, a biosurgical company, from May 2006 until December 2017. He also served as a member of the board of directors and Chairman of the Audit Committee of Integrated Diagnostics, a privately held molecular diagnostics company, from 2011 to 2016. From 2012 to 2014, Mr. Moyes served as a member of the board of directors of Amedica Corporation, a publicly traded orthopaedics company, and as Chief Financial Officer from 2013 to 2014. From 2008 to 2009, Mr. Moyes served as Chief Financial Officer of CareDx, a publicly traded molecular diagnostics company. Prior to that, he served as Chief Financial Officer of Myriad Genetics, Inc., a publicly held healthcare diagnostics company, from June 1996 until his retirement in November 2007, and as Vice President of Finance from July 1993 until July 2005. From 1991 to 1993, Mr. Moyes served as Vice President of Finance and Chief Financial Officer of Genmark, a privately held genetics company. Mr. Moyes held various positions with the accounting firm of KPMG from 1979 to 1991. He also served as a member of the Board of Trustees of the Utah Life Science Association from 1999 to 2006. Mr. Moyes holds a Masters of Business Administration from the University of Utah, a Bachelor of Arts in economics from Weber State University, and iswas formerly a Certified Public Accountant. We believe that Mr. Moyes possesses specific attributes that qualify him to serve as a member of our board of directors, including his extensive background in finance and accounting in the life sciences industry. Simon H. Stertzer, M.D. is Chairman of our board of directors and has served on our board of directors since 2002. Dr. Stertzer is a Professor of Medicine, Emeritus at the Stanford University School of Medicine, Division of Cardiovascular Medicine. He was appointed Professor of Medicine and a Professor at the Stanford University Biodesign Program.in 1998, and became Professor Emeritus at Stanford University in 2011. Dr. Stertzer serves on the medical advisory board of Avenda Health, a private prostate cancer therapy company, and was appointed in June 2019. Dr. Stertzer is managing member of Windrock Enterprises, LLC, a real estate investment company, since May 1999. He has served as Assistant Resident in Medicine at New York University and later as Chief Medical Resident at New York University Divisiona Director of Bellevue Hospital.Frontiere Algorithmic Design LLC, a software development company, from June, 2014. Dr. Stertzer was a founder and board member of Arterial Vascular Engineering, an angioplasty balloon and stent company that went public in 1996 and was subsequently acquired by Medtronic. Dr. Stertzer servedHe also serves as Director of the Catheterization Laboratory at Lenox Hill Hospital from 1971 to 1983. He was the Director of Medical Research and Director of the Cardiac Catheterization Laboratory at the San Francisco Heart Institute from 1983 until 1993. He was appointed Professor of Medicine at Stanford University in 1998, and became Professor Emeritus at Stanford University in 2011.AVIA App LLC since 2015. Dr. Stertzer received his Doctor of Medicine degree from New York University. He also earned a Certificat de Physiologie from University of Paris (Sorbonne) and had a fellowship at New York University Hospital in Cardiovascular Disease. Dr. Stertzer received a Bachelor of Arts degree in Humanities from Union College. We believe that Dr. Stertzer possesses specific attributes that qualify him to serve as Chairman of our board of directors, including his historical association with our company and his expertise in interventional cardiology and the operational experience he has accumulated in the life sciences industry. Director Independence We are not currently subject toIn accordance with the listing requirements of any national securities exchange that has requirements thatthe NASDAQ Stock Market and our Corporate Governance Guidelines, a majority of the boardour Board must be composed of directors be “independent.” Nevertheless, we expect that our board of directors will determineindependent directors. Our Board has determined that all of our directors, other than Dr. Altman, qualify as “independent” directors in accordance with listing requirements of The NASDAQ Stock Market, or NASDAQ.NASDAQ, and Rule 10A-3 of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Dr. Altman is not considered independent because he is an employee of BioCardia. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us.
Board Leadership Structure Board Structure. Our board of directors has eight authorized seats divided into three classes (Class I, Class II and Class III) with staggered three-year terms. ThreeTwo Class IIIII directors are to be elected at the 20192020 Annual Meeting to serve a three-year term expiring at the 20222023 Annual Meeting of stockholders or until their respective successors have been elected and qualified. The Class III and Class IIIII directors will continue to serve their respective terms until the respective 20202021 and 20212022 Annual Meetings of stockholders.
Board Leadership Structure.Our board of directors does not have a policy on whether or not the role of the Chief Executive Officer and Chairman should be separate or, if it is to be separate, whether the Chairman should be selected from the non-employee directors or be an employee. Currently, we operate with Dr. Altman serving as a director and our President and Chief Executive Officer and Dr. Stertzer serving as our Chairman. We believe that the separation of the Chairman and Chief Executive Officer positions suit the talents, expertise and experience that each of Drs. Altman and Stertzer bring to the Company.
Board Committees.Committees. Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors. Family Relationships There are no family relationships among any of our directors or executive officers. Board Committees Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors. Audit Committee Our audit committee currently consists of Allan Tessler,Jay Moyes, who is the chair of the committee, Jay MoyesFernando Fernandez and Fernando Fernandez,Andrew Blank, each of whom are independent for Audit Committee purposes under the requirements of Financial Industry Regulatory Authority (“FINRA”)NASDAQ and the SEC.SEC rules and regulations. Each of Mr. TesslerMoyes and Mr. Fernandez is an “audit committee financial expert” as the term is defined under SEC regulations. The audit committee operates under a written charter. The functions of the audit committee include: overseeing the engagement of our independent registered accounting firm; reviewing our audited financial statements and discussing them with the independent registered accounting firm and our management; meeting with the independent registered accounting firm and our management to consider the adequacy of our internal controls; and reviewing our financial plans, reporting recommendations to our full board of directors for approval and authorizing actions. Both our independent registered accounting firm and internal financial personnel regularly meet with our audit committee and have unrestricted access to the audit committee. Our audit committee operates under a written charter adopted by our board of directors, a current copy of which is available on the Corporate Governance portion of our website at investors.biocardia.com. During 2018, our audit committee held four meetings. Compensation Committee Our compensation committee currently consists of Jay Moyes,Richard Pfenniger, who is the chair of the committee, Simon StertzerJay Moyes and Richard Pfenniger,Andrew Blank, each of whom are independent in accordance with the NASDAQ Stock Market LLC standards. Each member of our compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The compensation committee operates under a written charter. The functions of the compensation committee include: reviewing and, if deemed appropriate, recommending to our board of directors policies, practices and procedures relating to the compensation of our directors, officers and other managerial employees and the establishment and administration of our employee benefit plans; determining or recommending to the board of directors the compensation of our executive officers; and advising and consulting with our officers regarding managerial personnel and development. Our compensation committee operates under a written charter adopted by our board of directors, a current copy of which is available on the Corporate Governance portion of our website at investors.biocardia.com. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Simon Stertzer, who is the chair of the committee, Thomas QuertermousRichard Krasno and Richard Krasno,Jim Allen, each of whom are independent in accordance with the NASDAQ Stock Market LLC standards. The nomination committee operates under a written charter. The functions of the nominating and corporate governance include: establishing standards for service on our board of directors; identifying individuals qualified to become members of our board of directors and recommending director candidates for election or re-election to our board; considering and making recommendations to our board of directors regarding the size and composition of the board of directors, committee composition and structure and procedures affecting directors; reviewing compliance with relevant corporate government guidelines; reviewing governance-related stockholder proposals and recommending Board responses; and reviewing actual and potential conflicts of interest of Board members and corporate officer, other than related-party transactions reviewed by the Audit Committee, and approving or prohibiting any involvement of such persons in matters that may involve a conflict of interest or taking of a corporate opportunity. Our nominating and corporate governance committee operates under a written charter adopted by our Board of Directors, a current copy of which is available on the Corporate Governance portion of our website at investors.biocardia.com. Non-Employee Director Compensation Cash and Equity Compensation We compensate non-employee members of the board of directors. Directors who are also employees do not receive cash or equity compensation for service on the board of directors in addition to compensation payable for their service as our employees. The non-employee members of our board of directors are reimbursed for travel, lodging and other reasonable expenses incurred in attending board of directors or committee meetings. Our directors receivedtypically receive equity grants annually at the fair market value of our common stock at the time of grant under our 2016 Plan. In January 2017 our compensation policy for non-employee directors was established. The cash and equity components of our compensation policy for non-employee directors are set forth below: Position | | Annual Cash Retainer | | | Equity Grant | | Base Fee | | $ | 40,000 | | | $ | 44,000 | | Chairperson Fee | | | | | | | | | Chairman of the Board | | | 25,000 | | | | | | Audit Committee | | | 15,000 | | | | | | Compensation Committee | | | 10,000 | | | | | | Nominating and Corporate Governance Committee | | | 7,500 | | | | | | Committee Member Fee | | | | | | | | | Audit Committee | | | 7,500 | | | | | | Compensation Committee | | | 5,000 | | | | | | Nominating and Corporate governance | | | 3,750 | | | | | |
Under our non-employee director compensation program, each non-employee director received an initial equity award in January of 2017 of either an option to purchase 267,0002,472 shares of common stock or receive 184,0001,703 restricted stock units which, in either case, vest over three years upon the anniversary of the grant date, subject to continued service through the vesting date. We expect additional annual equity grants may be made to our non-employee directors and that compensation for our non-employee directors will be competitive at the 50th percentile of our peer group. In July 2018, the board elected to defer quarterly payment of the cash portion of director compensation until the Company has raised sufficient financing. Compensation for 20182019 The following table sets forth summary information concerning the compensation awarded to, paid to, or earned by the non-employee members of our board of directors for the fiscal year ended December 31, 2018:2019: Director | | Fees Earned or Paid in Cash($) | | | Stock Awards ($)(1) | | | Option Awards ($)(1) | | | Total ($) | | | Fees Earned or Paid in Cash($)(1) | | | Stock Awards ($)(2) | | | Option Awards ($)(2) | | | Total ($) | | Fernando L. Fernandez | | $ | 47,500.00 | | | $ | 44,000.00 | | | | — | | | $ | 91,500.00 | | | $ | 47,500.00 | | | $ | — | | | | — | | | $ | 47,500.00 | | Richard Krasno, Ph.D. | | $ | 43,750.00 | | | $ | 44,000.00 | | | | — | | | $ | 87,750.00 | | | $ | 43,750.00 | | | $ | — | | | | — | | | $ | 43,750.00 | | Jay M. Moyes | | $ | 57,500.00 | | | $ | 44,000.00 | | | | — | | | $ | 101,500.00 | | | $ | 58,125.00 | | | $ | — | | | | — | | | $ | 58,125.00 | | Richard C. Pfenniger, Jr. | | $ | 45,000.00 | | | $ | 44,000.00 | | | | — | | | $ | 89,000.00 | | | $ | 46,250.00 | | | $ | — | | | | — | | | $ | 46,250.00 | | Thomas Quertermous, M.D.(3) | | $ | 43,750.00 | | | $ | 44,000.00 | | | | — | | | $ | 87,750.00 | | | $ | 38,812.50 | | | $ | — | | | | — | | | $ | 38,812.50 | | Simon H. Stertzer, M.D. | | $ | 77,500.00 | | | $ | 44,000.00 | | | | — | | | $ | 121,500.00 | | | $ | 76,250.00 | | | $ | — | | | | — | | | $ | 76,250.00 | | Allan R. Tessler(3) | | $ | 55,000.00 | | | $ | 44,000.00 | | | | — | | | $ | 99,000.00 | | | $ | 41,250.00 | | | $ | — | | | | — | | | $ | 41,250.00 | | Jim Allen | | | $ | 10,937.50 | | | | — | | | | — | | | $ | 10,937.50 | | Andrew Blank | | | $ | 13,125.00 | | | | — | | | | — | | | $ | 13,125.00 | |
(1) | This amount reflects the amount of cash earned pursuant to our non-employee director compensation policy described above. No cash was paid to any director in 2019 due to the board’s election to defer payment of any cash portion of director compensation until we have raised sufficient funding. |
(1) This amount reflects the aggregate grant fair value computed in accordance with ASC Topic 718. The assumptions that we used to calculate these amounts are discussed in Notes 2 and 13 to our consolidated financial statements.
(2) | Directors did not receive equity grants in 2019 under our policy described above. | (3) | On September 25, 2019, pursuant to shareholder requests for appointments to the board of directors, the board of directors accepted offers to resign from each of Thomas Quertermous, M.D. and Allan R. Tessler and appointed Jim Allen and Andrew Blank to fill these vacancies, effective October 1, 2019. |
The following table lists all outstanding equity awards held by our non-employee directors as of December 31, 2018.2019. Name | | Aggregate Number of Stock Options Outstanding as of December 31, 2018 | | | Aggregate Number of Stock Awards Outstanding as of December 31, 2018 | | | Aggregate Number of Stock Options Outstanding as of December 31, 2019 | | | Aggregate Number of Stock Awards Outstanding as of December 31, 2019 | | Fernando L. Fernandez | | | — | | | | 42,575 | (1) | | | — | | | | 567 | (1) | Richard Krasno, Ph.D. | | | — | | | | 42,575 | (1) | | | — | | | | 567 | (1) | Jay M. Moyes | | | 53,401 | (2) | | | 32,353 | (6) | | | 5,931 | (2) | | | — | | Richard C. Pfenniger, Jr. | | | — | | | | 42,575 | (1) | | | — | | | | 567 | (1) | Thomas Quertermous, M.D. | | | 35,298 | (3) | | | 32,353 | (6) | | | 3,921 | (3) | | | — | | Simon H. Stertzer, M.D. | | | 109,984 | (4) | | | 32,353 | (6) | | | 12,218 | (4) | | | — | | Allan R. Tessler | | | 13,578 | (5) | | | 42,575 | (1) | | | 1,508 | (5) | | | 567 | (1) | Jim Allen | | | | — | | | | — | | Andrew Blank | | | | — | | | | — | |
| (1) | Includes (i) 5,111567 shares subject to a restricted stock award that vested on January 13, 2019, (ii) 32,353 shares subject to a restricted stock award that vests July 26, 2019, and (iii) 5,111 shares subject to a restricted stock award that vests January 13, 2020. | | | | | (2) | Includes (i) 38,5674,283 shares subject to an option, which are fully vested and immediately exercisable, (ii) 7,417824 shares subject to an option that vested January 13, 2019, and (iii) 7,417824 shares subject to an option that vestvested on January 13, 2020. | | | | | (3) | Includes (i) 20,4642,273 shares subject to an option, which are fully vested and immediately exercisable, (ii) 7,417824 shares subject to an option that vested January 13, 2019, and (iii) 7,417824 shares subject to an option that vestvested on January 13, 2020. | | | | | (4) | Includes (i) 95,15010,570 shares subject to an option which are fully vested and immediately exercisable, (ii) 7,417824 shares subject to an option that vested January 13, 2019, and (iii) 7,417824 shares subject to an option that vestvested on January 13, 2020. | | | | | (5) | Includes 13,5781,508 shares subject to an option, which are fully vested and immediately exercisable. | | | | | (6) | Includes 32,353 shares subjectOn September 25, 2019, pursuant to a restricted stock award that vests on July 26, 2020.shareholder requests for appointments to the board of directors, the board of directors accepted offers to resign from each of Thomas Quertermous, M.D. and Allan R. Tessler and appointed Jim Allen and Andrew Blank to fill these vacancies, effective October 1, 2019.
|
Code of Ethics We have adopted a Code of Business Conduct and Ethics that applies to all of our (1) officers, (2) employees (including our principal executive officer, principal financial officer, principal accounting officer or controller and other employees who perform financial or accounting functions), and (3) agents and representatives, including our independent directors and consultants, who are not employees of ours, with regard to their BioCardia-related activities. Our code of business conduct and ethics is available on our website at www.biocardia.com under the heading “Corporate Governance” under the section titled “Investors”. We will post on this section of our website any amendment to our code of business conduct and ethics, as well as any waivers of our code of business conduct and ethics, that are required to be disclosed by the rules of the SEC. Executive Officers The following table identifies certain information about our executive officers as of March 28,December 31, 2019. Officers are elected by our board of directors to hold office until their successors are elected and qualified. Name | | Age | Age
| | Position | Peter Altman, Ph.D. | | 52
| 53 | | President, Chief Executive Officer, and Director | Henricus Duckers, M.D., Ph.D., FESC | | 51
| 52 | | Chief Medical Officer | David McClung | | 55
| 56 | | Chief Financial Officer | Phil Pesta | | 53
| 53 | | Vice President of Operations |
The service of our executive officers prior to 2016 noted in the narrative below includes service with BioCardia Lifesciences, Inc., the company we merged with in the reverse merger transaction in October 2016. For a brief biography of Dr. Altman, please see “Board of Directors and Corporate Governance−Nominees for Director.” Henricus Duckers has served as our Chief Medical Officer since 2016. From 2013 to 2016, Dr. Duckers was the Chair of Regenerative Medicine and the Head of R&D in the Department of Cardiology and Pulmonology at the University Medical Center Utrecht. He has over 20 years of experience in cardiovascular research, is named inventor in ten U.S. patents, and has authored 140 scientific publications in cardiology, neurology and cell biology. Dr. Duckers studied Medicine and Pharmacy at the University of Utecht, as well as Management in Health Care (Univ. Rotterdam). From 1992 to 1993 he completed his Ph.D. at the Rudolf Magnus Institute for NeuroScience, Cum Laude, and obtained a registration as clinical pharmacologist. He was trained as an interventional cardiologist at the Thoraxcenter Rotterdam, where, he, among other notable achievements, also supervised the molecular cardiology program. David McClung has served as our Chief Financial Officer since September 2017 and has been with the Company since September 2013, also serving as Vice President of Finance from March 2016 to August 2017 and as Senior Director of Finance & Controller from September 2013 to February 2016. Mr. McClung has more than 20 years of finance and accounting experience in publicly and privately financed organizations, including startup enterprises, large public companies and middle-market businesses. Before joining our company, Mr. McClung served as Director of Finance and Controller at Sonitus Medical, Inc., a privately-held manufacturer of an FDA cleared prosthetic hearing device for the treatment of single-sided deafness and conductive hearing loss, from June 2011 to August 2013. Prior to that, Mr. McClung served as Controller at NextWave Pharmaceuticals, Inc. a specialty pharmaceutical company acquired by Pfizer, Inc., from April 2010 to June 2011. Mr. McClung spent his early career in public accounting and finance functions at other companies, including Matson Navigation, Inc., The Clorox Company and KPMG LLP. Mr. McClung earned a Bachelor of Arts degree in Accounting from Georgia State University, graduating with honors. He is an actively licensed CPA and member of the AICPA and the California Society of CPAs. Phil Pesta has served as our Vice President of Operations since July 2011. Mr. Pesta has more than 20 years of experience in the medical device industry, primarily in manufacturing and operations roles. Before joining our company, Mr. Pesta was with Boston Scientific. He was most recently responsible for developing the operations transfer plan for the divestiture of their neurovascular division to Stryker Corporation. Prior to that, Mr. Pesta held simultaneous roles as Director of Engineering at Boston Scientific’s electrophysiology division and Plant Manager at the embolic protection division. Earlier in his career, Mr. Pesta held positions in project management and manufacturing engineering at other companies, including Conceptus, Novare Surgical Systems, Medtronic Anneurx and Modified Polymer Components. He has facilitated the commercial launch of multiple products and is listed as an inventor on three U.S. patents. Mr. Pesta earned a Bachelor of Arts Degree in General Design Studies from San Jose State University. Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports Section 16(a) of the Exchange Act requires that our executive officers and directors, and persons who own more than 10% of our common stock, file reports of ownership and changes of ownership with the SEC. Such directors, executive officers and 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. SEC regulations require us to identify in this Annual Report on Form 10-K anyone who filed a required report late during the most recent fiscal year. Based on our review of forms we received, or written representations from reporting persons stating that they were not required to file these forms, we believe that during our fiscal year ended December 31, 2018,2019, all Section 16(a) filing requirements were satisfied on a timely basis, except as previously reported by the Company, on its definitive information statement on Schedule 14A (filed with the SEC on April 27, 2018), and with respect to the following failures to timely file: (i) atwo Form 44’s for Peter Altman (filed with the SEC on September 24, 2018),2018 and March 27, 2020) to report three transactions, (ii) a Form 4 for Jay Moyes (filed with the SEC on September 26, 2018), to report one transaction, (iii) a Form 4 for Simon Stertzer (filed with the SEC on September 26, 2018), to report one transaction, (iv) a Form 4 for Thomas Quertermous (filed with the SEC on September 26, 2018), to report one transaction, (v) a Form 4 for Allan Tessler (filed with the SEC on September 26, 2018), to report one transaction, (vi) a Form 4 for Richard Krasno (filed with the SEC on September 26, 2018), to report one transaction, (vii) a Form 4 for Richard Pfenniger (filed with the SEC on September 26, 2018), and to report one transaction, (viii) a Form 4 for Fernando Fernandez (filed with the SEC on September 26, 2018) to report one transaction; (ix) a Form 4 for Henricus Duckers (filed with the SEC on March 27, 2020) to report two transactions; (x) a Form 4 for Phil Pesta (filed with the SEC March 27, 2020) to report two transactions; (xi) a Form 4 for David McClung (filed with the SEC on March 27, 2020) to report two transactions; (xii) a Form 3 for Andrew Blank (filed with the SEC on February 26, 2020); and (xiii) a Form 3 for Jim Allen (filed with the SEC on February 26, 2020). ITEM 11. EXECUTIVE COMPENSATION ITEM 11. EXECUTIVE COMPENSATION
The director compensation information provided in Item 10 of this Annual Report on Form 10-K is hereby incorporated by reference in this Item 11. Fiscal 20182019 Summary Compensation Table The following table sets forth total compensation paid to our named executive officers, who are comprised of (1) our principal executive officer and (2) our next two highest compensated executive officers other than the principal executive officer. Name and Principal Position | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($)(1) | | | Option Awards ($)(1) | | | All Other Compensation ($) | | | Total ($) | | Year | | Salary ($) | | | Bonus ($) | | | Stock Awards ($)(1) | | | Option Awards ($)(1) | | | All Other Compensation ($) | | | Total ($) | | Peter Altman, Ph.D. | 2018 | | | 360,000.00 | | | | — | (3) | | | | | | | 742,000.00 | (4) | | | | | | | 1,102,000.00 | | 2019 | | | 362,700.00 | | | | — | | | | 57,600.00 | (2) | | | 257,200.98 | (4) | | | | | | | 677,500.98 | | President, Chief Executive Officer, and Director | 2017 | | | 310,000.00 | | | | 62,000.00 | | | | — | | | | — | | | | — | | | | 372,000.00 | | 2018 | | | 360,000.00 | | | | — | | | | — | | | | 742,000.00 | (3) | | | — | | | | 1,102,000.00 | | David McClung | 2018 | | | 300,000.00 | | | | — | (3) | | | | | | | 294,982.10 | (4) | | | | | | | 594,982.10 | | 2019 | | | 302,250.00 | | | | — | | | | 30,000.00 | (2) | | | 102,244.76 | (4) | | | | | | | 434,494.76 | | Chief Financial Officer | 2017 | | | 210,000.00 | | | | 60,000.00 | | | | — | | | | — | | | | — | | | | 270,000.00 | | 2018 | | | 300,000.00 | | | | — | | | | — | | | | 294,982.10 | (3) | | | — | | | | 594,982.10 | | Henricus Duckers | 2018 | | | 350,000.00 | | | | — | (3) | | | | | | | 311,417.40 | (4) | | | | | | | 661,417.40 | | 2019 | | | 350,000.00 | | | | — | | | | 14,000.00 | (2) | | | 107,945.94 | (4) | | | | | | | 471,945.94 | | Chief Medical Officer | 2017 | | | 270,000.00 | | | | 51,300.00 | | | | — | | | | — | | | | — | | | | 321,300.00 | | 2018 | | | 350,000.00 | | | | — | | | | — | | | | 311,417.40 | (3) | | | — | | | | 661,417.40 | | Phil Pesta | 2018 | | | 235,000.00 | | | | — | (3) | | | | | | | 129,850.00 | (4) | | | | | | | 364,850.00 | | | Vice President of Operations | 2017 | | | 230,000.00 | | | | 46,000.00 | | | | — | | | | — | | | | — | | | | 276,000.00 | | |
| (1) | This amount reflects the aggregate grant fair value computed in accordance with ASC Topic 718. The assumptions that we used to calculate these amounts are discussed in Notes 2 and 13 to our consolidated financial statements.statements for the year ended December 31, 2019. The fair value of certain options outstanding as of December 31, 2019 does not give effect to the Repricing, which occurred as of January 29, 2020 and modified the exercise price of each such option to $5.32 per share. |
| (2) | This amount was earned in in the fiscal year ending December 31, 2017,2018, but was not paid out as RSUs until 2019. Such RSUs vested on January 29, 2020. |
| (3) | The option vests and becomes exercisable in equal installments over forty-eight months on each monthly anniversary of February 1, 2018. |
| (3)
| We use short-term cash incentive compensation to motivate our named executive officers to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals.
|
Our executive 2018 bonus targets were set by our compensation committee in July 2018. Our executive bonus plan allows our compensation committee to provide cash incentive awards to employees selected by our compensation committee, including our named executive officers, which may but need not be based upon performance goals established by our compensation committee.
For 2018, the target and actual incentive amounts under our executive bonus plan for our named executive officers were the following:
Named Executive Officer | | Target Award Opportunity (% of Base Salary) | | | Target Award Opportunity ($) | | Peter Altman | | | 40 | % | | $ | 144,000.00 | | Henricus Duckers | | | 25 | % | | $ | 87,500.00 | | David McClung | | | 25 | % | | $ | 75,000.00 | | Phil Pesta | | | 25 | % | | $ | 58,750.00 | |
(4) | ThisThe option vests and becomes exercisable in substantially equal monthly installments over four years beginningforty-eight months on Marcheach monthly anniversary of September 1, 2018.2019.
|
Employment Agreements Peter Altman We have not entered into an employment agreement with Dr. Altman. Accordingly, he is employed on an at-will basis. Dr. Altman’s current annual base salary is $360,000.00$370,800.00 and he is eligible for an annual bonus equal to 40% of his base salary. Dr. Altman is also eligible for equity compensation under our equity compensation plans, as determined from time to time by the compensation committee of our board of directors. David McClung We have not entered into an employment agreement with Mr. McClung. Accordingly, he is employed on an at-will basis. Mr. McClung’s current annual base salary is $300,000.00$309,000.00 and he is eligible for an annual bonus equal to 25% of his base salary. Mr. McClung is also eligible for equity compensation under our equity compensation plans, as determined from time to time by the compensation committee of our board of directors. Henricus Duckers We have not entered into an employment agreement with Dr. Duckers. Accordingly, he is employed on an at-will basis. Dr. Duckers’ current annual base salary is $350,000.00 and he is eligible for an annual bonus equal to 25% of his base salary. Dr. Duckers is also eligible for equity compensation under our equity compensation plans, as determined from time to time by the compensation committee of our board of directors. Phil Pesta
We have not entered into an employment agreement with Phil Pesta. Accordingly, he is employed on an at-will basis. Mr. Pesta’s current annual base salary is $235,000.00 and he is eligible for an annual bonus equal to 25% of his base salary.
Mr. Pesta is also eligible for equity compensation under our equity compensation plans, as determined from time to time by the compensation committee of our board of directors.
Potential Payments on Termination or Change of Control We have entered into change of control and severance agreements with each of our named executive officers, effective as of the completion of our Merger.officers. Under each of these agreements, if, within the period three months prior to and 12 months following a “change of control” (such period, the “change in control period”), we terminate the employment of the applicable employee other than for “cause,” death or disability, or the employee resigns for “good reason” (as such terms are defined in the employee’s change of control and severance agreement) and, within 60 days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is entitled to receive (i) a lump sum payment equal to the following percentage of the employee’s annual base salary: 150% for Dr. Altman, 100% for Mr. McClung and 100% for Dr. Duckers, and 100% for Mr. Pesta, (ii) a lump sum payment equal to the following percentage of the employee’s target annual bonus: 150% for Dr. Altman, 100% for Mr. McClung and 100% for Dr. Duckers, and 100% for Mr. Pesta, (iii) reimbursement of premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for employee and employee’s dependents for 18 months for Dr. Altman, 12 months for Mr. McClung and 12 months for Dr. Duckers, and 12 months for Mr. Pesta, and (iv) accelerated vesting as to 100% of the employee’s outstanding unvested equity awards. Additionally, under each of these agreements, if, outside of the change in control period, we terminate the employment of the applicable employee other than for cause, death or disability, or the employee resigns for good reason and, within 60 days following the employee’s termination, the employee executes an irrevocable separation agreement and release of claims, the employee is entitled to receive (i) a lump sum payment equal to the following percentage of the employee’s annual base salary: 100% for Dr. Altman, 50% for Mr. McClung and 50% for Dr. Duckers, and 50% for Mr. Pesta, (ii) reimbursement of premiums to maintain group health insurance continuation benefits pursuant to “COBRA” for employee and employee’s dependents for 12 months for Dr. Altman, 6 months for Mr. McClung and 6 months for Dr. Duckers, and 6 months for Mr. Pesta, and (iii) the employee’s outstanding unvested equity awards will vest as to an additional 24 months for Dr. Altman, 12 months for Mr. McClung and 12 months for Dr. Duckers and 12 months for Mr. Pesta. Duckers. Pursuant to the change of control and severance agreements, in the event any payment or benefit provided to our named executive officers would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, as amended, or the Code (as a result of a payment being classified as a parachute payment under Section 280G of the Code), the applicable employee will receive such payment as would entitle him to receive the greatest after-tax benefit, even if it means that we pay him a lower aggregate payment so as to minimize or eliminate the potential excise tax imposed by Section 4999 of the Code. Outstanding Equity Awards at 20182019 Year-End The following table sets forth summary information regarding the outstanding equity awards for each of the named executive officers as of December 31, 2018:2019: | | | Option Awards(1)(2) | | | | | | | | Stock Awards(2) | | Name | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($)(3) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Peter Altman | 4/10/2010 | | | 6,788 | (4) | | | — | | | | 1.80 | | 4/10/2020 | | | — | | | | — | | | 7/5/2014 | | | 317,614 | (4) | | | — | | | | 1.80 | | 7/5/2024 | | | — | | | | — | | | 8/19/2016 | | | 786,505 | (5) | | | 423,503 | | | | 1.80 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 100,000 | (5) | | | 300,000 | | | | 2.60 | | 2/1/2028 | | | — | | | | — | | David McClung | 6/23/2014 | | | 22,632 | (4) | | | — | | | | 1.80 | | 6/23/2024 | | | — | | | | — | | | 8/9/2016 | | | 53,261 | (6) | | | 11,298 | | | | 1.80 | | 8/9/2026 | | | — | | | | — | | | 8/19/2016 | | | 43,301 | (7) | | | 23,316 | | | | 1.80 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 39,755 | (5) | | | 119,265 | | | | 2.60 | | 2/1/2028 | | | — | | | | — | | Henricus Duckers | 8/9/2016 | | | 113,267 | (8) | | | 48,544 | | | | 1.80 | | 8/9/2026 | | | — | | | | — | | | 8/19/2016 | | | 82,516 | (7) | | | 44,433 | | | | 1.80 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 41,970 | (5) | | | 125,910 | | | | 2.60 | | 2/1/2028 | | | — | | | | — | | Phil Pesta | 7/28/2011 | | | 54,318 | (4) | | | — | | | | 1.80 | | 7/28/2021 | | | — | | | | — | | | 7/9/2013 | | | 2,262 | (4) | | | — | | | | 1.80 | | 7/9/2023 | | | — | | | | — | | | 7/5/2014 | | | 42,347 | (4) | | | — | | | | 1.80 | | 7/5/2024 | | | — | | | | — | | | 8/19/2016 | | | 61,819 | (7) | | | 33,288 | | | | 1.80 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 17,500 | (5) | | | 52,500 | | | | 2.60 | | 2/1/2028 | | | — | | | | — | |
| | | Option Awards(1)(2) | | | | | | | | Stock Awards(2) | | Name | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price ($)(3) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($))(9) | | Peter Altman | 4/10/2010 | | | 754 | (4) | | | — | | | | 16.20 | | 4/10/2020 | | | — | | | | — | | | 7/5/2014 | | | 35,290 | (4) | | | — | | | | 16.20 | | 7/5/2024 | | | — | | | | — | | | 8/19/2016 | | | 112,038 | (5) | | | 22,407 | | | | 16.20 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 22,222 | (5) | | | 22,222 | | | | 23.40 | | 2/1/2028 | | | — | | | | — | | | 8/27/2019 | | | 7,401 | (9) | | | 63,653 | | | | 5.00 | | 8/27/2029 | | | — | | | | — | | | 8/27/2019 | | | — | | | | — | | | | — | | — | | | 12,126 | (10) | | | 44,623.68 | | David McClung | 6/23/2014 | | | 2,514 | (4) | | | — | | | | 16.20 | | 6/23/2024 | | | — | | | | — | | | 8/9/2016 | | | 7,024 | (6) | | | 149 | | | | 16.20 | | 8/9/2026 | | | — | | | | — | | | 8/19/2016 | | | 6,168 | (7) | | | 1,233 | | | | 16.20 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 8,834 | (5) | | | 8,834 | | | | 23.40 | | 2/1/2028 | | | — | | | | — | | | 8/27/2019 | | | 2,942 | (9) | | | 25,304 | | | | 5.00 | | 8/27/2029 | | | — | | | | — | | | 8/27/2019 | | | — | | | | — | | | | — | | — | | | 6,315 | (10) | | | 23,239.20 | | Henricus Duckers | 8/9/2016 | | | 15,732 | (8) | | | 2,247 | | | | 16.20 | | 8/9/2026 | | | — | | | | — | | | 8/19/2016 | | | 11,754 | (7) | | | 2,351 | | | | 16.20 | | 8/19/2026 | | | — | | | | — | | | 2/1/2018 | | | 9,327 | (5) | | | 9,326 | | | | 23.40 | | 2/1/2028 | | | — | | | | — | | | 8/27/2019 | | | 3,106 | (9) | | | 26,715 | | | | 5.00 | | 8/27/2029 | | | — | | | | — | | | 8/27/2019 | | | — | | | | — | | | | — | | — | | | 2,947 | (10) | | | 10,844.96 | |
| (1) | Information for this table is depicted on an award-by-award basis unless the exercise price and expiration date are identical. | | | | | (2) | Where applicable, share numbers have been adjusted to reflect each of the Company’s reverse stock split,splits, which became effective on November 2, 2017.2017 and May 7, 2019, respectively. | | | | | (3) | This column represents the fair value of a share of our common stock on the date of grant, as determined by our board of directors. The weighted average exercise price of outstanding options as of December 31, 2019 does not give effect to the Repricing, which occurred as of January 29, 2020 and modified the exercise price of each such option to $5.32 per share. | | | | | (4) | This option is fully vested and immediately exercisable. | | | | | (5) | This option vests and becomes exercisable in equal monthly installments over four years from the grant date. | | | | | (6) | This option vests and becomes exercisable in equal monthly installments over four years beginning April 28, 2016. | | | | | (7) | This option vests and becomes exercisable in equal monthly installments over four years beginning November 24, 2016. | | | | | (8) | This option vests and becomes exercisable in equal monthly installments over four years from the grant date, subject to a one-year cliff. | | | | | (9) | Amounts shown are valued at the closing price of our common stock on December 31, 2019 of $3.68 per share. | | | | | (10) | Restricted stock unit awards vested on January 29, 2020. |
401(k) Savings Plan We maintain a tax-qualified retirement plan, or our 401(k) plan, that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees are able to participate in our 401(k) plan as of the first day of the month following the date they meet our 401(k) plan’s eligibility requirements, and participants are able to defer up to 100% of their eligible compensation subject to applicable annual Internal Revenue Code limits. All participants’ interests in their deferrals are 100% vested when contributed. Our 401(k) plan permits us to make matching contributions and discretionary contributions to eligible participants. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our Common Stockcommon stock which may be acquired upon exercise of stock options which are currently exercisable or which become exercisable within 60 days of February 28,December 31, 2019 are deemed beneficially owned by the holders of such options and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. As of March 28,December 31, 2019 there were 43,631,6846,825,183 shares of Common Stockcommon stock outstanding. The following table sets forth information with respect to the beneficial ownership of our Common Stock,common stock as of December 31, 2019, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stockcommon stock (our only class of voting securities), (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our Common Stockcommon stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. Other than the Merger, to our knowledge, there is no arrangement, including any pledge by any person of our securities or any of our parents, the operation of which may at a subsequent date result in a change in control of the Company. Unless otherwise noted below, the address of each person listed on the table is c/o BioCardia, Inc., 125 Shoreway Road, Suite B, San Carlos, CA 94070. Name and Address of Beneficial Owner | | Number of Shares Beneficially Owned(1) | | | Percentage of Beneficial Ownership | | 5% Stockholders: | | | | | | | | | Entities affiliated with Stertzer Family Trust(2) | | | 8,689,658 | | | | 17.9 | % | Frost Gamma Investments Trust(3) | | | 13,875,318 | | | | 28.6 | % | | | | | | | | | | Named Executive Officers and Directors: | | | | | | | | | Peter Altman, Ph.D.(4) | | | 1,960,708 | | | | 4.0 | % | Henricus Duckers | | | 245,696 | | | | * | | Fernando L. Fernandez | | | 19,388 | | | | * | | Richard Krasno | | | 19,388 | | | | * | | David McClung | | | 171,313 | | | | * | | Jay M. Moyes(5) | | | 49,296 | | | | * | | Phil Pesta | | | 182,225 | | | | * | | Richard C. Pfenniger, Jr. | | | 69,388 | | | | * | | Thomas Quertermous, M.D. | | | 136,669 | | | | * | | Simon H. Stertzer, M.D.(2) | | | 8,689,658 | | | | 17.9 | % | Allan R. Tessler(6) | | | 847,569 | | | | 1.7 | % | All directors and executive officers as a group (13 people) | | | 12,609,541 | | | | 26.0 | % |
Name and Address of Beneficial Owner | | Number of Shares Beneficially Owned(1) | | | Percentage of Beneficial Ownership | | 5% Stockholders: | | | | | | | | | Entities affiliated with Stertzer Family Trust(2) | | | 1,521,563 | | | | 17.4 | % | Frost Gamma Investments Trust(3) | | | 1,541,700 | | | | 17.6 | % | Jim Allen(4) | | | 1,016,513 | | | | 11.6 | % | Entities affiliated with Gerald P. Peters(5) | | | 592,473 | | | | 6.8 | % | Sabiah Ltd. (6) | | | 583,937 | | | | 6.7 | % | | | | | | | | | | Named Executive Officers and Directors: | | | | | | | | | Jim Allen(4) | | | 1,016,513 | | | | 11.6 | % | Andrew Blank(7) | | | 233,334 | | | | 2.7 | % | Peter Altman, Ph.D.(8) | | | 420,726 | | | | 4.8 | % | Henricus Duckers(9) | | | 59,736 | | | | * | | Fernando L. Fernandez(10) | | | 6,315 | | | | * | | Richard Krasno(11) | | | 6,315 | | | | * | | David McClung(12) | | | 68,227 | | | | * | | Jay M. Moyes(13) | | | 9,892 | | | | * | | Richard C. Pfenniger, Jr. (14) | | | 11,870 | | | | * | | Simon H. Stertzer, M.D.(2) | | | 1,521,563 | | | | 17.4 | % | All directors and executive officers as a group (11 people) | | | 3,384,419 | | | | 38.7 | % |
| | * | Represents beneficial ownership of less than 1%. | |
| | (1) | Where applicable, share numbers have been adjusted to reflect each of the Company’s reverse stock split,splits, which became effective on November 2, 2017.2017 and May 7, 2019. |
(2) | Consists of (i) 4,278,274709,513 shares of Common Stockcommon stock held by the Stertzer Family Trust, (ii) 2,076,346230,704 shares of our Common Stockcommon stock held by Windrock Enterprises L.L.C., (iii) 104,91011,656 shares of our Common Stockcommon stock held by the Stertzer Gamma Trust, (iv) 448,89591,544 shares our Common Stockcommon stock held by Stertzer Holdings LLC, , (v) 12,0003,594 shares of our Common Stockcommon stock held by Dr. Stertzer (vi) 1,333 shares of our common stock held by Dr. Stertzer and his spouse Kimberly Stertzer, (vi) 102,567(vii) 12,218 shares subject to options that are vested and exercisable within 60 days of February 28, 2018,December 31, 2019, held by Dr. Stertzer, (vii) 833,333(viii) 326,742 shares subject to warrants held by the Stertzer Family Trust, (ix) 41,667 shares subject to warrants held by Stertzer Holdings LLC and (viii) 833,333(x) 92,592 shares subject to warrants held by Windrock Enterprises L.L.C..L.L.C. Dr. Stertzer and his spouse are co-trustees of the Stertzer Family Trust, and sole members and managers of Windrock Enterprises L.L.C., and share voting and dispositive control over the shares held by the Stertzer Family Trust and Windrock Enterprises L.L.C. Dr. Stertzer is the grantor of the Stertzer Gamma Trust and may be deemed to have voting and dispositive control over the shares held by the Stertzer Gamma Trust. Dr. Stertzer may be deemed to have voting and dispositive control over the shares held by Stertzer Holdings LLC. |
(3) | Dr. Phillip Frost is the trustee and Frost Gamma Limited Partnership is the sole and exclusive beneficiary of Frost Gamma Investments Trust. Dr. Frost is one of two limited partners of Frost Gamma Limited Partnership. The general partner of Frost Gamma Limited Partnership is Frost Gamma, Inc. and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada Corporation. Dr. Frost is also the sole shareholder of Frost-Nevada Corporation. The address for these entities is 4400 Biscayne Boulevard, Suite 1500, Miami, Florida 33137. | | | (4) | Consists of 729,842(i) 515,931 shares of our Common Stockcommon stock held by Dr. AltmanMr. Allen, (ii) 398 shares of our common stock held by Mr. Allen and 1,230,866Kyle Johnson and over which Mr. Allen shares voting and dispositive power, (iii) 92 shares of our common stock, held by Wesley Upchurch and over which Mr. Allen shares voting and dispositive power, (iv) 92 shares of our common stock, held by Judson Upchurch and over which Mr. Allen shares voting and dispositive power, and (v) 500,000 shares subject to options vested and exercisable within 60 days of February 28, 2018.warrants held by Mr. Allen. | | |
(5) | Consists of 3,312(i) 166,086 shares of our Common Stock held by Gerald P. Peters, (ii) 89,487 shares of our Common Stock held by The Peters Corporation, (iii) 33,456 shares of our common stock held by the Peters Family Art Foundation, (iv) 53,500 shares of our common stock held in the Kathleen K. Peters & Gerald P. Peters III Revocable Trust UTA dtd. Sept. 29, 2008, (v) 76,759 shares of our common stock held in an account for the benefit of Mr. Peters, (vi) 7,185 shares of our common stock held in an account for the benefit of his spouse, and 45,984(vii) 166,000 shares subject to warrants held by Mr. Peters. Gerald P. Peters, President, Chief Executive Officer and Financial & Fiscal Officer of the Peters Family Art Foundation may be deemed to have voting and dispositive control over the shares held by the Peters Family Art Foundation. The address for the Peters Family Art Foundation is P.O. Box 2437, Santa Fe, NM 87504. Mr. Peters may be deemed to have voting and dispositive control over the shares held by The Peters Corporation. | | | (6) | Consists of (i) 417,270 shares of our common stock held by Sabiah Ltd. and (ii) 116,667 shares subject to warrants held by Sabiah Ltd. Luis M de la Fuente, his wife and child are the stockholders of Sabiah Ltd. and share voting and dispositive control over the shares held by Sabiah Ltd. The address for this entity is P.O. Box 438, Road Town, Tortola, British Virgin Islands. |
(7) | Consists of (i) 116,667 shares of our common stock held by Mr. Blank and (ii) 116,667 shares subject to warrants held by Mr. Blank. | | |
(8) | Consists of (i) 163,411 shares of our common stock held by Dr. Altman, (ii) 189,831 shares subject to options vested and exercisable within 60 days of December 31, 2019, and (iii) 67,484 shares subject to warrants held by Dr. Altman. | | |
(9) | Consists of (i) 8,435 shares of our common stock held by Dr. Duckers, (ii) 42,866 shares subject to options vested and exercisable within 60 days of December 31, 2019, and (iii) 8,435 shares subject to warrants held by Dr. Duckers. | | |
(10) | Consists of 6,315 shares subject to options held by Mr. Moyes that are vested and exercisable within 60 days of February 28, 2018.December 31, 2019. | | |
(6)(11)
| Consists of (i) 19,388 shares of Common Stock held by Mr. Tessler, (ii) 13,5786,315 shares subject to options held by Mr. TesslerKrasno that are vested and exercisable within 60 days of February 28, 2018, (iii) 580,425December 31, 2019. |
(12) | Consists of (i) 17,559 shares of our Common Stockcommon stock held by ART/FGT Family Limited Partnership, (iv) 117,089Mr. McClung, (ii) 33,797 shares subject to options vested and exercisable within 60 days of December 31, 2019, and (iii) 16,871 shares subject to warrants held by Mr. McClung. | | |
(13) | Consists of 3,961 shares of our Common Stockcommon stock and 5,931 shares subject to options held by International Financial Group,Mr. Moyes that are vested and (v) 117,089exercisable within 60 days of December 31, 2019. | | |
(14) | Consists of 11,870 shares of our Common Stocksubject to options held by The Tessler Family Limited Partnership. Mr. TesslerPfenniger that are vested and his spouse are limited partnersexercisable within 60 days of the ART/FGT Family Limited Partnership and share voting and dispositive control over the shares held by the ART/FGT Family Limited Partnership. The address for the ART/FGT Family Limited Partnership is 2500 Moose Wilson Road, Wilson, Wyoming 83014. Mr. Tessler may be deemed to have voting and dispositive control over the shares held by the Tessler Family Limited Partnership and International Financial Group.December 31, 2019. |
Equity Compensation Plan Information The following table summarizes our equity compensation plan information as of December 31, 2018.2019. Information is included for equity compensation plans approved by our stockholders and equity compensation plans not approved by our stockholders. We will not grant equity awards in the future under any of the equity compensation plans not approved by our stockholders included in the table below. Plan Category | | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(1) | | | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) | | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))(1) | | Equity compensation plans approved by stockholders(1) | | 5,325,746 | | $ | 2.88 | | | 1,938,110 | | | | 811,892 | | | $ | 19.11 | | | | 461,605 | | Equity compensation plans not approved by stockholders(3) | | 418,977 | | $ | 1.80 | | | — | | | | 46,553 | | | $ | 16.20 | | | | — | | Total | | 5,744,723 | | $ | 2.80 | | | 1,938,110 | | | | 854,445 | | | $ | 18.95 | | | | 461,605 | |
(1) | Where applicable, share numbers have been adjusted to reflect each of the Company’s reverse stock split,splits, which became effective on November 2, 2017.2017 and May 7, 2019, respectively. | | | (2) | The weighted average exercise price is calculated based solely on outstanding stock options. It does not take into account the shares of our common stock underlying RSUs, which have no exercise price. The weighted average exercise price of outstanding options, warrants and rights as of December 31, 2019 does not give effect to the Repricing, which occurred as of January 29, 2020 and modified the exercise price of certain options to $5.32 per share. | | | (3) | In August 2016, the Company granted an option to purchase common stock outside of the Company’s stock option plans to a consultant. |
ITEM 13.13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Policies and Procedures for Related Party Transactions We have adopted a formal policy that our executive officers, directors, holders of more than 5% of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of our audit committee, or other independent members of our board of directors if it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of their immediate family members or affiliates, in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year endyear-end for the last two completed fiscal years must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. All of the transactions described above were entered into prior to the adoption of this policy. Related Party Transactions We describe below transactions and series of similar transactions, since the beginning of our last fiscal year ended December 31, 2017,2018, to which we were a party or will be a party, in which: | • | the amounts involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year endyear-end for the last two completed fiscal years; and | | | | | • | any of our directors, nominees for director, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. |
Other than as described below, there has not been, nor is there any currently proposed, transactions or series of similar transactions to which we have been or will be a party. Other Transactions We have granted stock options to our named executive officers and certain of our directors. See the section titled “Executive Compensation−Outstanding Equity Awards at 20182019 Year-End” for a description of these stock options. We have entered into change of control and severance agreements with certain of our executive officers that provides for certain severance and change in control benefits. See the section titled “Executive Compensation−Potential Payments uponon Termination or Change of Control.” On December 24, 2018, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”)securities purchase agreement with entities affiliated with Dr. Simon H. Stertzer, the Chairman of our Board of Directors and a beneficial owner of more than 5% of the outstanding shares of the Company’s common stock, and Frost Gamma Investments Trust, a beneficial owner of more than 5% of the outstanding shares of the Company’s common stock (the “Investors”), relating to an offering and sale (the “Offering”“2018 Offering”) of an aggregate of 5,333,332592,592 shares of the Company’s common stock at a purchase price of $0.75$6.75 per share, and warrants to purchase up to one-half of the number of shares of common stock sold to an Investor, up to an aggregate for all Investors of 2,666,666296,295 shares of Common Stock (the “Warrant Shares”) at an exercise price of $0.75$6.75 per share, for aggregate net proceeds of $3.8 million. The warrants will expire on December 24, 2023. The warrants contain customary adjustments and are exercisable immediately for cash and after six months will also be exercisable on a cashless basis if there is no effective registration statement registering the resale of the Warrant Shares. The Investors do not have registration rights in connection with any securities purchased in the 2018 Offering. The closing of the 2018 Offering took place on December 24, 2018. BioCardia, Inc. (the “Company”) and OPKO Health, Inc. (“OPKO”) previously entered into a consulting agreement dated August 19, 2016, between the Company and OPKO (the “Consulting Agreement”). The chairman and chief executive officer of OPKO is a beneficial owner of more than 5% of the outstanding shares of the Company’s common stock. In 2019, the Company terminated the consulting agreement and modified the options such that the options will continue vesting and will remain outstanding through the original contractual term. On July 5, 2019, the Company entered into a note purchase agreement pursuant to which we issued on such date $0.625 million in aggregate principal amount of convertible promissory notes, a portion of which was issued to certain of our officers and directors and a principal stockholder (or their respective affiliates). Interest on the convertible notes accrued at the rate of 14.0% per year. The unpaid principal amount of the convertible notes, together with all interest accrued but unpaid thereon, automatically converted into units upon the closing of our public offering on August 6, 2019, at a conversion price equal to 50% of the price to the public in the offering. Based on the public offering price of $6.00 per Unit, the $0.625 million principal amount of the outstanding convertible notes and interest thereon converted into approximately 146,616 units, consisting of 210,887 shares of our common stock and 210,887 warrants to purchase shares of our common stock at an exercise price of $6.30 per share. Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements, our amended and restated certificate of incorporation and our amended and restated bylaws require us to indemnify our directors to the fullest extent permitted by Delaware law. The information related to the independence of our directors in Item 10 of this Annual Report on Form 10-K is hereby incorporated by reference in this Item 13. ITEM 14.14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees Paid to the Independent Registered Public Accounting Firms The following table presents fees for professional audit services and other services rendered to our company by KPMG for our fiscal year ended December 31, 2018.2019. | | KPMG | | | KPMG | | | | (In Thousands) | | | (In Thousands) | | Audit Fees(1) | | $ | 411 | | | $ | 527 | | Audit−Related Fees(2) | | | — | | | | — | | Tax Fees(3) | | | — | | | | — | | All Other Fees(4) | | | — | | | | — | | Total Fees | | $ | 411 | | | $ | 527 | |
The following table presents fees for professional audit services and other services rendered to our company by KPMG for our fiscal year ended December 31, 2017.2018. | | KPMG | | | KPMG | | | | (In Thousands) | | | (In Thousands) | | Audit Fees(1) | | $ | 642 | | | $ | 411 | | Audit−Related Fees(2) | | | — | | | | — | | Tax Fees(3) | | | — | | | | — | | All Other Fees(4) | | | — | | | | — | | Total Fees | | $ | 642 | | | $ | 411 | |
(1) | Audit Fees consist of professional services rendered in connection with the audit of our annual consolidated financial statements, including audited financial statements presented in this Annual Report on Form 10-K, services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements for those fiscal years and timely review of our quarterly consolidated financial statements. |
(2) | Audit-Related Fees consist of fees for professional services for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations concerning financial accounting and reporting standards. |
(3) | Tax Fees consist of fees for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance. |
(4) | All Other Fees consist of permitted services other than those that meet the criteria above. |
All fees described above were pre-approved by the BioCardia Audit Committee or the board of directors of Tiger X Medical, Inc., as applicable. We changed our name from Tiger X Medical, Inc. to BioCardia, Inc. following our reverse merger transaction that occurred in October 2016. Committee. Auditor Independence In our fiscal year ended December 31, 2018,2019, there were no other professional services provided by KPMG that would have required our audit committee to consider their compatibility with maintaining the independence of KPMG. Audit Committee Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee has established a policy governing our use of the services of our independent registered public accounting firm. Under the policy, our audit committee is required to pre-approve all audit and non-audit services performed by our independent registered public accounting firm in order to ensure that the provision of such services does not impair the public accountants’ independence. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Documents filed as part of this report are as follows: 1. | Consolidated Financial Statements: |
Our Consolidated Financial Statements are listed in the “Index to Financial Statements” of BioCardia, Inc. in Part II, Item 8 of this Annual Report on Form 10-K. 2. | Financial Statement Schedules |
All financial statement schedules have been omitted because they are not required, not applicable, or the required information is included in the financial statements or notes thereto included in this Annual Report on Form 10-K. The documents listed in the Exhibit Index of this Annual Report on Form 10-K are incorporated by reference or are filed with this report, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K). EXHIBIT INDEX Exhibit Number | Description | | | 2.1(1) | Agreement and Plan of Merger dated August 22, 2016 | 2.2(2) | First Amendment to Agreement and Plan of Merger dated October 21, 2016 | 3.1(3) | Amended and Restated Certificate of Incorporation.Incorporation, as amended May 6, 2019 | 3.2(4) | Certificate of Amendment of Amended and Restated Certificate of Incorporation.
| 3.3(5)
| Amended and Restated Bylaws | 4.1(6)4.1(5)
| Specimen common stock certificate | 4.2(7)4.2(6)#
| BioCardia 2002 Stock Plan, as amended | 4.3(8)4.3(7)#
| Form of Stock Option Agreement under BioCardia 2002 Stock Plan | 4.4(9)4.4(8)#
| BioCardia 2016 Equity Incentive Plan | 4.5(10)4.5(9)#
| Form of Stock Option Agreement under BioCardia 2016 Equity Incentive Plan | 4.6(11)4.6(10)#
| Form of Restricted Stock Unit Agreement under BioCardia 2016 Equity Inventive Plan | 4.7(12)4.7(11)# | Form of Warrant for Common Stock Purchase Warrants issued December 24, 2018 | 10.1(13)4.8(12)
| Form of Common Stock Purchase Warrant | 4.9(13) | Form of Representative’s Warrant | 4.10* | Description of Registered Securities | 10.1(14)# | Form of Indemnification Agreement for directors and executive officers | 10.2(14)10.2(15)#
| Form of Change of Control and Severance Agreement with each executive officer. | 10.3(15)10.3(16)
| Lease Agreement, dated September 29, 2008, by and between the Company and ARE-San Francisco No. 29, LLC. | 10.4(16)10.4(17)
| First Amendment to Lease, dated May 31, 2010, by and between the Company and ARE-San Francisco No. 29, LLC. | 10.5(17)10.5(18)
| Second Amendment to Lease, dated May 29, 2013 by and between the Company and ARE-San Francisco No. 29, LLC. | 10.6(18)10.6(19)
| Third Amendment to Lease, dated November 4, 2016, by and between the Company and ARE-San Francisco No. 29, LLC. | 10.7(19)10.7(20) †
| License and Distribution Agreement, dated October 30, 2012, by and between the Company and Biomet Biologics, LLC, as amended. | 10.8(20)10.8(21)
| ConsultingForm of Warrant Agreement dated August 19, 2016, by and between the Company and OPKO Health, Inc.
| 21.1* | Subsidiaries of the Company | 23.1* | Consent of Independent Registered Public Accounting Firm. | 24.1* | Power of Attorney (see page 106 of this Annual Report on Form 10-K). | 31.1* | Certification of Principal Executive Officer. | 31.2* | Certification of Principal Financial Officer. | 32.1** | Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Title 18, United States Code). | 32.2** | Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Title 18, United States Code). |
101.INS* | XBRL Instance Document. | 101.SCH* | XBRL Taxonomy Extension Schema. | 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase. | 101.DEF* | XBRL Taxonomy Extension Definition Linkbase. | 101.LAB* | XBRL Taxonomy Extension Label Linkbase. | 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase. |
_____________________ † | Confidential treatment has been granted with respect to certain portions of this Exhibit. |
# | Indicates management contract or compensatory plan or arrangement. |
(1) | Previously filed as an exhibitExhibit 2.1 to the Current Report on Form 8-K filed by us on August 25, 2016. | (2) | Previously filed as an exhibitExhibit 2.2 to the Current Report on Form 8-K filed by us on October 27, 2016. | (3) | Previously filed as an exhibitExhibit 3.1 to the CurrentQuarterly Report on Form 8-K10-Q filed by us on April 11, 2017.August 14, 2019. | (4) | Previously filed as an exhibit to the Current Report on Form 8-K filed by us on November 7, 2017. | (5)
| Previously filed as an exhibitExhibit 3.2 to the Current Report on Form 8-K filed by us on April 11, 2017.
| (5) | Previously filed as Exhibit 4.1 to the Current Report on Form 8-K filed by us on October 27, 2016. | (6) | Previously filed as an exhibitExhibit 10.1 to the Current Report on Form 8-K filed by us on October 27, 2016. | (7) | Previously filed as an exhibitExhibit 4.3 to the Current Reportregistration statement on Form 8-KS-8 filed by us on October 27, 2016.February 8, 2017. | (8) | Previously filed as an exhibitExhibit 4.6 to the registration statement on Form S-8 filed by us on February 8, 2017. | (9) | Previously filed as an exhibitExhibit 4.7 to the registration statement on Form S-8 filed by us on February 8, 2017. | (10) | Previously filed as an exhibitExhibit 4.8 to the registration statement on Form S-8 filed by us on February 8, 2017. | (11) | Previously filed as an exhibit to the registration statement on Form S-8 filed by us on February 8, 2017. | (12)
| Previously filed as an exhibitExhibit 4.1 to the Current Report on Form 8-K filed by us on December 27, 2018.
| (13)(12) | Previously filed as an exhibitExhibit 4.1 to the Current Report on Form 10-K8-K filed by us on October 27, 2018.August 7, 2019. | (13) | Previously filed as Exhibit 4.10 to Amendment No. 3 to the registration statement on Form S-1 filed by us on July 23, 2019. | (14) | Previously filed as an exhibit to the Current Report on Form 10-K filed by us on March 30, 2017. | (15)
| Previously filed as an exhibitExhibit 10.4 to the Current Report on Form 8-K filed by us on October 27, 2016.
| (15) | Previously filed as Exhibit 10.2 to the Annual Report on Form 10-K filed by us on March 30, 2017. | (16) | Previously filed as an exhibitExhibit 10.5 to the Current Report on Form 8-K filed by us on October 27, 2016. | (17) | Previously filed as an exhibitExhibit 10.6 to the Current Report on Form 8-K filed by us on October 27, 2016. | (18) | Previously filed as an exhibit to the Current Report on Form 10-K filed by us on March 30, 2017. | (19)
| Previously filed as an exhibitExhibit 10.7 to the Current Report on Form 8-K filed by us on October 27, 2016.
| (19) | Previously filed as Exhibit 10.6 to the Annual Report on Form 10-K filed by us on March 30, 2017. | (20) | Previously filed as an exhibitExhibit 10.8 to the Current Report on Form 10-K/A8-K filed by us on July 20, 2017.October 27, 2016. | (21) | Previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed by us on August 7, 2019. |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | BIOCARDIA INC. | | | | | | | | | | | By: | /s/ Peter Altman | | | | Peter Altman | | | | President and Chief Executive Officer | |
Date: April 1, 20199, 2020 POPOWERWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter Altman and David McClung, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant on the dates and the capacities indicated. Signature | | Title | | Date | | | | | | /s/ Peter Altman | | President and Chief Executive Officer and Director | | April 1, 20199, 2020 | (Peter Altman) | | (Principal Executive Officer) | | | | | | | | /s/ David McClung | | Chief Financial Officer | | April 1, 20199, 2020 | (David McClung) | | (Principal Financial and Accounting Officer) | | | | | | | | /s/ Simon H. Stertzer | | Chairman of the Board | | April 1, 20199, 2020 | (Simon H. Stertzer) | | | | | | | | | | /s/ Fernando L. Fernandez | | Director | | April 1, 20199, 2020 | (Fernando L. Fernandez) | | | | | | | | | | /s/ Richard Krasno | | Director | | April 1, 20199, 2020 | (Richard Krasno) | | | | | | | | | | /s/ Jay M. Moyes | | Director | | April 1, 20199, 2020 | (Jay M. Moyes) | | | | | | | | | | /s/ Richard P. Pfenniger, Jr. | | Director | | April 1, 20199, 2020 | (Richard P. Pfenniger, Jr.) | | | | | | | | | | /s/ Thomas QuertermousAndrew Blank | | Director | | April 1, 20199, 2020 | (Thomas Quertermous)Andrew Blank) | | | | | | | | | | /s/ Allan R. TesslerJames Allen | | Director | | April 1, 20199, 2020 | (Allan R. Tessler)James Allen) | | | | |
106107
|
|