1、Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934For the fiscal year ended December 31,2008OR o Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange
2、 Act of 1934 Isolagen,Inc.(Exact name of registrant as specified in its Charter.)Delaware(State or other jurisdiction of incorporation)001-31564(Commission File Number)87-0458888(I.R.S.EmployerIdentification No.)405 Eagleview BoulevardExton,Pennsylvania 19341(Address of principal executive offices,i
3、ncluding zip code)(484)713-6000(Issuers telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of Each Class Name of Each Exchange on which RegisteredCommon Stock,$.001 par value NYSE AMEX Indicate by check mark if the registrant is a well-known seasoned
4、 issuer,as defined in Rule 405 of the Securities Act.Yes o No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes o No Indicate by check mark whether the registrant:(1)filed all reports required to be filed by Section 13 or 1
5、5(d)of theExchange Act during the preceding 12 months(or for any shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No oIndicate by check mark if there is no disclosure of delinquent filers in response to
6、Item 405 of Regulation S-K contained inthis form,and no disclosure will be contained,to the best of registrants knowledge,in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.Indicate by check mark whether the registr
7、ant is a large accelerated filer,an accelerated filer,or a non-accelerated filer or asmaller reporting company.See the definitions of“large accelerated filer,”“accelerated filer”and“smaller reporting company”in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer o Accelerated filer o
8、Non-accelerated filer o Smaller reporting company (Do not check if a smaller reporting company)Indicate by check mark whether the registrant is shell company(as defined in the Exchange Act Rule 12b-2).Yes o No As of June 30,2008,the aggregate market value of the issuers common stock held by non-affi
9、liates of the issuer basedupon the price at which such common stock was sold on the American Stock Exchange as of such date was$12,392,273.As of April 9,2009,issuer had 41,887,266 shares issued and 37,887,266 shares outstanding of common stock,par value$0.001.DOCUMENTS INCORPORATED BY REFERENCEPorti
10、ons of the Proxy Statement for the 2008 Annual Meeting of Stockholders(the“Proxy Statement”),to be filed within120 days of the end of the fiscal year ended December 31,2008,are incorporated by reference in Part III hereof.Except withrespect to information specifically incorporated by reference in th
11、is Form 10-K,the Proxy Statement is not deemed to be filed aspart hereof.TABLE OF CONTENTS Page PART I ITEM 1.BUSINESS 2 ITEM 1A.RISK FACTORS 14 ITEM 1B.UNRESOLVED STAFF COMMENTS 31 ITEM 2.PROPERTIES 31 ITEM 3.LEGAL PROCEEDINGS 32 ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 35 PART II
12、 ITEM 5.MARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES 36 ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS 38 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 47 ITEM 9.CHANGES IN AND DISAGREEMENTS
13、 WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE 47 ITEM 9A.CONTROLS AND PROCEDURES 48 ITEM 9B.OTHER INFORMATION 48 PART III ITEM 10.DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 49 ITEM 11.EXECUTIVE COMPENSATION 49 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMEN
14、T AND RELATEDSTOCKHOLDER MATTERS 49 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTOR INDEPENDENCE 49 ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES 49 PART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULE 50 Exhibit 23 Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Exhibit 32.2 Table
15、of ContentsPart IThis Annual Report on Form 10-K(including the section regarding Managements Discussion and Analysis ofFinancial Condition and Results of Operations)contains certain“forward-looking statements”within the meaning ofSection 27A of the Securities Act of 1933,as amended,and Section 21E o
16、f the Securities Exchange Act of 1934,as amended,aswell as information relating to Isolagen,Inc.and its subsidiaries(referred to as“Isolagen,”“Company,”“we,”or“our”)that isbased on managements exercise of business judgment and assumptions made by and information currently available tomanagement.Alth
17、ough forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of ourmanagement,such statements can only be based on facts and factors currently known by us.Consequently,forward-lookingstatements are inherently subject to risks and uncertainties and actual results
18、 and outcomes may differ materially from theresults and outcomes discussed in or anticipated by the forward-looking statements.When used in this document and otherdocuments,releases and reports released by us,the words“anticipate,”“believe,”“estimate,”“expect,”“intend,”“the factssuggest”and words of
19、 similar import,are intended to identify any forward-looking statements.You should not place unduereliance on these forward-looking statements.These statements reflect our current view of future events and are subject tocertain risks and uncertainties as noted below.Should one or more of these risks
20、 or uncertainties materialize,or shouldunderlying assumptions prove incorrect,our actual results could differ materially from those anticipated in these forward-looking statements.Actual events,transactions and results may materially differ from the anticipated events,transactions orresults describe
21、d in such statements.Although we believe that our expectations are based on reasonable assumptions,we cangive no assurance that our expectations will materialize.Many factors could cause actual results to differ materially from ourforward looking statements including those set forth in Item 1A of th
22、is report.Other unknown,unidentified or unpredictablefactors could materially and adversely impact our future results.We undertake no obligation and do not intend to update,reviseor otherwise publicly release any revisions to our forward-looking statements to reflect events or circumstances after th
23、e datehereof or to reflect the occurrence of any unanticipated events.We file reports with the Securities and Exchange Commission(“SEC”or“Commission”).We make available on ourwebsite(www.I)free of charge our annual report on Form 10-K,quarterly reports on Form 10-Q,current reports onForm 8-K and ame
24、ndments to those reports as soon as reasonably practicable after we electronically file such materials with orfurnish them to the SEC.Information appearing at our website is not a part of this Annual Report on Form 10-K.You can alsoread and copy any materials we file with the Commission at its Publi
25、c Reference Room at 100 F Street,NE,Washington,DC20549.You can obtain additional information about the operation of the Public Reference Room by calling the Commission at1-800-SEC-0330.In addition,the Commission maintains an Internet site(www.sec.gov)that contains reports,proxy andinformation statem
26、ents,and other information regarding issuers that file electronically with the Commission,includingIsolagen.Our corporate headquarters is located at 405 Eagleview Boulevard,Exton,Pennsylvania 19341.Our phone number is(484)713-6000.Our fiscal year begins on January 1,and ends on December 31,and any r
27、eferences herein to“Fiscal 2008”mean the year ended December 31,2008,and references to other“Fiscal”years mean the year ending December 31,of the yearindicated.We own or have rights to various copyrights,trademarks and trade names used in our business including but notlimited to the following:Isolag
28、en,Isolagen Therapy,Isolagen Process,Agera and Agera Rx.This report also includes othertrademarks,service marks and trade names of other companies.Other trademarks and trade names appearing in this report are theproperty of the holder of such trademarks and trade names.We obtained statistical data,m
29、arket data and other industry data and forecasts used in this Form 10-K from publiclyavailable information.While we believe that the statistical data,industry data,forecasts and market research are reliable,wehave not independently verified the data,and we do not make any representation as to the ac
30、curacy of that information.1Table of ContentsItem 1.BusinessOverviewWe are an aesthetic and therapeutic development stage company focused on developing novel skin and tissuerejuvenation products.Our clinical development product candidates are designed to improve the appearance of skin injured bythe
31、effects of aging,sun exposure,acne and burn scars with a patients own,or autologous,fibroblast cells produced by ourproprietary Isolagen Process.Our clinical development programs encompass both aesthetic and therapeutic indications.Ourmost advanced indication utilizing the Isolagen Therapy is for th
32、e treatment of nasolabial folds/wrinkles and has recentlycompleted Phase III clinical studies,and the related Biologics License Application(“BLA”)has been submitted to the Food andDrug Administration(“FDA”).During 2009 we completed one of two Phase II/III studies for the treatment of acne scars.Duri
33、ng2008 we completed our open-label Phase II study related to full face rejuvenation.We also develop and market an advanced skin care product line through our Agera Laboratories,Inc.subsidiary,inwhich we acquired a 57%interest in August 2006.Going Concern and Risk of BankruptcyAt December 31,2008,we
34、had cash and cash equivalents of$2.9 million and negative working capital of$(87.3)million.We believe that our existing capital resources are adequate to sustain our operation through approximately the end ofApril 2009,under our current,reduced operating plan.As such,we require additional cash resou
35、rces prior to or duringapproximately the end of April 2009,or we will likely enter into bankruptcy and/or cease operations.Further,if we do raiseadditional cash resources prior to the end of April 2009,it may be raised in contemplation of or in connection with bankruptcy.In the event of a bankruptcy
36、,it is likely that our common stock and common stock equivalents will become worthless and ourcreditors will receive significantly less than what is owed to them.As of the date of the filing of this annual report,we have nocommitments for any such additional funding and there is no assurance that we
37、 will receive any such additional funding.As of December 31,2008,we had$90 million of debt which could be called due as early as November 2009,at theoption of the bond holders.Further,approximately$1.6 million of interest related to this debt is due on May 1,2009.Wecurrently do not have the cash or
38、available funding to pay the interest of$1.6 million due May 1,2009.Through December 31,2008,we have been primarily engaged in developing our initial product technology.In thecourse of our development activities,we have sustained losses and expect such losses to continue through at least 2009.Infisc
39、al 2008 we financed our operations primarily through our existing cash,but as discussed above we now require additionalfinancing.There is substantial doubt about our ability to continue as a going concern.We will require additional capital to continue our operations past approximately the end of Apr
40、il 2009.There is noassurance that we will be able to obtain any such additional capital as we need to finance these efforts,through asset sales,equity or debt financing,or any combination thereof,on satisfactory terms or at all.Additionally,no assurance can be giventhat any such financing,if obtaine
41、d,will be adequate to meet our ultimate capital needs and to support our growth.If adequatecapital cannot be obtained on a timely basis and on satisfactory terms,our operations would be materially negatively impacted.If we do not obtain additional funding,or do not anticipate additional funding,prio
42、r to or during approximately the end ofApril 2009,we will likely enter into bankruptcy and/or cease operations.Further,if we do raise additional cash resources priorto the end of April 2009,it may be raised in contemplation of or in connection with bankruptcy.We filed a shelf registration statement
43、on Form S-3 during June 2007,which was subsequently declared effective bythe SEC.The shelf registration allows us the flexibility to offer and sell,from time to time,up to an original amount of$50 million of common stock,preferred stock,debt securities,warrants or any combination of the foregoing in
44、 one or morefuture public offerings.In August 2007,we sold under this shelf registration statement 6,746,647 shares of common stock toinstitutional investors,raising proceeds of$13.8 million,net of offering costs.We may offer and sell up to an additional$36.2 million of securities pursuant to this s
45、helf registration.However,in general,companies that are under$75 million inmarket capitalization,such as Isolagen,are limited to selling up to one-third of the value of such companys common stock heldby non-affiliates in any twelve month period.2Table of ContentsOur ability to complete additional of
46、ferings,including any additional offerings under our shelf registration statement,is dependent on the state of the debt and/or equity markets at the time of any proposed offering,and such markets reception ofthe Company and the offering terms.Currently the credit and equity markets both in the Unite
47、d States and internationally areseverely contracted,which will make our task of raising additional debt or equity capital even more difficult.In addition,ourability to raise additional financing through the issuance of common stock or convertible securities may be adversely affectedby uncertainties
48、regarding the continued listing of our common stock on the NYSE Amex(see Item 5).Finally,our ability tocomplete an offering may be dependent on the status of our FDA regulatory milestones and our clinical trials,and in particular,the status of our indication for the treatment of nasolabial folds,the
49、 status of the related Biologics License Application,and thestatus of our Phase II/III acne scar trial,which cannot be predicted.There is no assurance that capital in any form would beavailable to us,and if available,on terms and conditions that are acceptable.As a result of the conditions discussed
50、 above,and in accordance with generally accepted accounting principles in theUnited States,there exists substantial doubt about our ability to continue as a going concern,and our ability to continue as agoing concern is contingent,among other things,upon our ability to secure additional adequate fin
51、ancing or capital prior to orduring approximately the end of April 2009.If we do not obtain additional funding,or do not anticipate additional funding,prior to or during approximately the end of April 2009,we will likely enter into bankruptcy and/or cease operations.Further,ifwe do raise additional
52、cash resources prior to the end of April 2009,it may be raised in contemplation of or in connection withbankruptcy.If we enter into bankruptcy,it is likely that our common stock and common stock equivalents will becomeworthless and our creditors will receive significantly less than what is owed to t
53、hem.Due to the likelihood of bankruptcy and in connection with the Companys review for impairment of long-livedassets in accordance with SFAS 144,“Accounting for the Impairment or Disposal of Long-lived Assets,”we have recorded a fullimpairment on all of our long-lived assets as of December 31,2008,
54、and as such,we have recorded an impairment charge of$6.7 million during the year ended December 31,2008.Isolagens Technology PlatformWe use our proprietary Isolagen Process to produce an autologous living cell therapy.We refer to this autologousliving cell therapy as the Isolagen Therapy.We believe
55、this therapy addresses the normal effects of aging or injury to the skin.Each of our product candidates is designed to use Isolagen Therapy to treat an indicated condition.We use our Isolagen Processto harvest autologous fibroblasts from a small skin punch biopsy from behind the ear with the use of
56、a local anesthetic.Wechose this location both because of limited exposure to the sun and to avoid creating a visible scar.In the case of our dentalproduct candidate,the biopsy is taken from the patients palette.The biopsy is then packed in a vial in a special shippingcontainer and shipped to our lab
57、oratory where the fibroblast cells are released from the biopsy and initiated into our cell cultureprocess where the cells proliferate until they reach the required cell count.The fibroblasts are then harvested,tested by qualitycontrol and released by quality assurance prior to shipment.The number o
58、f cells and the frequency of injections may vary andwill depend on the indication or application being studied.If and when approved,we expect our product candidates will offer patients their own living fibroblast cells in apersonalized therapy designed to improve the appearance of damaged skin and w
59、rinkles;or in the case of restrictive burn scars,improve range of motion.Our product candidates are intended to be a minimally invasive alternative to surgical interventionand a viable natural alternative to other chemical,synthetic or toxic treatments.We also believe that because our productcandida
60、tes are autologous,the risk of an immunological or allergic response is low.With regard to the therapeutic markets,webelieve that our product candidates may address an insufficiently met medical need for the treatment of each of restrictive burnscars,acne scars and dental papillary insufficiency,or
61、gum recession,and potentially help patients avoid surgical intervention.Certain of our product candidates are still in clinical development and,as such,benefits we expect to see associated with ourproduct candidates may not be validated in our clinical trials.In addition,disadvantages of our product
62、 candidates may becomeknown in the future.Our StrategyOur business strategy is primarily focused on our approval efforts related to our nasolabial fold/wrinkle indication,forwhich we have submitted a BLA in March 2009.Our additional objectives include achieving regulatory milestones related toour ot
63、her Phase II/III Acne Scar program,as funding permits in the future(refer to Clinical Development Programs below).3Table of ContentsClinical Development ProgramsOur product development programs are focused on the aesthetic and therapeutic markets.These programs aresupported by a number of clinical t
64、rial programs at various stages of development.Our aesthetics development programs include product candidates to treat targeted areas or wrinkles and to providefull-face rejuvenation that includes the improvement of fine lines,wrinkles,skin texture and appearance.Our therapeuticdevelopment programs
65、are designed to treat acne scars,restrictive burn scars and dental papillary recession.All of our productcandidates are non-surgical and minimally invasive.Although the discussions below may include estimates of when we expecttrials to be completed,the prediction of when a clinical trial will be com
66、pleted is subject to a number of factors anduncertainties.Also,please refer to Part I,Item 1A of this Form 10-K for a discussion of certain of our risk factors related to ourclinical development programs,as well as other risk factors related to our business.Aesthetic Development ProgramsWrinkles/Nas
67、olabial Folds Phase III Trials:In October 2006,we reached an agreement with the U.S.Food andDrug Administration,or FDA,on the design of a Phase III pivotal study protocol for the treatment of nasolabial folds(lineswhich run from the sides of the nose to the corners of the mouth).The randomized,doubl
68、e-blind protocol was submitted to theFDA under the agencys Special Protocol Assessment,or SPA.Pursuant to this assessment process,the FDA has agreed that ourstudy design for two identical trials,including subject numbers,clinical endpoints,and statistical analyses,is adequate toprovide the necessary
69、 data that,depending on the outcome,could form the basis of an efficacy claim for a marketingapplication.The pivotal Phase III trials evaluated the efficacy and safety of Isolagen Therapy against placebo in approximately400 subjects total with approximately 200 subjects enrolled in each trial.The in
70、jections were completed in January 2008 andthe trial data results were disclosed in October 2008.The Phase III trial data results indicated statistically significant efficacyresults for the treatment of nasolabial folds.The Phase III data analysis,including safety results,was disclosed in October 20
71、08.We submitted the related Biologics License Application(BLA)to the FDA in March 2009.Full Face Rejuvenation Phase II Trial:In March 2007 we commenced an open label(unblinded)trial ofapproximately 50 subjects.Injections of Isolagen Therapy began to be administered in July 2007.This trial was design
72、ed tofurther evaluate the safety and use of Isolagen Therapy to treat fine lines and wrinkles for the full face.Five investigators acrossthe United States participated in this trial.The subjects received two series of injections approximately one month apart.In lateDecember 2007,all 45 remaining sub
73、jects completed injections.The subjects were followed for twelve months following eachsubjects last injection.Data results related to this trial were disclosed in August 2008,which included top line positive efficacyresults related to this open label Phase II trial.Therapeutic Development ProgramsAc
74、ne Scars Phase II/III Trial:In November 2007,we commenced an acne scar Phase II/III study.This studyincluded approximately 95 subjects.This placebo controlled trial was designed to evaluate the use of our Isolagen Therapy tocorrect or improve the appearance of acne scars.Each subject served as their
75、 own control,receiving Isolagen Therapy on oneside of their face and placebo on the other.The subjects received three treatments two weeks apart.The follow-up andevaluation period was completed four months after each subjects last injection.In March 2009,we disclosed certain trial dataresults,which
76、included statistically significant efficacy results for the treatment of moderate to severe acne scars.Compilationof safety data and data related to the validation of the study photo guide assessment scale discussed below is ongoing.In connection with this acne scar program,we developed a photo guid
77、e for use in the evaluators assessment of acnestudy subjects.We had originally designed the acne scar clinical program as two randomized,double-blind,Phase III,placebo-controlled trials.However,our evaluator assessment scale and photo guide have not previously been utilized in a clinical trial.In No
78、vember 2007,the FDA recommended that we consider conducting a Phase II study in order to address certain study issues,including additional validation related to our evaluator assessment scale.As such,we modified our clinical plans to initiate asingle Phase II/III trial.This Phase II/III study,was po
79、wered to demonstrate efficacy,and has allowed for a closer assessment ofthe evaluator assessment scale and photo guide that is ongoing.We expect to initiate a subsequent,additional Phase III trial,subject to sufficient financial resources.We believe that the two trials may have the potential to form
80、 the basis of a licensuresubmission to the FDA.4Table of ContentsRestrictive Burn Scars Phase II Trial:In January 2007,we met with the FDA to discuss our clinical program for theuse of Isolagen Therapy for restrictive burn scar patients.This Phase II trial would evaluate the use of Isolagen Therapy
81、toimprove range of motion,function and flexibility,among other parameters,in existing restrictive burn scars in approximately20 patients.However,we have delayed the screening and enrollment in this trial until such time as we raise sufficient additionalfinancing.Dental Study Phase II Trial:In late 2
82、003,we completed a Phase I clinical trial for the treatment of conditionrelating to periodontal disease,specifically to treat Interdental Papillary Insufficiency.In the second quarter of 2005,weconcluded the Phase II dental clinical trial with the use of Isolagen Therapy and subsequently announced t
83、hat investigator andsubject visual analog scale assessments demonstrated that the Isolagen Therapy was statistically superior to placebo at fourmonths after treatment.Although results of the investigator and subject assessment demonstrated that the Isolagen Therapy wasstatistically superior to place
84、bo,an analysis of objective linear measurements did not yield statistically significant results.In 2006,we commenced a Phase II open-label dental trial for the treatment of Interdental Papillary Insufficiency.Thissingle site study included 11 subjects.The study was previously placed on internal hold
85、 due to our financial resourceconstraints.We currently do not expect to fund additional trial efforts related to this applicationAgera Skincare SystemsWe market and sell a skin care product line through our majority-owned subsidiary,Agera Laboratories,Inc.,whichwe acquired in August 2006.Agera offer
86、s a complete line of skincare systems based on a wide array of proprietary formulations,trademarks and nano-peptide technology.These skincare products can be packaged to offer anti-aging,anti-pigmentary andacne treatment systems.Agera markets its products in both the United States and Europe(primari
87、ly the United Kingdom).InMarch,we announced that we were pursuing the potential sale of our 57%ownership interest in Agera.We did not receive anoffer for the sale of this ownership interest that we deemed acceptable.We are no longer actively pursuing the potential sale ofour 57%ownership interest in
88、 Agera.Our Target Market OpportunitiesAesthetic Market OpportunityOur Isolagen product candidate for wrinkles/nasolabial folds and full face rejuvenation are directed primarily at theaesthetic market.Aesthetic procedures have traditionally been performed by dermatologists,plastic surgeons and otherc
89、osmetic surgeons.According to the American Society for Aesthetic Plastic Surgery,or ASAPS,the total market for non-surgicalcosmetic procedures was approximately$4.6 billion in 2008.We believe the aesthetic procedure market is driven by:aging of the“baby boomer”population,which currently includes age
90、s approximately 45 to 63;the desire of many individuals to improve their appearance;impact of managed care and reimbursement policies on physician economics,which has motivated physicians toestablish or expand the menu of elective,private-pay aesthetic procedures that they offer;and broadening base
91、of the practitioners performing cosmetic procedures beyond dermatologists and plastic surgeons tonon-traditional providers.5Table of ContentsAccording to the ASAPS,10.3 million surgical and non-surgical cosmetic procedures were performed in 2008,ascompared to 11.7 million in 2007.Also according to t
92、he ASAPS,approximately 8.5 million non-surgical procedures wereperformed in 2008 and approximately 9.6 million non-surgical procedures were performed in 2007.We believe that the conceptof non-surgical cosmetic procedures involving injectable materials has become more mainstream and accepted.Accordin
93、g tothe ASAPS,the following table shows the top five non-surgical cosmetic procedures performed in 2008:Procedure Number Botox injection 2,464,123 Laser hair removal 1,280,964 Hyaluronic acids 1,262,848 Chemical peel 591,808 Laser skin resurfacing 570,880 Procedures among the 35 to 50 year old age g
94、roup made up approximately 45%of all non-surgical cosmeticprocedures in 2008.The 51 to 64 year old age group made up 27%of all non-surgical cosmetic procedures in 2008,while the19 to 34 year old age group made up 20%of all non-surgical cosmetic procedures in 2008.Botox injection was the mostpopular
95、treatment among the 35 to 50 year old age group.Therapeutic Market OpportunitiesIn addition to the aesthetic market,we believe there are opportunities for our Isolagen Therapy to treat certainmedical conditions such as acne scars,restrictive burn scars and tissue loss due to papillary recession.Pres
96、ently,we are studyingtherapeutic applications of our technology for acne scars.Indications related to restrictive burn scars and periodontal disease areon internal company hold.We are not aware of other autologous cell-based treatments for any of these therapeutic applications.Acne Scars.Acne is the
97、 most common skin disorder in the United States.The term acne includes conditions rangingfrom clogged pores to outbreaks of severe lesions.According to the American Academy of Dermatology and the NationalInstitute of Health,nearly 80%of people aged 11 to 30 have acne outbreaks at some point,and appr
98、oximately 95%of thesepatients will have some degree of scarring depending on the severity and duration of the condition.Over time,as facial tonedeclines and facial fat stores are depleted,the scars typically become more noticeable.Current treatments for acne scarring aredermabrasion,laser resurfacin
99、g,surgical excision,and certain temporary fillers.We believe this market represents a significantopportunity for our acne scar product candidate.Burns and Burn Scars.According to a Kalorama Information study on burns(Wound Care Volume II:Burns,Kalorama Information,August 2005),an estimated 2.5 milli
100、on Americans seek medical care each year for burns andapproximately 100,000 are hospitalized.Approximately 50%of patients with deep second degree,third and fourth degree burnsdevelop restrictive scarring which are often painful,and reduce flexibility and functionality of the area affected.We believe
101、 thismarket represents a significant opportunity for our non-surgical treatment of existing restrictive burn scars.We also believeadditional market opportunity exists for the use of our product candidate prior to the formation of a restrictive scar to promotehealing in the acute phase of burn wound
102、healing.Agera Skincare Market OpportunitiesThe independent research firm,Kalorama Information,estimated that from 2005 to 2010,over 70 million people inthe United States alone will receive cosmetic facial procedures for which they will pay over$60 billion.Based on a Kline&Company,Inc.study,“The U.S.
103、Professional Skin Care Market 2003,”the 2008 U.S.professional skin care market was estimatedat$742 million.This Kline&Company,Inc study describes the market as comprised of the following sub-markets:Salons andspas(59%),Retail stores(22%)and Medical care(19%).The doctor dispensing market is primarily
104、 focused in the Dermatologyand Plastic Surgeon segments but we believe is gaining interest with a broader audience of physician specialties,including themedical spa environment.Sales and MarketingWhile our Isolagen Therapy product candidates are still in the pre-approval phase in the United States,n
105、o marketingor sales can occur within the United States.Our Agera skincare products are primarily sold directly to our establisheddistributors and salons,with historically and recently very little focus on marketing efforts.We continue to attempt to identifyadditional third party distributors for our
106、 Agera product line.We believe that our Agera products have the potential tocomplement our Isolagen Therapy product candidates in the future.6Table of ContentsIntellectual PropertyWe believe that patents,trademarks,copyrights,proprietary formulations(related to our Agera skincare products)andother p
107、roprietary rights are important to our business.We also rely on trade secrets,know-how and continuing technologicalinnovations to develop and maintain our competitive position.We seek to protect our intellectual property rights by a varietyof means,including obtaining patents,maintaining trade secre
108、ts and proprietary know-how,and technological innovation tooperate without infringing on the proprietary rights of others and to prevent others from infringing on our proprietary rights.Ourpolicy is to seek to protect our proprietary position by,among other methods,actively seeking patent protection
109、 in the UnitedStates and certain foreign countries.As of December 31,2008,we had 9 issued U.S.patents,2 pending U.S.patent applications,31 granted foreign patentsand 1 pending international patent application.Our issued patents and patent applications primarily cover the method of usingautologous ce
110、ll fibroblasts for the repair of skin and soft tissue defects and the use of autologous fibroblast cells for tissueregeneration.We are in the process of pursuing several other patent applications.In January 2003,we acquired two pending U.S.patent applications.As consideration,we issued 100,000 share
111、s of ourcommon stock and agreed to pay a royalty on revenue from commercial applications and licensing,up to a maximum of$2.0 million.In August 2006,we acquired 57%of the common stock of Agera Laboratories.Agera has a number of trade names,trademarks,exclusive proprietary rights to product formulati
112、ons and specified peptides that are used in the Agera skincareproducts.Our success depends in part on our ability to maintain our proprietary position through effective patent claims andtheir enforcement against our competitors,and through the protection of our trade secrets.Although we believe our
113、patents andpatent applications provide a competitive advantage,the patent positions of companies like ours are generally uncertain andinvolve complex legal and factual questions.We do not know whether any of our patent applications or those patentapplications which we have acquired will result in th
114、e issuance of any patents.Our issued patents,those that may be issued inthe future or those acquired by us,may be challenged,invalidated or circumvented,and the rights granted under any issuedpatent may not provide us with proprietary protection or competitive advantages against competitors with sim
115、ilar technology.In particular,we do not know if competitors will be able to design variations on our treatment methods to circumvent ourcurrent and anticipated patent claims.Furthermore,competitors may independently develop similar technologies or duplicateany technology developed by us.Because of t
116、he extensive time required for the development,testing and regulatory review of apotential product,it is possible that,before any of our products can be commercialized or marketed,any related patent claimmay expire or remain in force for only a short period following commercialization,thereby reduci
117、ng the advantage of thepatent.We also rely upon trade secrets,confidentiality agreements,proprietary know-how and continuing technologicalinnovation to remain competitive,especially where we do not believe patent protection is appropriate or obtainable.Wecontinue to seek ways to protect our propriet
118、ary technology and trade secrets,including entering into confidentiality or licenseagreements with our employees and consultants,and controlling access to and distribution of our technologies and otherproprietary information.While we use these and other reasonable security measures to protect our tr
119、ade secrets,our employeesor consultants may unintentionally or willfully disclose our proprietary information to competitors.Our commercial success will depend in part on our ability to operate without infringing upon the patents andproprietary rights of third parties.It is uncertain whether the iss
120、uance of any third party patents would require us to alter ourproducts or technology,obtain licenses or cease certain activities.Our failure to obtain a license to technology that we mayrequire to discover,develop or commercialize our future products may have a material adverse impact on us.One or m
121、ore third-party patents or patent applications may conflict with patent applications to which we have rights.Any such conflict maysubstantially reduce the coverage of any rights that may issue from the patent applications to which we have rights.If thirdparties prepare and file patent applications i
122、n the United States that also claim technology to which we have rights,we mayhave to participate in interference proceedings in the United States Patent and Trademark Office to determine priority ofinvention.7Table of ContentsWe have collaborated and may collaborate in the future with other entities
123、 on research,development andcommercialization activities.Disputes may arise about inventorship and corresponding rights in know-how and inventionsresulting from the joint creation or use of intellectual property by us and our subsidiaries,collaborators,partners,licensors andconsultants.As a result,w
124、e may not be able to maintain our proprietary position.CompetitionThe pharmaceutical and dermal aesthetics industries are characterized by intense competition,rapid productdevelopment and technological change.Competition is intense among manufacturers of prescription pharmaceuticals anddermal inject
125、ion products.Our core products are considered dermal injection products.If certain of our product candidates are approved,we will compete with a variety of companies in the dermatologyand plastic surgery markets,many of which offer substantially different treatments for similar problems.These includ
126、e siliconeinjections,laser procedures,facial surgical procedures,such as facelifts and eyelid surgeries,fat injections,dermabrasion,collagen,allogenic cell therapies,hyaluronic acid injections and Botulinum toxin injections,and other dermal fillers.Indirectcompetition comes from facial care treatmen
127、t products.Items catering to the growing demand for therapeutic skin care productsinclude facial scrubs,anti-aging treatments,tonics,astringents and skin-restoration formulas.Many of our competitors are large,well-established pharmaceutical,chemical,cosmetic or health care companies withconsiderably
128、 greater financial,marketing,sales and technical resources than those available to us.Additionally,many of ourpresent and potential competitors have research and development capabilities that may allow them to develop new or improvedproducts that may compete with our product lines.Our products could
129、 be rendered obsolete or made uneconomical by thedevelopment of new products to treat the conditions addressed by our products,technological advances affecting the cost ofproduction,or marketing or pricing actions by one or more of our competitors.Our facial aesthetics product may compete for ashare
130、 of the existing market with numerous products and/or technologies that have become relatively accepted treatmentsrecommended or prescribed by dermatologists and administered by plastic surgeons and aesthetic dermatologists.There are several dermal filler products under development and/or in the FDA
131、 pipeline for approval which claim tooffer certain facial aesthetic benefits.Depending on the clinical outcomes of the Isolagen Therapy trials in aesthetics,thesuccess or failure of gaining approval and the label granted by the FDA if and when the therapy is approved,the competition forthe Isolagen
132、Therapy may prove to be direct competition to certain dermal fillers,laser technologies or new technologies.However,if we gain approval,we believe our Isolagen Therapy would be a“first to market”autologous cellular technology thatcould complement other modalities of treatment and represent a signifi
133、cant additional market opportunity.The field for therapeutic treatments or tissue regeneration for use in wound healing is rapidly evolving.A number ofcompanies are either developing or selling therapies involving stem cells,human-based,animal-based or synthetic tissueproducts.If approved as a thera
134、py for acne scars,restrictive burn scars or periodontal disease,our product candidates would ormay compete with synthetic,human or animal derived cell or tissue products marketed by companies like Genzyme,IntegraLife Sciences,Johnson&Johnson,C.R.Bard,LifeCell,Organogenesis,Intercytex,and others.The
135、market for skincare products is quite competitive with low barriers to entry.We believe Ageras dominantcompetitors in this market include companies like Obagi Medical Products,Inc.,Skin Medica,Murad,Inc.,Dermalogica,Pevonia Botanica and others.Government RegulationOur Isolagen Therapy technologies a
136、re subject to extensive government regulation,principally by the FDA and stateand local authorities in the United States and by comparable agencies in foreign countries.Governmental authorities in theUnited States extensively regulate the pre-clinical and clinical testing,safety,efficacy,research,de
137、velopment,manufacturing,labeling,storage,record-keeping,advertising,promotion,import,export,marketing and distribution,among other things,ofpharmaceutical products under various federal laws including the Federal Food,Drug and Cosmetic Act,or FFDCA,the PublicHealth Service Act,or PHSA,and under comp
138、arable laws by the states and in most foreign countries.8Table of ContentsDomestic RegulationIn the United States,the FDA,under the FFDCA,the PHSA,and other federal statutes and regulations,subjectspharmaceutical and biologic products to rigorous review.If we do not comply with applicable requiremen
139、ts,we may besubjected to administrative or judicial enforcement action,the government may refuse to approve our marketing applications orto allow us to manufacture or market our products or product candidates,and we may be criminally prosecuted.The FDA alsohas the authority to suspend or revoke prev
140、iously granted marketing authorizations,or seek a product withdrawal or recall(ororder a recall of a biologic or a human cellular or tissue-based product under certain circumstances)if we fail to comply withregulatory standards or if we encounter problems following initial marketing.FDA Approval Pro
141、cessTo obtain approval of a new product from the FDA,we must,among other requirements,submit data demonstratingthe products safety and efficacy as well as detailed information on the manufacture and composition of the product candidate.In most cases,this entails extensive laboratory tests and pre-cl
142、inical and clinical trials.This testing and the preparation ofnecessary applications and processing of those applications by the FDA are expensive and typically take many years tocomplete.The FDA may deny our applications or may not act quickly or favorably in reviewing these applications,and we may
143、encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketingany products we may develop.The FDA also may require post-marketing testing and surveillance to monitor the effects ofapproved products or place conditions on any approval
144、s that could restrict the commercial applications of these products.Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounterproblems following initial marketing.With respect to patented products or technologies,delays imposed by the gove
145、rnmentalapproval process may materially reduce the period during which we will have the exclusive right to exploit the products ortechnologies.The FDA does not apply a single regulatory scheme to human tissues and the products derived from human tissue.Ona product-by-product basis,the FDA may regula
146、te such products as drugs,biologics,or medical devices,in addition toregulating them as human cells,tissues,or cellular or tissue-based products(“HCT/Ps”),depending on whether or not theparticular product triggers any of an enumerated list of regulatory factors.A fundamental difference in the treatm
147、ent of productsunder these classifications is that the FDA generally permits HCT/Ps that do not trigger any of those regulatory factors to becommercially distributed without marketing approval.In contrast,products that trigger those factors,such as if they are morethan minimally manipulated when pro
148、cessed or manufactured,are regulated as drugs,biologics,or medical devices and requireFDA approval.We have determined that our Isolagen Therapy(TM)triggers regulatory factors that make it a biologic,inaddition to an HCT/P,and consequently,we must obtain approval from FDA before marketing Isolagen Th
149、erapy(TM)and mustalso satisfy all regulatory requirements for HCT/Ps.The process required by the FDA before a new drug or biologic may be marketed in the United States generallyinvolves the following:completion of pre-clinical laboratory tests or trials and formulation studies;submission to the FDA
150、of an IND for a new drug or biologic,which must become effective before human clinicaltrials may begin;performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of theproposed drug or biologic for its intended use;detailed information on product character
151、ization and manufacturing process;and submission and approval of a New Drug Application,or NDA,for a drug,or a Biologics License Application,orBLA,for a biologic.9Table of ContentsPre-clinical tests include laboratory evaluation of product chemistry formulation and stability,as well as animal andoth
152、er studies to evaluate toxicity.In view of the autologous nature of our product candidates and our prior clinical experiencewith our product candidates,we concluded that it was reasonably safe to initiate clinical trials without pre-clinical studies andthat the clinical trials would be adequate to f
153、urther assess both the safety and efficacy of our product candidates.Under FDAregulations,the results of any pre-clinical testing,together with manufacturing information and analytical data,are submitted tothe FDA as part of an IND application.The FDA requires a 30-day waiting period after the filin
154、g of each IND application beforeclinical trials may begin,in order to ensure that human research subjects will not be exposed to unreasonable health risks.Atany time during this 30-day period or at any time thereafter,the FDA may halt proposed or ongoing clinical trials,or mayauthorize trials only o
155、n specified terms.The IND application process may become extremely costly and substantially delaydevelopment of our products.Moreover,positive results of pre-clinical tests will not necessarily indicate positive results inclinical trials.The sponsor typically conducts human clinical trials in three
156、sequential phases,which may overlap.These phasesgenerally include the following:Phase I:The product is usually first introduced into healthy humans or,on occasion,into patients,and is testedfor safety,dosage tolerance,absorption,distribution,excretion and metabolism.Phase II:The product is introduce
157、d into a limited subject population to:assess its efficacy in specific,targeted indications;assess dosage tolerance and optimal dosage;and identify possible adverse effects and safety risks.Phase III:These are commonly referred to as pivotal studies.If a product is found to have an acceptable safety
158、profile and to be potentially effective in Phase II clinical trials,new clinical trials will be initiated to furtherdemonstrate clinical efficacy,optimal dosage and safety within an expanded and diverse subject population atgeographically-dispersed clinical study sites.If the FDA does ultimately app
159、rove the product,it may require post-marketing testing,including potentiallyexpensive Phase IV studies,to confirm or further evaluate its safety and effectiveness.Before proceeding with a study,sponsors may seek a written agreement from the FDA regarding the design,size,andconduct of a clinical tria
160、l.This is known as a Special Protocol Assessment,or SPA.Among other things,SPAs can cover clinicalstudies for pivotal trials whose data will form the primary basis to establish a products efficacy.SPAs thus help establish up-front agreement with the FDA about the adequacy of a clinical trial design
161、to support a regulatory approval,but the agreementis not binding if new circumstances arise.Even if the FDA agrees to an SPA,the agreement may be changed by the sponsor orthe FDA on written agreement by both parties,or a senior FDA official determines that a substantial scientific issue essential to
162、determining the safety or effectiveness of the product was identified after the testing began.There is no guarantee that a studywill ultimately be adequate to support an approval even if the study is subject to an SPA.The FDA retains significant latitudeand discretion in interpreting the terms of th
163、e SPA agreement and the data and results from any study that is the subject of theSPA agreement.Clinical trials must meet requirements for Institutional Review Board,or IRB,oversight,patient informed consent andthe FDAs Good Clinical Practices.Prior to commencement of each clinical trial,the sponsor
164、 must submit to the FDA a clinicalplan,or protocol,accompanied by the approval of the committee responsible for overseeing clinical trials at the clinical trialsites.The FDA or the IRB at each institution at which a clinical trial is being performed may order the temporary or permanentdiscontinuatio
165、n of a clinical trial at any time if it believes that the clinical trial is not being conducted in accordance with FDArequirements or presents an unacceptable risk to the clinical trial subjects.Data safety monitoring committees,who monitorcertain studies to protect the welfare of study subjects,may
166、 also require that a clinical study be discontinued or modified.10Table of ContentsThe sponsor must submit to the FDA the results of the pre-clinical and clinical trials,together with,among otherthings,detailed information on the manufacturing and composition of the product,and proposed labeling,in
167、the form of anNDA,or,in the case of a biologic,a BLA.The applicant must also submit with the NDA or BLA a substantial user fee payment,unless a waiver or reduction applies.We believe that a waiver reduction applies to Isolagen related to our BLA submission forthe nasolabial folds/wrinkles indication
168、.For fiscal year 2009 this fee is$1,247,200.The FDA has advised us it is regulating ourIsolagen Therapy as a biologic.Therefore,we expect to submit BLAs to obtain approval of our product candidates.Each NDAor BLA submitted for FDA approval is usually reviewed for administrative completeness and revi
169、ewability within 45 to 60 daysfollowing submission of the application.If deemed complete,the FDA will“file”the NDA or BLA,thereby triggeringsubstantive review of the application.The FDA can refuse to file any NDA or BLA that it deems incomplete or not properlyreviewable.Once the submission has been
170、accepted for filing,the FDA will review the application and will usually respond tothe applicant in accordance with performance goals the FDA has established for the review of NDAs and BLAs six months forpriority applications and 10 months for regular applications.The review process is often signifi
171、cantly extended by FDArequests for additional information,preclinical or clinical studies,clarification,or a risk evaluation and mitigation strategy,orREMS,or by changes to the application submitted by the applicant in the form of amendments.The FDA may refer the BLA toan advisory committee for revi
172、ew,evaluation and recommendation as to whether the application should be approved,but theFDA is not bound by the recommendation of an advisory committee.It is possible that our product candidates will not successfully proceed through this approval process or that the FDAwill not approve them in any
173、specific period of time,or at all.The FDA may deny or delay approval of applications that do notmeet applicable regulatory criteria,or if the FDA determines that the clinical data do not adequately establish the safety andefficacy of the product.Satisfaction of FDA pre-market approval requirements f
174、or a new biologic is a process that may take anumber of years and the actual time required may vary substantially based upon the type,complexity and novelty of theproduct or disease.The FDA reviews these applications and,when and if it decides that adequate data are available to show thatthe product
175、 is both safe and effective and that other applicable requirements have been met,approves the drug or biologic formarketing.Government regulation may delay or prevent marketing of potential products for a considerable period of time andimpose costly procedures upon our activities.Success in early st
176、age clinical trials does not assure success in later stage clinicaltrials.Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations thatcould delay,limit or prevent regulatory approval.Upon approval,a product candidate may be marketed only for
177、thoseindications approved in the BLA or NDA and may be subject to labeling and promotional requirements or limitations,including warnings,precautions,contraindications and use limitations,which could materially impact profitability.Onceapproved,the FDA may withdraw the product approval if compliance
178、 with pre-and post-market regulatory standards is notmaintained or if safety,efficacy or other problems occur after the product reaches the marketplace.The FDA may,during its review of an NDA or BLA,ask for additional test data.If the FDA does ultimately approvethe product,it may require post-market
179、ing testing,including potentially expensive Phase IV studies,to confirm or otherwisefurther evaluate the safety and effectiveness of the product.The FDA also may require,as a condition to approval or continuedmarketing of a drug,a risk evaluation and mitigation strategy,or REMS,if deemed necessary t
180、o manage a known or potentialserious risk associated with the product.An REMS can include additional educational materials for healthcare professionals andpatients such as Medication Guides and Patient Package Inserts,a plan for communicating information to healthcareprofessionals,and restricted dis
181、tribution of the product.In addition,the FDA may,in some circumstances,impose restrictions onthe use of the product,which may be difficult and expensive to administer and may require prior approval of promotionalmaterials.Following approval,FDA may require labeling changes or impose new post-approva
182、l study,risk management,ordistribution restriction requirements.Ongoing FDA RequirementsBefore approving an NDA or BLA,the FDA usually will inspect the facilities at which the product is manufacturedand will not approve the product unless the manufacturing facilities are in compliance with the FDAs
183、current GoodManufacturing Practices,or cGMP,requirements which govern the manufacture,holding and distribution of a product.Manufacturers of human cellular or tissue-based biologics also must comply with the FDAs Good Tissue Practices,asapplicable,and the general biological product standards.Followi
184、ng approval,the FDA periodically inspects drug and biologicmanufacturing facilities to ensure continued compliance with the cGMP requirements.Manufacturers must continue to expendtime,money and effort in the areas of production,quality control,record keeping and reporting to ensure compliance with t
185、hoserequirements.Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action,such assuspension of manufacturing,seizure of product,voluntary recall of product,withdrawal of marketing approval or civil orcriminal penalties.Adverse experiences with the pr
186、oduct must be reported to the FDA and could result in the imposition ofmarketing restrictions through labeling changes or market removal.Product approvals may be withdrawn if compliance withregulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur fo
187、llowing approval.11Table of ContentsThe labeling,advertising,promotion,marketing and distribution of a drug or biologic product also must be incompliance with FDA and FTC requirements which include,among others,standards and regulations for direct-to-consumeradvertising,industry-sponsored scientific
188、 and educational activities,and promotional activities involving the internet.Ingeneral,all product promotion must be consistent with the FDA approval for such product,contain a balanced presentation ofinformation on the products uses and benefits and important safety information and limitations on
189、use,and otherwise not befalse or misleading.The FDA and FTC have very broad enforcement authority,and failure to abide by these regulations canresult in penalties,including the issuance of a Warning Letter directing a company to correct deviations from regulatorystandards and enforcement actions tha
190、t can include seizures,injunctions and criminal prosecution.Manufacturers are also subject to various laws and regulations governing laboratory practices,the experimental use ofanimals and the use and disposal of hazardous or potentially hazardous substances in connection with their research.In each
191、 ofthe above areas,the FDA has broad regulatory and enforcement powers,including the ability to levy fines and civil penalties,suspend or delay issuance of approvals,seize or recall products and deny or withdraw approvals.HIPAA RequirementsOther federal legislation may affect our ability to obtain c
192、ertain health information in conjunction with our researchactivities.The Health Insurance Portability and Accountability Act of 1996,or HIPAA,mandates,among other things,theadoption of standards designed to safeguard the privacy and security of individually identifiable health information.In relevan
193、tpart,the U.S.Department of Health and Human Services,or HHS,has released two rules to date mandating the use of newstandards with respect to such health information.The first rule imposes new standards relating to the privacy of individuallyidentifiable health information.These standards restrict t
194、he manner and circumstances under which covered entities may useand disclose protected health information so as to protect the privacy of that information.The second rule released by HHSestablishes minimum standards for the security of electronic health information.While we do not believe we are dir
195、ectlyregulated as a covered entity under HIPAA,the HIPAA standards impose requirements on covered entities conducting researchactivities regarding the use and disclosure of individually identifiable health information collected in the course of conductingthe research.As a result,unless they meet the
196、se HIPAA requirements,covered entities conducting clinical trials for us may notbe able to share with us any results from clinical trials that include such health information.Other U.S.Regulatory RequirementsIn the United States,the research,manufacturing,distribution,sale,and promotion of drug and
197、biological productsare potentially subject to regulation by various federal,state and local authorities in addition to the FDA,including the Centersfor Medicare and Medicaid Services(formerly the Health Care Financing Administration),other divisions of the U.S.Department of Health and Human Services
198、(e.g.,the Office of Inspector General),the U.S.Department of Justice and individualU.S.Attorney offices within the Department of Justice,and state and local governments.For example,sales,marketing andscientific/educational grant programs must comply with the anti-fraud and abuse provisions of the So
199、cial Security Act,the FalseClaims Act,and similar state laws,each as amended.Pricing and rebate programs must comply with the Medicaid rebaterequirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992,each as amended.Ifproducts are made available to authori
200、zed users of the Federal Supply Schedule of the General Services Administration,additional laws and requirements apply.All of these activities are also potentially subject to federal and state consumerprotection,unfair competition,and other laws.12Table of ContentsInternational RegulationThe regulat
201、ion of our product candidates outside of the United States varies by country.Certain countries regulatehuman tissue products as a pharmaceutical product,which would require us to make extensive filings and obtain regulatoryapprovals before selling our product candidates.Certain other countries class
202、ify our product candidates as human tissue fortransplantation but may restrict its import or sale.Other countries have no application regulations regarding the import or saleof products similar to our product candidates,creating uncertainty as to what standards we may be required to meet.Manufacturi
203、ngWe currently have one operational manufacturing facility located in Exton,Pennsylvania.As part of our continuingefforts to evaluate the best uses of our resources,in the fourth quarter of 2006,the Board of Directors approved the proposedclosing of our UK operation.We completed the closure of our L
204、ondon manufacturing facility on March 31,2007.Wepreviously used our London facility for the commercialization of our process(for which we earned revenue from the sale ofIsolagen Therapy in the United Kingdom and other non-US markets)and as a means to improve our manufacturing process.The costs incur
205、red in operating our Exton facility(except for costs related to general corporate administration)arecurrently classified as research and development expenses as the activities there have been devoted to the research anddevelopment of our clinical applications and the development of a commercial scal
206、e and in a cost-effective production method.All component parts used in our Exton,Pennsylvania manufacturing process are readily available with short lead times,and allmachinery is maintained and calibrated.We believe we have made improvements in our manufacturing processes,and weexpect to continue
207、such efforts in the future.Our Agera products are manufactured by a third-party contract manufacturer under a contract manufacturingagreement.The agreement is effective through July 2014.Research and DevelopmentIn addition to our clinical development activities,our research and development activitie
208、s include improving ourmanufacturing processes and reducing manufacturing costs.We expense research and development costs as they are incurred.For the years ended December 31,2008 and 2007,we incurred research and development expenses of$10.2 million and$13.3 million,respectively.EmployeesAs of Apri
209、l 13,2009,we employed 9 people on a full-time basis,all located in the United States,and one employee,our Chief Executive Officer,who is based in Ireland and works in both Ireland and the United States.We also employ two full-time and one part-time Agera employees.None of our employees are covered b
210、y a collective bargaining agreement,and weconsider our relationship with our employees to be good.We also employ consultants and temporary labor on an as neededbasis to supplement existing staff.Segment InformationFinancial information concerning the Companys business segments and geographic areas o
211、f operation is included inNote 15 in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.Discontinued OperationsAs part of our continuing efforts to evaluate the best uses of our resources,in the fourth quarter of 2006 our Board ofDirectors approved the closing of ou
212、r United Kingdom operation.On March 31,2007,we completed the closure of the UnitedKingdom manufacturing facility.As a result of the completion of the closure of the United Kingdom manufacturing facility,asof March 31,2007 our United Kingdom operation was classified as a discontinued operation.In add
213、ition,as a result of theclosure of our United Kingdom operation,the operations that we previously conducted in Switzerland and Australia,which hadbeen absorbed into the United Kingdom operation,were also classified as discontinued operations as of March 31,2007.Accordingly,the historical results of
214、the United Kingdom,Switzerland and Australia have been retrospectively adjusted herein,for all periods presented,to reflect the treatment of these operations as discontinued operations.13Table of ContentsCorporate HistoryOn August 10,2001,our company,then known as American Financial Holding,Inc.,acq
215、uired Isolagen Technologiesthrough the merger of our wholly-owned subsidiary,Isolagen Acquisition Corp.,and an affiliated entity,Gemini IX,Inc.,withand into Isolagen Technologies.As a result of the merger,Isolagen Technologies became our wholly owned subsidiary.OnNovember 13,2001,we changed our name
216、 to Isolagen,Inc.Item 1A.Risk FactorsPotential and current investors should carefully consider the following risk factors prior to making any investmentdecisions regarding our securities.We could fail to remain a going concern.We may likely file for bankruptcy in the very near term.We will need to r
217、aisesubstantial additional capital to fund our operations through the very near term and through commercialization of ourproduct candidates,and we do not have any commitments for that capital.There exists substantial doubt regarding our ability to continue as a going concern.As discussed in Note 2 t
218、o theConsolidated Financial Statements-Going Concern,as of December 31,2008 we had cash and cash equivalents of$2.9 millionand negative working capital of$(87.3)million(including our cash and cash equivalents).We believe our existing capitalresources are inadequate to finance our operations past the
219、 end of April 2009.Beyond our efforts to obtain immediate financing,which may not occur,we are incurring losses from operations,have limited capital resources,and do not have access to a line ofcredit or other debt facility.We will need additional capital to achieve commercialization of our product
220、candidates and to execute our businessstrategy,and if we are unsuccessful in raising additional capital we will be unable to achieve commercialization of our productcandidates or unable to fully execute our business strategy on a timely basis,if at all.If we raise additional capital through theissua
221、nce of debt securities,the debt securities may be secured and any interest payments would reduce the amount of cashavailable to operate and grow our business.If we raise additional capital through the issuance of equity securities,suchissuances will likely cause dilution to our stockholders,particul
222、arly if we are required to do so during periods when ourcommon stock is trading at historically low price levels.If we file for bankruptcy,it is likely that our common stock willbecome worthless,given that there currently exists approximately$90 million of debt,which has a priority over commonshareh
223、olders.Additionally,we do not know whether any financing,if obtained,will be adequate to meet our capital needs and tosupport our growth.Currently the credit and equity markets both in the United States and internationally are severelycontracted,which will make our task of raising additional debt or
224、 equity capital even more difficult.If adequate capital cannotbe obtained on satisfactory terms,we may terminate or delay our efforts related to regulatory approval of one or more of ourproduct candidates,curtail or delay the implementation of manufacturing process improvements or delay the expansio
225、n of oursales and marketing capabilities,any of which could cause our business to fail.If we do not obtain additional funding,we will likely enter into bankruptcy and/or cease operations.Further,if we doraise additional cash resources prior to the end of April 2009,it may be raised in contemplation
226、of or in connection withbankruptcy.If we enter into bankruptcy,it is likely that our common stock and common stock equivalents will becomeworthless and our creditors will receive significantly less than what is owed to them.Our independent registered public accounting firm has modified their report
227、for our fiscal year ended December 31,2008 with respect to our ability to continue as a going concern.Due to the likelihood of bankruptcy and in connection with theCompanys review for impairment of long-lived assets in accordance with SFAS 144,“Accounting for the Impairment orDisposal of Long-lived
228、Assets,”we have recorded a full impairment on all of our long-lived assets as of December 31,2008,andas such,we have recorded an impairment charge of$6.7 million during the year ended December 31,2008 in the consolidatedstatement of operations.If we became unable to continue as a going concern,we wo
229、uld have to liquidate our assets and we maylikely receive significantly less than the values at which they are carried on our consolidated financial statements.Theinclusion of a going concern modification in our independent registered public accounting firms audit opinion for the yearended December
230、31,2008 may materially and adversely affect our stock price and our ability to raise new capital.14Table of ContentsWe submitted our Biologics License Application for the treatment of wrinkles/nasolabial folds to the FDA in March 2009,and the FDA may deem this Biologics License Application to be una
231、cceptable.We submitted a Biologics License Application(“BLA”)for our Isolagen Therapy(TM)for the treatment ofwrinkles/nasolabial folds,to the FDA in March 2009.The FDA has 60 days to deem the application to be filed or to refuse tofile it on incompleteness grounds.Even if the FDA files the BLA,the F
232、DA may ultimately not approve our application.Any failure or delay in receiving regulatory approval for the sale of any product candidate,has the potential tomaterially harm our business,and may prevent us from raising necessary,additional financing.Obtaining FDA and other regulatory approvals is co
233、mplex,time consuming and expensive,and the outcomes areuncertain.The process of obtaining FDA and other regulatory approvals is time consuming,expensive and difficult.Clinicaltrials are required and the marketing and manufacturing of our product candidates are subject to rigorous testing procedures.
234、Wehave finished injections related to our pivotal Phase III clinical trial for our lead facial product candidate and have submittedthe related BLA to the FDA.Our other product candidates will require additional clinical trials.The commencement andcompletion of clinical trials for any of our product
235、candidates could be delayed or prevented by a variety of factors,including:delays in obtaining regulatory approvals to commence a study;delays in identifying and reaching agreement on acceptable terms with prospective clinical trial sites;delays or failures in obtaining approval of our clinical tria
236、l protocol from an institutional review board,or IRB,to conduct a clinical trial at a prospective study site;delays in the enrollment of subjects;manufacturing difficulties;failure of our clinical trials and clinical investigators to be in compliance with the FDAs Good ClinicalPractices,or GCP;failu
237、re of our third-party contract research organizations,clinical site organizations and other clinical trialmanagers,to satisfy their contractual duties,comply with regulations or meet expected deadlines;lack of efficacy during clinical trials;or unforeseen safety issues.We do not know whether our cli
238、nical trials will need to be restructured or will be completed on schedule,if at all,orwhether they will provide data necessary to support necessary regulatory approval.Significant delays in clinical trials willimpede our ability to commercialize our product candidates and generate revenue,and could
239、 significantly increase ourdevelopment costs.15Table of ContentsWe utilize bovine-sourced materials to manufacture our Isolagen Therapy.Future FDA regulations,as well ascurrently proposed regulations,may require us to change the source of the bovine-sourced materials we use in our products or toceas
240、e using bovine-sourced materials.If we are required to use alternative materials in our products,and in the event that suchalternative materials are available to us,or if we choose to change the materials used in our products in the future,we wouldneed to validate the new manufacturing process and r
241、un comparability trials with the reformulated product,which could delayour submission for regulatory approval.Even if marketing approval from the FDA is received for one or more of our product candidates,the FDA may imposepost-marketing requirements,such as:labeling and advertising requirements,rest
242、rictions or limitations,including the inclusion of warnings,precautions,contra-indications or use limitations that could have a material impact on the future profitability ofour product candidates;testing and surveillance to further evaluate or monitor our future products and their continued complia
243、nce withregulatory standards and requirements;submitting products for inspection;or imposing a risk evaluation and mitigation strategy(“REMS”)to ensure that the benefits of the drug outweigh therisks.Protocol deviations may release the FDA from its binding acceptance of our Special Protocol Assessme
244、nt(“SPA”)studydesign,which may result in the delay,or non-approval,by the FDA of the Isolagen Therapy.In connection with preparations for FDA Investigator Inspections related to our nasolabial fold/wrinkle Phase IIIstudies,we identified protocol deviations related to the timing of visits and other t
245、ypes of deviations.The possibility exists thatour special protocol assessment could no longer be binding on the FDA if the FDA considers these deviations,individually orin aggregate,to be significant.Further,future investigator audits may identify deviations unknown at this time.Accordingly,the poss
246、ibility exists that although our Phase III studies yielded statistically significant results,the studies may not beacceptable to the FDA under the SPA.Clinical trials may fail to demonstrate the safety or efficacy of our product candidates,which could prevent or significantlydelay regulatory approva
247、l and prevent us from raising additional financing.Prior to receiving approval to commercialize any of our product candidates,we must demonstrate with substantialevidence from well-controlled clinical trials,and to the satisfaction of the FDA and other regulatory authorities in the UnitedStates and
248、abroad,that our product candidates are both safe and effective.We will need to demonstrate our product candidatesefficacy and monitor their safety throughout the process.We have recently completed a pivotal Phase III clinical trial related toour lead facial aesthetic product candidate.The success of
249、 prior pre-clinical or clinical trials does not ensure the success of thesetrials,which are being conducted in populations with different racial and ethnic demographics than our previous trials.If ourcurrent trials or any future clinical trials are unsuccessful,our business and reputation would be h
250、armed and the price at whichour stock trades could be adversely affected.In addition,if our Phase III clinical trials related to our lead facial aesthetic productcandidate is deemed to be unacceptable or deficient in anyway by the FDA,we may be unable to raise additional equity or debtfinancing that
251、 we may require to continue our operations.All of our product candidates are subject to the risks of failure inherent in the development of biotherapeuticproducts.The results of early-stage clinical trials of our product candidates do not necessarily predict the results of later-stageclinical trials
252、.Product candidates in later-stage clinical trials may fail to demonstrate desired safety and efficacy traits despitehaving successfully progressed through initial clinical testing.Even if we believe the data collected from clinical trials of ourproduct candidates is promising,this data may not be s
253、ufficient to support approval by the FDA or any other U.S.or foreignregulatory approval.Pre-clinical and clinical data can be interpreted in different ways.Accordingly,FDA officials could reachdifferent conclusions in assessing such data than we do,which could delay,limit or prevent regulatory appro
254、val.In addition,the FDA,other regulatory authorities,our Institutional Review Boards or we,may suspend or terminate clinical trials at anytime.16Table of ContentsUnlike our Phase III Nasolabial/Wrinkle trial,our Phase II/III Acne Scar trial is not subject to a Special ProtocolAssessment(“SPA”)with t
255、he FDA.In addition,we have developed a photo guide for use in the evaluators assessment of acnestudy subjects.Our evaluator assessment scale and photo guide have not been previously used in a clinical trial.To obtain FDAapproval with respect to the acne scar indication,we will require FDA concurrenc
256、e with the use of our evaluator assessmentscale and photo guide.Any failure or delay in completing clinical trials for our product candidates,or in receiving regulatory approval forthe sale of any product candidates,has the potential to materially harm our business,and may prevent us from raising ne
257、cessary,additional financing that we may need in the future.We are not in compliance with the American Stock Exchanges continued listing standards and,as a result,our commonstock may be delisted from the American Stock Exchange.On March 17,2009,we received notice from the NYSE Amex(the“Exchange”)not
258、ifying us that we are not incompliance with Section 1003(a)(iv)of the Exchanges Company Guide(the“Company Guide”).Specifically,the Exchangestaff noted that we sustained losses which are so substantial in relation to our overall operations or our existing financial sourcesthat it appears questionable
259、,in the opinion of the Exchange,as to whether we will be able to continue operations and/or meetour obligations as they mature.As previously disclosed,we received a notice from the Exchange on March 12,2008,advisingus that we were not in compliance with Sections 1003(a)(i)-(iii)of the Company Guide.
260、We currently intend to submit a plan in response to the most recent notice by April 17,2009 outlining ourcompliance strategy with the current continued listing deficiency by September 14,2009,subject to our successfullycompleting a sufficient financing transaction or strategic partnership prior to A
261、pril 17,2009.As of the date of the filing of thisannual report,we have no commitments for any such additional funding and there is no assurance that we will receive any suchadditional funding.If we submit a plan and our plan to regain compliance is accepted by the Exchange,we may be able tocontinue
262、our listing during this period,during which time we will be subject to periodic review to determine progress consistentwith the plan.If we do not submit a plan or if the plan is not accepted by the Exchange,we will be subject to delistingprocedures as set forth in the Company Guide.Under Company Gui
263、de rules,we have the right to appeal the determination bythe Exchange staff to initiate delisting proceedings and to seek a hearing before an Exchange Panel.The time and place of sucha hearing will be determined by the Panel.If the Panel does not grant the relief sought by us,our common stock could
264、bedelisted from the Exchange.There is no assurance that the Exchange staff will accept our plan of compliance or that,even ifsuch plan is accepted,we will be able to implement the plan within the prescribed timeframe.In addition,the Exchanges notice states that our common stock has closed at between
265、$0.15 and$0.87 per share overthe last six months,and that the Staff is concerned that,as a result of the low selling price,our common stock may not besuitable for auction market trading.Pursuant to Section 1003(f)(v)of the Company Guide,the Exchange has notified us that itdeems it appropriate that w
266、e effect a reverse stock split within a reasonable amount of time in view of the fact that our commonstock has been selling for a substantial period of time at a low price per share.These uncertainties regarding the continued listing of our common stock on the Exchange will add to the difficulty ofr
267、aising additional financing through the issuance of common stock or convertible securities.We may issue additional equity securities and thereby materially and adversely affect the price of our common stock.Sales of substantial amounts of shares of our common stock in the public market,or the percep
268、tion that those salesmay occur,could cause the market price of our common stock to decline.We have used and it is likely that we will continue touse our common stock or securities convertible into or exchangeable for our common stock to fund our working capital needs orto acquire technology,product
269、rights or businesses,or for other purposes.If we issue additional equity securities,particularlyduring times when our common stock is trading at relatively low price levels,the price of our common stock may be materiallyand adversely affected.17Table of ContentsWe have yet to be profitable,losses ma
270、y continue to increase from current levels and we will continue to experiencesignificant negative cash flow as we expand our operations,which may limit or delay our ability to become profitable.We have incurred losses since our inception,have never generated significant revenue from commercial sales
271、 of ourproducts,and have never been profitable.We are focused on product development,and we have expended significant resourceson our clinical trials,personnel and research and development.We expect these costs to continue to rise in the future.Ourconsolidated net losses for the years ended 2008 and
272、 2007 were$31.4 million and$35.6 million,respectively.As ofDecember 31,2008,we had an accumulated development stage net loss attributable to common shareholders of$194.1 million.We expect to continue to experience increasing operating losses and negative cash flow as we expand our operations.We expe
273、ct to continue to incur significant additional costs and expenses related to:FDA clinical trials and regulatory approvals;expansion of laboratory and manufacturing operations;research and development;brand development;personnel costs;development of relationships with strategic business partners,incl
274、uding physicians who might use our futureproducts;and interest expense and amortization of issuance costs related to our outstanding note payables.If our product candidates fail in clinical trials or do not gain regulatory approval,if our product candidates do notachieve market acceptance,or if we d
275、o not succeed in effectively and efficiently implementing manufacturing process andtechnology improvements to make our product commercially viable,we will not be profitable.If we fail to become and remainprofitable,or if we are unable to fund our continuing losses,our business may fail.We will conti
276、nue to experience operating losses and significant negative cash flow until we begin to generatesignificant revenue from(a)the sale of our product candidates,which is dependent on the receipt of FDA approval for ourproduct candidates and is dependent on our ability to successfully market and sell su
277、ch product candidates,and(b)our Ageraproduct line,which is dependent on achieving significant market penetration in its markets.We may be unable to successfully commercialize any of our product candidates currently under development.Before we can commercialize any of our product candidates in the Un
278、ited States,we will need to:conduct substantial additional research and development;successfully complete lengthy and expensive pre-clinical and clinical testing,including the Phase II/III clinicaltrial for our acne scar product candidate;successfully improve our manufacturing process;and obtain FDA
279、 approvals.18Table of ContentsEven if our product development efforts are successful,we cannot assure you that we will be able to commercializeany of our product candidates currently under development.In that event,we will be unable to generate significant revenue,and our business will fail.We have
280、not generated significant revenue from commercial sales of our products to date,and we do not know whether wewill ever generate significant revenue.We are focused on product development and have not generated significant revenue from commercial sales of ourproducts to date.Prior to the fourth quarte
281、r of 2006 we offered the Isolagen Therapy for sale in the United Kingdom.Our UnitedKingdom operation had been operating on a negative gross margin as we investigated means to improve manufacturingtechnologies for the Isolagen Process.During the fourth quarter of 2006 we determined to cease offering
282、our Isolagen Therapyin the United Kingdom,as part of our continuing efforts to evaluate the best uses of our resources.Our revenue for the yearsended December 31,2008 and 2007,which excludes historical revenue from discontinued operations,was$1.1 million and$1.4 million,respectively.We do not curren
283、tly offer any products for sale that are based upon our Isolagen Therapy,and we cannot guaranteethat we will ever market any such products.We must demonstrate that our product candidates satisfy rigorous standards ofsafety and efficacy before the FDA and other regulatory authorities in the United St
284、ates and abroad will approve the productcandidates for commercial marketing.We will need to conduct significant additional research,including potentially pre-clinical testing and clinical testing before we can file additional applications with the FDA for approval of our productcandidates.We must al
285、so develop,validate and obtain FDA approval of any improved manufacturing process.In addition,tocompete effectively our future products must be easy to use,cost-effective and economical to manufacture on a commercialscale.We may not achieve any of these objectives,and we may never generate revenue f
286、rom our product candidates.Our ability to effectively commercialize our product candidates depends on our ability to improve our manufacturingprocess and validate such future improvements.As part of the approval process,we must pass a pre-approval inspection of our manufacturing facility before we c
287、anobtain marketing approval for our product candidates.We have never gone through a FDA pre-approval regulatory inspectionof our manufacturing facility,and we cannot guarantee that we will satisfy the requirements for approval.All of ourmanufacturing methods,equipment and processes for the active ph
288、armaceutical ingredient and finished product must complywith the FDAs current Good Manufacturing Practices,or cGMP,requirements.We will also need to perform extensive audits ofour suppliers,vendors and contract laboratories.The cGMP requirements govern all areas of recordkeeping,productionprocesses
289、and controls,personnel and quality control.To ensure that we meet these requirements,we will expend significanttime,money and effort.Due to the unique nature of our Isolagen Therapy,we cannot predict the likelihood that the FDA willapprove our facility as compliant with cGMP requirements even if we
290、believe that we have taken the steps necessary to achievecompliance.The FDA,in its regulatory discretion,may require us to undergo additional clinical trials with respect to any new orimproved manufacturing process we develop or utilize,in the future,if any.This could include a requirement to change
291、 thematerials used in our manufacturing process.These improvements or modifications could delay or prevent approval of ourproduct candidates.If we fail to comply with cGMP requirements,pass an FDA pre-approval inspection or obtain FDA approvalof our manufacturing process,we would not receive FDA app
292、roval and would be subject to possible regulatory action.Thefailure to successfully implement our manufacturing process may delay or prevent our future profitability.Even if we obtain FDA approval in the future and satisfy the FDA with regard to a validated manufacturing process,we still may be unab
293、le to commercially manufacture the Isolagen Therapy profitably.Our manufacturing cost has been subjectto fluctuation,depending,in part,on the yields obtained from our manufacturing process.There is no guarantee that futuremanufacturing improvements will result in a manufacturing cost low enough to e
294、ffectively compete in the market.Further,wecurrently manufacture the Isolagen Therapy on a limited basis(for research and development and for trial purposes only)and wehave not manufactured commercial levels of the Isolagen Therapy in the United States.Such commercial manufacturingvolumes,in the fut
295、ure,could lead to unexpected inefficiencies and result in unprofitable performance results.19Table of ContentsWe may not be successful in our efforts to develop commercial-scale manufacturing technology and methods.In order to successfully commercialize any approved product candidates,we will be req
296、uired to produce suchproducts on a commercial scale and in a cost-effective manner.As stated in the preceding risk factor,we intend to seek FDAapproval of our manufacturing process as a component of the BLA application and approval process.However,we can provideno assurance that we will be able to c
297、ost-effectively and commercially scale our operations using our current manufacturingprocess.If we are unable to develop suitable techniques to produce and manufacture our product candidates,our businessprospects will suffer.We depend on a third-party manufacturer for our Agera product line,the loss
298、 or unavailability of which would require usto find a substitute manufacturer,if available,resulting in delays in production and additional expenses.Our Agera skin care product line is manufactured by a third party.We are dependent on this third party tomanufacture Ageras products,and the manufactur
299、er is responsible for supplying the formula ingredients for the Agera productlines.If for any reason the manufacturer discontinues production of Ageras products at a time when we have a low volume ofinventory on hand or are experiencing a high demand for the products,significant delays in production
300、 of the products andinterruption of product sales may result as we seek to establish a relationship and commence production with a newmanufacturer,which would negatively impact our results of operation.The large majority of our revenue,which relates to the Agera business segment,is to one,internatio
301、nal customer.Our revenues,which relate solely to the Agera business segment,are highly concentrated in one large,internationalcustomer.This large customer represented 64%and 69%of 2008 and 2007 consolidated revenues,respectively.Further,thislarge customer represented 94%of consolidated accounts rece
302、ivable,net,at December 31,2008 and 2007.A reduction ofrevenue related to this large customer,due to competitor product alternatives,pricing pressures,the financial health of the largecustomer,or otherwise,would have a significant,negative impact on the business of Agera,and the related value thereof
303、.If our Isolagen Therapy is found to be unsafe or ineffective,or if our Isolagen Therapy is perceived to be unsafe orineffective,our business would be materially harmed.Our product candidates utilize our Isolagen Therapy.In addition,we expect to utilize our Isolagen Therapy in thedevelopment of any
304、future product candidates.If our Isolagen Therapy is found to be,or perceived to be,unsafe or ineffective,we will not be successful in obtaining marketing approval for any product candidates then pending,and we may have to modifyor cease production of any products that previously may have received r
305、egulatory approval.Negative media exposure,whetherfounded or unfounded,related to the safety and/or effectiveness of our Isolagen Therapy may harm our reputation and/orcompetitive position.If physicians do not follow our established protocols,the efficacy and safety of our product candidates may be
306、adverselyaffected.We are dependent on physicians to follow our established protocols both as to the administration and the handling ofour product candidates in connection with our clinical trials,and we will continue to be dependent on physicians to follow suchprotocols if our product candidates are
307、 commercialized.The treatment protocol requires each physician to verify the patientsname and date of birth with the patient and the patient records immediately prior to injection.In the event more than onepatients cells are delivered to a physician or we deliver the wrong patients cells to the phys
308、ician,which has occurred in thepast,it is the physicians obligation to follow the treatment protocol and assure that the patient is treated with the correct cells.If the physicians do not follow our protocol,the efficacy and safety of our product candidates may be adversely affected.20Table of Conte
309、ntsOur business,which depends on one facility,is vulnerable to natural disasters,telecommunication and information systemsfailures,terrorism and similar problems,and we are not fully insured for losses caused by all of these incidents.We currently conduct all our research,development and manufacturi
310、ng operations in one facility located in Exton,Pennsylvania.As a result,if we obtain FDA approval of any of our product candidates,all of the commercial manufacturing forthe U.S.market are currently expected take place at a single U.S.facility.If regulatory,manufacturing or other problems requireus
311、to discontinue production at that facility,we will not be able to supply product,which would adversely impact our business.Our Exton facility could be damaged by fire,floods,power loss,telecommunication and information systems failuresor similar events.Our insurance policies have limited coverage le
312、vels for loss or damages in these events and may notadequately compensate us for any losses that may occur.In addition,terrorist acts or acts of war may cause harm to ouremployees or damage our Exton facility.The potential for future terrorist attacks,the national and international responses toterro
313、rist attacks or perceived threats to national security,and other acts of war or hostility have created many economic andpolitical uncertainties that could adversely affect our business and results of operations in ways that we cannot predict,andcould cause our stock price to fluctuate or decline.We
314、are uninsured for these types of losses.As a result of our limited operating history,we may not be able to correctly estimate our future operating expenses,whichcould lead to cash shortfalls.We have a limited operating history and our primary business activities consist of conducting clinical trials
315、.As such,our historical financial data is of limited value in estimating future operating expenses.Our budgeted expense levels are basedin part on our expectations concerning the costs of our clinical trials,which depend on the success of such trials and our abilityto effectively and efficiently con
316、duct such trials,and expectations related to our efforts to achieve FDA approval with respect toour product candidates.In addition,our budgeted expense levels are based in part on our expectations of future revenue that wemay receive from our Agera product line,and the size of future revenue depends
317、 on the choices and demand of individuals.Ourlimited operating history and clinical trial experience make these costs and revenues difficult to forecast accurately.We may beunable to adjust our operations in a timely manner to compensate for any unexpected increase in costs or shortfall in revenue.F
318、urther,our fixed manufacturing costs and business development and marketing expenses will increase significantly as weexpand our operations.Accordingly,a significant increase in costs or shortfall in revenue could have an immediate and materialadverse effect on our business,results of operations and
319、 financial condition.Our operating results may fluctuate significantly in the future,which may cause our results to fall below the expectations ofsecurities analysts,stockholders and investors.Our operating results may fluctuate significantly in the future as a result of a variety of factors,many of
320、 which areoutside of our control.These factors include,but are not limited to:the level of demand for the products that we may develop;the timely and successful implementation of improved manufacturing processes;our ability to attract and retain personnel with the necessary strategic,technical and c
321、reative skills required foreffective operations;the amount and timing of expenditures by practitioners and their patients;introduction of new technologies;product liability litigation,class action and derivative action litigation,or other litigation;21Table of Contents the amount and timing of capit
322、al expenditures and other costs relating to the expansion of our operations;the state of the debt and/or equity markets at the time of any proposed offering we choose to initiate;our ability to successfully integrate new acquisitions into our operations;government regulation and legal developments r
323、egarding our Isolagen Therapy in the United States and in theforeign countries in which we may operate in the future;and general economic conditions.As a strategic response to changes in the competitive environment,we may from time to time make pricing,service,technology or marketing decisions or bu
324、siness or technology acquisitions that could have a material adverse effect on ouroperating results.Due to any of these factors,our operating results may fall below the expectations of securities analysts,stockholders and investors in any future period,which may cause our stock price to decline.We m
325、ay be liable for product liability claims not covered by insurance,and we have been publicly threatened with claimsrelated to our product in the United Kingdom.Physicians who used our facial aesthetic product in the past,or who may use any of our future products,and patientswho have been treated by
326、our facial aesthetic product in the past,or who may use any of our future products,may bring productliability claims against us.In particular,we have received negative publicity and negative correspondence from patients in theUnited Kingdom that had previously received our treatment.To date,we have
327、received written demands by an attorneyrepresenting approximately 132 former patients each claiming,on average,3,500(or approximately$5,250),plusunquantified interest and incidental expenses.To date,no formal legal action has been brought by the attorney against us.Further,one former United Kingdom
328、patient has claimed personal injury as a result of the use of the Isolagen Therapy;althoughno formal legal action has been brought against us to date with respect to this matter.While we have taken,and continue totake,what we believe are appropriate precautions,we may be unable to avoid significant
329、liability exposure.We currently keepin force product liability insurance,although such insurance may not be adequate to fully cover any potential claims or maylapse in accordance with its terms prior to the assertion of claims.We may be unable to obtain product liability insurance in thefuture,or we
330、 may be unable to do so on acceptable terms.Any insurance we obtain or have obtained in the past may not provideadequate coverage against any asserted claims.In addition,regardless of merit or eventual outcome,product liability claimsmay result in:diversion of managements time and attention;expendit
331、ure of large amounts of cash on legal fees,expenses and payment of damages;decreased demand for our products or any of our future products and services;or injury to our reputation.If we are the subject of any future product liability claims our business could be adversely affected,and if these claim
332、sare in excess of insurance coverage,if any,that we may possess,our financial position will suffer.22Table of ContentsOur failure to comply with extensive governmental regulation may significantly affect our operating results.Even if we obtain regulatory approval for some or all our product candidat
333、es,we will continue to be subject toextensive ongoing requirements by the FDA,as well as by a number of foreign,national,state and local agencies.Theseregulations will impact many aspects of our operations,including testing,research and development,manufacturing,safety,efficacy,labeling,storage,quality control,adverse event reporting,import and export,record keeping,approval,distribution,advertisi
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