ABVC BIOPHARMA, INC. Caution Regarding Forward-Looking Information
The following discussion and analysis of our financial condition and result of
operations should be read in conjunction with our audited consolidated financial
statements and the notes to those financial statements appearing elsewhere in
this Form 10-K. This discussion contains forward-looking statements and involves
numerous risks and uncertainties contained in this report and the other reports
we file with the
Overview
From its inception, the Company has not generated substantial revenue from its
medical device and new drug development. For the year ended
Business Overview
Medicines derived from plants have a long history of relieving or preventing many diseases and, typically, have exhibited fewer side effects than drugs developed from animals or chemical ingredients. Perhaps the most famous example is aspirin, which evolved from a compound found in the bark and leaves of the willow tree and was later marketed by Bayer starting in 1899. Aspirin has very few serious side effects and has proven to be one of the most successful drugs in medical history. Some 50 years later, scientists identified anticancer compounds in the rosy periwinkle, which Eli Lilly subsequently produced for the treatment of leukemia and Hodgkins disease. Other well-known examples of successful botanical drugs include the cancer-fighting Taxol, isolated from the Pacific yew tree.
The Company develops its pipeline by carefully tracking new medical discoveries
or medical device technologies in research institutions in the
Currently, institutions conducting phase II clinical trials in partnership with ABVC include:
? Medical Device: ABV-1701, Vitargus® in vitrectomy surgery, Phase II Study
in Australia and Thailand , Principal Investigator: Professor/Dr. Matthew
Simunovic, Sydney Eye Hospital ; Dr. Elvis Ojaimi, East Melbourne Eye Group
& East Melbourne Retina, Duangnate Rojanaporn, M.D., Ramathibodi Hospital ;
Thuss Sanguansak, M.D., Srinagarind Hospital .
? Drug: ABV-1504, Major Depressive Disorder (MDD), Phase II, NCE drug
Principal Investigators: Charles DeBattista M.D . and Alan F. Schatzberg ,
MD, Stanford University Medical Center , Cheng-Ta Li , MD, Ph.D - Taipei
Veterans General Hospital
? Drug: ABV-1505, Adult Attention-Deficit Hyperactivity Disorder (ADHD),
Phase II, NCE drug Principal Investigators: Keith McBurnett , Ph.D. and
Linda Pfiffner , Ph.D., University of California San Francisco (UCSF),
School of Medicine
? Drug: ABV-1601, Major Depression in Cancer Patients, Phase I/II, NCE drug
Principal Investigator: Scott Irwin , MD, Ph.D. - Cedars Sinai Medical
Center (CSMC)
? Drug: ABV-1703, Advanced Inoperable or Metastatic Pancreatic Cancer, Phase
II, NCE drug Principal Investigator: Andrew E. Hendifar , MD - Cedars Sinai
Medical Center (CSMC)
? Drug: ABV-1519, A Phase I/II, Open Label Study to Evaluate the Safety and
Efficacy of BLEX 404 Oral Liquid Combined with Pemetrexed + Carboplatin
Therapy in Patients with Advanced Inoperable or Metastatic EGFR wild-type
Non-Small Cell Lung Cancer Patients
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Upon successful completion of the Phase II trial, the Company will seek a partner - a large pharmaceutical company - to complete a Phase III study, submit the New Drug Application (NDA), and commercialize the drug upon approval by the FDA and Taiwan FDAs. The Company expects to seek its first commercialization partner in 2021 for Vitargus, its vitreous substitute that helps to maintain a round shape and retinal location during vitrectomy surgery.
Another part of the Company's business is conducted by BioKey, a wholly owned subsidiary, that is engaged in a wide range of services, including, API characterization, pre-formulation studies, formulation development, analytical method development, stability studies, IND/NDA/ANDA/510K submissions, and manufacturing clinical trial materials (phase I through phase III) and commercial manufacturing.
On
BioLite was incorporated under the laws of the
BioLite and BioLite BVI are holding companies and have not carried out substantive business operations of their own.
In
BioKey was incorporated on
Common Stock Reverse Split
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Series A Convertible Preferred Stock
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Pursuant to the Series A COD, the Company designated 3,500,000 shares of
preferred stock as Series A Stock, par value of
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As of
Increasing the Authorized Shares
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NASDAQ Listing
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In
The deficiency has no immediate effect on the listing of the Company's common stock, and its common stock continues to trade on The Nasdaq Capital Market under the symbol "ABVC" at this time.
If at any time before
If the Company does not regain compliance with Rule 5550(a)(2) by
Name Change and Cusip Number
The Company's shareholders approved an amendment to the Company's Articles of
Incorporation to change the Company's corporate name to "
The Company's cusip number is 0091F106. The Company's stock symbol remains ABVC.
Joint Venture Agreement
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Pursuant to the Agreement and the related share transfer agreement, the Company
shall transfer 54 of its Ordinary Shares to Lucidaim for no consideration, such
that following the transfer, Lucidaim shall own 1,555 Ordinary Shares (51%) and
the Company shall own 1,494 Ordinary Shares (49%). Also pursuant to the
Agreement, there shall be 3 directors of Biolite JP, consisting of 1 director
appointed by the Company and 2 appointed by Lucidiam. The Company shall appoint
As per the Agreement, the Shareholders shall supervise and manage the business and operations of Biolite JP. The directors shall not be entitled to any renumeration for their services as a director and each Shareholder can remove and replace the director he/she/it appointed. If a Shareholder sells or disposes of all of its Ordinary Shares, the director such Shareholder appointed must tender his/her resignation. The Agreement also sets forth certain corporate actions that must be pre-approved by all Shareholders (the "Reserved Matters"). If the Shareholders are unable to make a decision on any Reserved Matter, then either Shareholder can submit a deadlock notice to the other shareholder, 5 days after which they must refer the matter to each Shareholder's chairman and use good faith to resolve the dispute. If such dispute is not resolved within 10 days thereafter, then either Shareholder can offer to buy all of the other Shareholder's Ordinary Shares for cash at a specified price; if there is not affirmative acceptance of the sale, the sale shall proceed as set forth in the sale offer.
Each of the Shareholders maintains a pre-emptive right to purchase such number of additional Ordinary Shares as would allow such Shareholder to maintain its ownership percentage in Biolite JP if Biolite JP issues any new Ordinary Shares. However, the Agreement provides that the Company shall lose its pre-emptive rights under certain conditions. The Shareholders also maintain a right of first refusal if the other Shareholder receives an offer to buy such shareholder's Ordinary Shares.
The Agreement also requires Biolite JP to obtain a bank facility in the amount
of
Pursuant to the Agreement, the Company and Biolite JP agree to use their best
efforts to execute the License Agreement by the end of
The Agreement contains non-solicitation and non-compete clauses for a period of 2 years after a Shareholder or its subsidiaries ceases to be a Shareholder, with such restrictive covenants limited to business within the ophthalmologic filed or central neurological field. Any rights to intellectual property that arise from Biolite JP's activities, shall belong to Biolite JP.
The Agreement contains standard indemnification terms, except that no
indemnifying party shall have any liability for an individual liability unless
it exceeds
The Company paid
The Agreement shall continue for 10 years, unless earlier terminated and shall continue until terminated by: (i) either party by giving the other party at least 6 months written notice, until the end of the 10 years, after which the parties can terminate at any time or (ii) or by written agreement of all Shareholders, in which case it shall terminate automatically on the date upon which all Ordinary Shares are owned by one Shareholder. The Agreement also allows a Shareholder to terminate the agreement upon certain defaults committed by another Shareholder, as set forth in the Agreement.
This was a related party transaction and was conducted at arm's length. In addition to the Company's board of directors providing approval for the Company to enter into the Agreement, the Company's audit committee approved the Company's entry into the Agreement. The Board believes that this joint venture will enhance the Company's ability to provide therapeutic solutions to significant unmet medical needs and to develop innovative botanical drugs to treat central nervous system ("CNS") and oncology/ hematology diseases. The Company's Board of Directors believes that the joint venture has the potential to provide the Company with access to additional early-stage product candidates that it would not otherwise have access to and to introduce the Company to early-stage opportunities, and therefore the Board believes the joint venture is in the best interest of the Company and its shareholders.
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Recent PPP
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Recent Research Results
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The Phase II clinical study was a randomized, double-blind, placebo-controlled, multi-center trial, in which 60 adult patients with confirmed moderate to severe MDD were treated with PDC-1421 in either low dose (380 mg) or high dose (2 x 380 mg) compared with placebo administration, three times a day for six weeks. PDC-1421 high dose (2 x 380 mg) met the pre-specified primary endpoint by demonstrating a highly significant 13.2-point reduction in the Montgomery-Åsberg Depression Rating Scale (MADRS) total score by Intention-To-Treat (ITT) analysis, averaged over the 6-week treatment period (overall treatment effect) from baseline, as compared to 9.2-point reduction of the placebo group. By Per-Protocol (PP) analysis, PDC-1421 showed a dose dependent efficacy toward MDD in which high dose (2 x 380 mg) gave 13.4-point reduction in MADRS total score from baseline and low dose (380 mg) gave 10.4-point reduction as compared to a 8.6-point in the placebo group. The Company has decided to use the high dose formula in the Phase III clinical trial of ABV-1504.
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The study was an open label, Phase I study undertaken at a single study center
in
Vitargus® Phase II Study has been initiated in
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The Phase II Part I clinical study for treating ADHD found that the PDC-1421 Capsule was safe, well tolerated and efficacious during its treatment and the follow-up period with six adult patients. For the primary endpoints, the percentages of improvement in Adult Attention-Deficit/Hyperactivity Disorder Rating Scale-Investigator Rated-IV (ADHD-RS-IV) score from baseline to 8 weeks treatment were 83.3% (N=5) in the Intention-To-Treat (ITT) population and 80.0% (N=4) in the Per-Protocol (PP) population. Both low and high doses of PDC-1421 Capsule met the primary end points by passing the required 40% population in ADHD-RS-IV test scores.
Overall, the results from this study, which demonstrate the therapeutic value of PDC-1421, support further clinical development of ABV-1505 for the treatment of adult ADHD.
Phase II, Part 2 clinical study sites includes UCSF and 5 locations in
Taiwan.The Principal Investigators are
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Initially the Company will focus on ABV-2002, a solution utilized to store a donor cornea prior to either penetrating keratoplasty (full thickness cornea transplant) or endothelial keratoplasty (back layer cornea transplant). Designated ABV-2002 under the Company's product identification system, the solution is comprised of a specific poly amino acid that protects ocular tissue from damage caused by external osmolarity exposure during pre-surgery storage. The specific polymer in ABV-2002 can adjust osmolarity to maintain a range of 330 to 390 mOsM thereby permitting hydration within the corneal stroma during the storage period. Stromal hydration results in (a) maintaining acceptable corneal transparency and (b) prevents donor cornea swelling. ABV-2002 also contains an abundant phenolic phytochemical found in plant cell walls that provides antioxidant antibacterial properties and neuroprotection.
Early testing by BioFirst indicates that ABV-2002 may be more effective for protecting the cornea and retina during long-term storage than other storage media available today and can be manufactured at lower cost. Further clinical development task was put on hold due to the lack of funding.
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Public Offering & Financings
Financing in 2023
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The Lind Note does not carry any interest. Beginning with the date that is six
months from the issuance date of the Lind Note and on each one (1) month
anniversary thereafter, the Company shall pay Lind an amount equal to
Upon the occurrence of any Event of Default (as defined in the Lind Note), the Company must pay Lind an amount equal to 120% of the then outstanding principal amount of the Lind Note, in addition to any other remedies under the Note or the other Transaction Documents.
The Lind Warrant may be exercised via cashless exercise.
Pursuant to the terms of the Lind Securities Purchase Agreement, if at any time prior to a date that is 18 months following the closing of the Lind Offering, the Company proposes to offer or sell any additional securities in a subsequent financing, the Company shall first offer Lind the opportunity to purchase up to 10% of such new securities.
In connection with the Lind Offering, the Company and its subsidiaries: (i)
The sale of the Lind Note and the terms of the Lind Offering, including the
Guaranty are set forth in the Lind Securities Purchase Agreement, the Note, the
Warrant, a Security Agreement, Guarantor Security, Guaranty, a Trademark
Security Agreement with
Pursuant to the Lind Securities Purchase Agreement, the Company agreed to
register all of the
The Securities Purchase Agreement also contains customary representation and warranties of the Company and the Investors, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties.
The foregoing description of the Transaction Documents is qualified by reference to the full text of the forms of the Transaction Documents, which are filed as Exhibits hereto and incorporated herein by reference.
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Financing in 2022
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The Company paid to the co-placement agents an aggregate cash fee equal to 8% of the aggregate sales price of the securities sold and issued them warrants to purchase up to 160,000 shares of Common Stock, on the same terms as the May Warrants.
Financing in 2021
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Financing inNovember 2020
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The Company paid the following fees to a
Financing inOctober 2020
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The October Note was issued on
In connection with the October Note and pursuant to the terms of an agreement
entered into between the Company and a
The issuance and sale of the Common Stock, the Investor Warrants, Comp Warrants, Note Warrants and the shares of Common Stock underlying the Investor Warrants, the Comp Warrants and the October Note were made in reliance on an exemption from registration contained in either Regulation D or Regulation S of the Securities Act of 1933, as amended (the "Securities Act").
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Financing in May 2020 In
Pursuant to the terms of an agreement entered into between the Company and a
Financing inApril 2020
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Strategy
Key elements of our business strategy include:
? Advancing to the pivotal trial phase of ABV-1701 Vitargus® for the
treatments of Retinal Detachment or Vitreous Hemorrhage, which we expect
to generate revenues in the future.
? Focusing on licensing ABV-1504 for the treatment of major depressive
disorder, MDD, after the successful completion of its Phase II clinical
trials.
? Completing Phase II, Part 2 clinical trial for ABV-1505 for the treatment
of attention deficit hyperactivity disorder, ADHD.
? Out licensing drug candidates and medical device candidates to major
pharmaceutical companies for phase III and pivotal clinical trials, as
applicable, and further marketing if approved by the FDA.
We plan to augment our core research and development capability and assets by conducting Phase I and II clinical trials for investigational new drugs and medical devices in the fields of CNS, Hematology/Oncology and Ophthalmology.
Our management team has extensive experiences across a wide range of new drug
and medical device development and we have in-licensed new drug and medical
device candidates from large research institutes and universities in both the
Business Objectives
The Company is operating its core business based on collaborative activities that can generate current and future revenues through research, development and/or commercialization joint venture agreements. The terms of these agreements typically include payment to the Company related to one or more of the following:
? nonrefundable upfront license fees, ? development and commercial milestones, ? partial or complete reimbursement of research and development costs and ? royalties on net sales of licensed products.
Each type of payments results in revenue except for revenue from royalties on net sales of licensed products, which are classified as royalty revenues. To date, we have not received any royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the joint venture partner.
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As part of the accounting for these arrangements, the Company applies judgment to determine whether the performance obligations are distinct and develop assumptions in determining the stand-alone selling price for each distinct performance obligation identified in the collaboration agreements. To determine the stand-alone selling price, the Company relies on assumptions which may include forecasted revenues, development timelines, reimbursement rates for R&D personnel costs, discount rates and probabilities of technical and regulatory success.
The Company had multiple deliverables under the collaborative agreements, including deliverables relating to grants of technology licenses, regulatory and clinical development, and marketing activities. Estimation of the performance periods of the Company's deliverables requires the use of management's judgment. Significant factors considered in management's evaluation of the estimated performance periods include, but are not limited to, the Company's experience in conducting clinical development, regulatory and manufacturing activities. The Company reviews the estimated duration of its performance periods under its collaborative agreements on an annually basis, and makes any appropriate adjustments on a prospective basis. Future changes in estimates of the performance period under its collaborative agreements could impact the timing of future revenue recognition.
(i) Nonrefundable upfront payments
If a license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes revenue from the related nonrefundable upfront payments based on the relative standalone selling price prescribed to the license compared to the total selling price of the arrangement. The revenue is recognized when the license is transferred to the collaboration partners and the collaboration partners are able to use and benefit from the license. To date, the receipt of nonrefundable upfront fees was solely for the compensation of past research efforts and contributions made by the Company before the collaborative agreements entered into and it does not relate to any future obligations and commitments made between the Company and the collaboration partners in the collaborative agreements.
(ii) Milestone payments
The Company is eligible to receive milestone payments under the collaborative agreement with collaboration partners based on achievement of specified development, regulatory and commercial events. Management evaluated the nature of the events triggering these contingent payments, and concluded that these events fall into two categories: (a) events which involve the performance of the Company's obligations under the collaborative agreement with collaboration partners, and (b) events which do not involve the performance of the Company's obligations under the collaborative agreement with collaboration partners.
The former category of milestone payments consists of those triggered by development and regulatory activities in the territories specified in the collaborative agreements. Management concluded that each of these payments constitute substantive milestone payments. This conclusion was based primarily on the facts that (i) each triggering event represents a specific outcome that can be achieved only through successful performance by the Company of one or more of its deliverables, (ii) achievement of each triggering event was subject to inherent risk and uncertainty and would result in additional payments becoming due to the Company, (iii) each of the milestone payments is nonrefundable, (iv) substantial effort is required to complete each milestone, (v) the amount of each milestone payment is reasonable in relation to the value created in achieving the milestone, (vi) a substantial amount of time is expected to pass between the upfront payment and the potential milestone payments, and (vii) the milestone payments relate solely to past performance. Based on the foregoing, the Company recognizes any revenue from these milestone payments in the period in which the underlying triggering event occurs.
(iii) Multiple Element Arrangements
The Company evaluates multiple element arrangements to determine (1) the deliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separate from other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (i) the delivered item(s) has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially within its control. In assessing whether an item under a collaboration has standalone value, the Company considers factors such as the research, manufacturing, and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers whether its collaboration partners can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s).
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The Company recognizes arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 606 are satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate unit of accounting, the Company recognizes revenue from the combined unit of accounting over the Company's contractual or estimated performance period for the undelivered elements, which is typically the term of the Company's research and development obligations. If there is no discernible pattern of performance or objectively measurable performance measures do not exist, then the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company is expected to complete its performance obligations. Conversely, if the pattern of performance in which the service is provided to the customer can be determined and objectively measurable performance measures exist, then the Company recognizes revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance method, as applicable, as of the period ending date.
At the inception of an arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (1) the consideration is commensurate with either the Company's performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from its performance to achieve the milestone, (2) the consideration relates solely to past performance and (3) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone and the level of effort and investment required to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. Milestones that are not considered substantive are recognized as earned if there are no remaining performance obligations or over the remaining period of performance, assuming all other revenue recognition criteria are met.
(iv) Royalties and Profit Sharing Payments
Under the collaborative agreement with the collaboration partners, the Company is entitled to receive royalties on sales of products, which is at certain percentage of the net sales. The Company recognizes revenue from these events based on the revenue recognition criteria set forth in ASC 606. Based on those criteria, the Company considers these payments to be contingent revenues, and recognizes them as revenue in the period in which the applicable contingency is resolved.
Revenues Derived from Research and Development Activities Services - Revenues related to research and development and regulatory activities are recognized when the related services or activities are performed, in accordance with the contract terms. The Company typically has only one performance obligation at the inception of a contract, which is to perform research and development services. The Company may also provide its customers with an option to request that the Company provides additional goods or services in the future, such as active pharmaceutical ingredient, API, or IND/NDA/ANDA/510K submissions. The Company evaluates whether these options are material rights at the inception of the contract. If the Company determines an option is a material right, the Company will consider the option a separate performance obligation.
If the Company is entitled to reimbursement from its customers for specified research and development expenses, the Company accounts for the related services that it provides as separate performance obligations if it determines that these services represent a material right. The Company also determines whether the reimbursement of research and development expenses should be accounted for as revenues or an offset to research and development expenses in accordance with provisions of gross or net revenue presentation. The Company recognizes the corresponding revenues or records the corresponding offset to research and development expenses as it satisfies the related performance obligations.
The Company then determines the transaction price by reviewing the amount of consideration the Company is eligible to earn under the contracts, including any variable consideration. Under the outstanding contracts, consideration typically includes fixed consideration and variable consideration in the form of potential milestone payments. At the start of an agreement, the Company's transaction price usually consists of the payments made to or by the Company based on the number of full-time equivalent researchers assigned to the project and the related research and development expenses incurred. The Company does not typically include any payments that the Company may receive in the future in its initial transaction price because the payments are not probable. The Company would reassess the total transaction price at each reporting period to determine if the Company should include additional payments in the transaction price.
The Company receives payments from its customers based on billing schedules established in each contract. Upfront payments and fees may be recorded as advance from customers upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the right of the Company to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customers and the transfer of the promised goods or services to the customers will be one year or less.
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Examples of collaborative agreements the Company has entered into are as follows:
Collaborative agreements with BHK, a related party
(i) In February and December of 2015,BioLite, Inc. entered into a total of three joint venture agreements with BioHopeKing to jointly develop ABV-1501 for Triple Negative Breast Cancer (TNBC), ABV-1504 for MDD and ABV-1505 for ADHD. The agreements granted marketing rights to BioHopeKing for certain Asian countries in return for a series of milestone payments totaling$10 million in cash and equity of BioHopeKing or equity securities owned by BioHopeKing.
The milestone payments are determined by a schedule of BioLite development achievements as shown below:
Milestone Payment
Execution of BHK Co-Development Agreement
$ 1,000,000
Initiation of Phase III Clinical Trial
$ 10,000,000
(ii) In December of 2015, BHK paid the initial cash payment of
the execution of the BHK Agreement. The Company concluded that certain
deliverables are considered separate units of accounting as the delivered
items have value to the customer on a standalone basis and recognized this
cash payment as collaboration revenue when all research, technical, and
development data was delivered to BHK in 2015. The payment included
compensation for past research efforts and contributions made by BioLite
Taiwan before the BHK agreement was signed and does not relate to any future
commitments made by BioLite Taiwan and BHK in the BHK Agreement.
(iii) In
million, and recognized collaboration revenue for the year ended December
31, 2016 . As of December 31, 2022 , the Company had completed the phase II
clinical trial for ABV-1504 MDD on October 31, 2019 , but has not yet
completed the phase II clinical trial for ABV-1505 ADHD.
(iv) In addition to the milestone payments,
royalty equal to 12% of BHK's net sales related to ABV-1501, ABV-1504 and
ABV-1505 Products. As of December 31, 2022 , the Company has not earned
royalties under the BHK Co-Development Agreement.
(v) The BHK Co-Development Agreement will remain in effect for fifteen years from
the date of first commercial sale of the Product in in Asia excluding Japan .
Collaborative agreement with
The Company entered into a collaborative agreement with
Pursuant to the BioLite Agreement, the Company acquired the sole licensing
rights to develop and commercialize for therapeutic purposes six compounds from
BioLite. In accordance with the terms of the Agreement, the Company shall pay
BioLite (i) milestone payments of up to
According to the BioLite Agreement, after Phase II clinical trials are
completed, 15% of the Milestone Payment becomes due and shall be paid in two
stages: (i) 5% no later than
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This was a related party transaction.
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Co-Development agreement with
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The Company and Rgene signed an amendment to the Rgene Agreement on
Clinical Development Service Agreement with
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Through a series of transactions over the past 5 years, the Company and Rgene have co-developed the three drug products covered by the Service Agreement, which has resulted in the Company owning 31.62% of Rgene.
As part of the Rgene Studies, the Company agreed to loan
The Service Agreement shall remain in effect until the expiration date of the last patent and automatically renew for 5 more years unless terminated earlier by either party with six months written notice. Either party may terminate the Service Agreement for cause by providing 30 days written notice.
Rgene has further agreed, effective
The Rgene Studies is a related party transaction.
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Collaborative agreement with
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Pursuant to the BioFirst Agreement, the Company and BioFirst will co-develop and
commercialize BFC-1401. The Company will pay BioFirst a total amount of
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Initially the Company will focus on ABV-2002, a solution utilized to store a donor cornea prior to either penetrating keratoplasty (full thickness cornea transplant) or endothelial keratoplasty (back layer cornea transplant). ABV-2002 is a solution comprised of a specific poly amino acid that protects ocular tissue from damage caused by external osmolarity exposure during pre-surgery storage. The specific polymer in ABV-2002 can adjust osmolarity to maintain a range of 330 to 390 mOsM thereby permitting hydration within the corneal stroma during the storage period. Stromal hydration results in (a) maintaining acceptable corneal transparency and (b) prevents donor cornea swelling. ABV-2002 also contains an abundant phenolic phytochemical found in plant cell walls that provides antioxidant antibacterial properties and neuroprotection.
Early testing by BioFirst indicates that ABV-2002 may be more effective for protecting the cornea and retina during long-term storage than other storage media available today and can be manufactured at lower cost. Further clinical development was put on hold due to the lack of funding.
In addition, BioFirst was incorporated on
Vitargus has started the construction of a GMP factory in
Co-Development agreement with BioLite Japan K.K., a related party
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Pursuant to the Agreement and the related share transfer agreement, the Company
shall transfer 54 of its Ordinary Shares to Lucidaim for no consideration, such
that following the transfer, Lucidaim shall own 1,555 Ordinary Shares (51%) and
the Company shall own 1,494 Ordinary Shares (49%). Also pursuant to the
Agreement, there shall be 3 directors of Biolite, consisting of 1 director
appointed by the Company and 2 appointed by Lucidiam. The Company shall appoint
As per the Agreement, the Shareholders shall supervise and manage the business and operations of Biolite. The directors shall not be entitled to any renumeration for their services as a director and each Shareholder can remove and replace the director he/she/it appointed. If a Shareholder sells or disposes of all of its Ordinary Shares, the director such Shareholder appointed must tender his/her resignation. The Agreement also sets forth certain corporate actions that must be pre-approved by all Shareholders (the "Reserved Matters"). If the Shareholders are unable to make a decision on any Reserved Matter, then either Shareholder can submit a deadlock notice to the other shareholder, 5 days after which they must refer the matter to each Shareholder's chairman and use good faith to resolve the dispute. If such dispute is not resolved within 10 days thereafter, then either Shareholder can offer to buy all of the other Shareholder's Ordinary Shares for cash at a specified price; if there is not affirmative acceptance of the sale, the sale shall proceed as set forth in the sale offer.
Each of the Shareholders maintains a pre-emptive right to purchase such number of additional Ordinary Shares as would allow such Shareholder to maintain its ownership percentage in Biolite if Biolite issues any new Ordinary Shares. However, the Agreement provides that the Company shall lose its pre-emptive rights under certain conditions. The Shareholders also maintain a right of first refusal if the other Shareholder receives an offer to buy such shareholder's Ordinary Shares.
The Agreement also requires Biolite to obtain a bank facility in the amount of
Pursuant to the Agreement, the Company and Biolite agree to use their best
efforts to execute the License Agreement by the end of
The Agreement contains non-solicitation and non-compete clauses for a period of 2 years after a Shareholder or its subsidiaries ceases to be a Shareholder, with such restrictive covenants limited to business within the ophthalmologic filed or central neurological field. Any rights to intellectual property that arise from Biolite's activities, shall belong to Biolite JP.
The Agreement contains standard indemnification terms, except that no
indemnifying party shall have any liability for an individual liability unless
it exceeds
The Company paid
The Agreement shall continue for 10 years, unless earlier terminated. The Agreement also allows a Shareholder to terminate the agreement upon certain defaults committed by another Shareholder, as set forth in the Agreement.
This was a related party transaction.
In
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BioKey Revenues
In addition to collaborative agreements, ABVC earns revenue through its wholly
owned BioKey subsidiary which provides a wide range of
In addition, BioKey provides a variety of regulatory services tailored to the needs of its customers, which include proofreading and regulatory review of submission documents related to formulation development, clinical trials, marketed products, generics, nutraceuticals and OTC products and training presentations. In addition to supporting ABVC's new drug development, BioKey submits INDs, NDAs, ANDAs, and DMFs to the FDA, on ABVC's behalf in compliance with new electronic submission guidelines of the FDA.
Impact of COVID-19 Outbreak
On
Due to the COVID-19 pandemic, our revenue for the fiscal 2021 and 2022 were significantly impacted. As we have not seen a stronger signal to indicate that overall global economies will be back to normal in the first half of fiscal 2023, our business's overall revenue stream may be impacted further until the restrictions of COVID-19 can be released, after which we expect the Company can resume normal operations.
The COVID-19 pandemic, including variants, has adversely affected, and is expected to continue to adversely affect, elements of our CDMO business sector. The COVID-19 pandemic government imposed restrictions constrained researcher access to labs globally. These constraints limited scientific discovery capacity and we observed that demand in those labs fell well below historic levels. As constraints on social distancing were gradually lifted around the world recently, labs have been able to increase research activity. While we believe that underlying demand is still not yet at pre-COVID-19 levels since lab operations remain below their normal capacity, we are hopeful that the vaccination programs that are underway combined with policy changes planned for the summer will further increase research activity and support a return to pre-COVID-19 demand levels worldwide.
The global pandemic of COVID-19 continues to evolve rapidly, and we will continue to monitor the situation closely, including its potential effect on our plans and timelines.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived assets and current obligations.
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Summary of Critical Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the generally accepted accounting principles in
This basis of accounting involves the application of accrual accounting and
consequently, revenues and gains are recognized when earned, and expenses and
losses are recognized when incurred. The Company's financial statements are
expressed in
Fiscal Year
The Company changed its fiscal year from the period beginning on
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in
Inventory
Inventory consists of raw materials, work-in-process, finished goods, and merchandise. Inventories are stated at the lower of cost or market and valued on a moving weighted average cost basis. Market is determined based on net realizable value. The Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge to operations for known and anticipated inventory obsolescence.
Forward Stock Split
On
Stock Reverse Split
On
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Fair Value Measurements
FASB ASC 820, "Fair Value Measurements" defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:
? Level 1 - Inputs are quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the
measurement date. Valuation of these instruments does not require a high
degree of judgment as the valuations are based on quoted prices in active
markets that are readily and regularly available.
? Level 2 - Inputs other than quoted prices in active markets that are
either directly or indirectly observable as of the measurement date, such
as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of
the assets or liabilities.
? Level 3 - Valuations based on inputs that are unobservable and not
corroborated by market data. The fair value for such assets and
liabilities is generally determined using pricing models, discounted cash
flow methodologies, or similar techniques that incorporate the assumptions
a market participant would use in pricing the asset or liability.
The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, restricted cash, accounts receivable, due from related parties, inventory, prepaid expenses and other current assets, accounts payable, accrued liabilities, and due to related parties approximate fair value due to their relatively short maturities. The carrying value of the Company's short-term bank loan, convertible notes payable, and accrued interest approximates their fair value as the terms of the borrowing are consistent with current market rates and the duration to maturity is short. The carrying value of the Company's long-term bank loan approximates fair value because the interest rates approximate market rates that the Company could obtain for debt with similar terms and maturities.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three months
or less, when purchased, to be cash equivalents. As of
Restricted Cash Equivalents
Restricted cash equivalents primarily consist of cash held in a reserve bank
account in
Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its cash
and temporary cash investments in high quality credit institutions, but these
investments may be in excess of
We perform ongoing credit evaluation of our customers and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable. We determine the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from our estimates.
Revenue Recognition
During the fiscal year 2018, the Company adopted Accounting Standards
Codification ("ASC"), Topic 606 (ASC 606), Revenue from Contracts with
Customers, using the modified retrospective method to all contracts that were
not completed as of
57
Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Property and Equipment
Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally based on the following useful lives:
Estimated Life
in Years
Buildings and leasehold improvements 5 ~ 50
Machinery and equipment 5 ~ 10
Office equipment 3 ~ 6
Impairment of Long-Lived Assets
The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
Long-term Equity Investment
The Company acquires the equity investments to promote business and strategic objectives. The Company accounts for non-marketable equity and other equity investments for which the Company does not have control over the investees as:
? Equity method investments when the Company has the ability to exercise
significant influence, but not control, over the investee. Its
proportionate share of the income or loss is recognized monthly and is
recorded in gains (losses) on equity investments.
? Non-marketable cost method investments when the equity method does not apply.
Significant judgment is required to identify whether an impairment exists in the valuation of the Company's non-marketable equity investments, and therefore the Company considers this a critical accounting estimate. Its yearly analysis considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative analysis of its investments involves understanding the financial performance and near-term prospects of the investee, changes in general market conditions in the investee's industry or geographic area, and the management and governance structure of the investee. Quantitative assessments of the fair value of its investments are developed using the market and income approaches. The market approach includes the use of comparable financial metrics of private and public companies and recent financing rounds. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees' revenue, costs, and discount rates. The Company's assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.
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Other-Than-Temporary Impairment
The Company's long-term equity investments are subject to a periodic impairment review. Impairments affect earnings as follows:
? Marketable equity securities include the consideration of general market
conditions, the duration and extent to which the fair value is below cost,
and our ability and intent to hold the investment for a sufficient period
of time to allow for recovery of value in the foreseeable future. The
Company also considers specific adverse conditions related to the
financial health of, and the business outlook for, the investee, which may
include industry and sector performance, changes in technology,
operational and financing cash flow factors, and changes in the investee's
credit rating. The Company records other-than-temporary impairments on
marketable equity securities and marketable equity method investments in
gains (losses) on equity investments.
? Non-marketable equity investments based on the Company's assessment of the
severity and duration of the impairment, and qualitative and quantitative
analysis of the operating performance of the investee; adverse changes in
market conditions and the regulatory or economic environment; changes in
operating structure or management of the investee; additional funding
requirements; and the investee's ability to remain in business. A series
of operating losses of an investee or other factors may indicate that a
decrease in value of the investment has occurred that is other than
temporary and that shall be recognized even though the decrease in value
is in excess of what would otherwise be recognized by application of the
equity method. A loss in value of an investment that is other than a
temporary decline shall be recognized. Evidence of a loss in value might
include, but would not necessarily be limited to, absence of an ability to
recover the carrying amount of the investment or inability of the investee
to sustain an earnings capacity that would justify the carrying amount of
the investment. The Company records other-than-temporary impairments for
non-marketable cost method investments and equity method investments in
gains (losses) on equity investments. Other-than-temporary impairments of
equity investments were $0 and $0 for the years ended December 31, 2022
and 2021, respectively.
Goodwill The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions.
The Company completed the required testing of goodwill for impairment as of
Research and Development Expenses
The Company accounts for the cost of using licensing rights in research and development cost according to ASC Topic 730-10-25-1. This guidance provides that absent alternative future uses the acquisition of product rights to be used in research and development activities must be charged to research and development expenses when incurred.
The Company accounts for R&D costs in accordance with Accounting Standards Codification ("ASC") 730, Research and Development ("ASC 730"). Research and development expenses are charged to expense as incurred unless there is an alternative future use in other research and development projects or otherwise. Research and development expenses are comprised of costs incurred in performing research and development activities, including personnel-related costs, facilities-related overhead, and outside contracted services including clinical trial costs, manufacturing and process development costs for both clinical and preclinical materials, research costs, and other consulting services. Non-refundable advance payment for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. In instances where the Company enters into agreements with third parties to provide research and development services, costs are expensed as services are performed.
Post-retirement and post-employment benefits
The Company's subsidiaries in
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Stock-based Compensation
The Company measures expense associated with all employee stock-based
compensation awards using a fair value method and recognizes such expense in the
consolidated financial statements on a straight-line basis over the requisite
service period in accordance with FASB ASC Topic 718 "Compensation-Stock
Compensation". Total employee stock-based compensation expenses were
The Company accounted for stock-based compensation to non-employees in
accordance with FASB ASC Topic 718 "Compensation-Stock Compensation" and FASB
ASC Topic 505-50 "Equity-Based Payments to Non-Employees" which requires that
the cost of services received from non-employees is measured at fair value at
the earlier of the performance commitment date or the date service is completed
and recognized over the period the service is provided. Total non-employee
stock-based compensation expenses were
Beneficial Conversion Feature
From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Income Taxes
The Company accounts for income taxes using the asset and liability approach which allows the recognition and measurement of deferred tax assets to be based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will expire before the Company is able to realize their benefits, or future deductibility is uncertain.
Under ASC 740, a tax position is recognized as a benefit only if it is "more
likely than not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The evaluation of a tax position
is a two-step process. The first step is to determine whether it is
more-likely-than-not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigations based on the
technical merits of that position. The second step is to measure a tax position
that meets the more-likely-than-not threshold to determine the amount of
benefits recognized in the financial statements. A tax position is measured at
the largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. Tax positions that previously failed to meet
the more-likely-than-not recognition threshold should be recognized in the first
subsequent period in which the threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not criteria should be
de-recognized in the first subsequent financial reporting period in which the
threshold is no longer satisfied. Penalties and interest incurred related to
underpayment of income tax are classified as income tax expense in the year
incurred. No significant penalty or interest relating to income taxes has been
incurred for the years ended
On
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Valuation of Deferred Tax Assets
A valuation allowance is recorded to reduce the Company's deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for the valuation allowance, management considers, among other things, projections of future taxable income and ongoing prudent and feasible tax planning strategies. If the Company determines that sufficient negative evidence exists, then it will consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, the Company's projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove to be more difficult to support the realization of its deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse impact on its effective income tax rate and results. Conversely, if, after recording a valuation allowance, the Company determines that sufficient positive evidence exists in the jurisdiction in which the valuation allowance was recorded, it may reverse a portion or all of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable impact on its effective income tax rate and results in the period such determination was made.
Loss Per Share of Common Stock
The Company calculates net loss per share in accordance with ASC Topic 260, "Earnings per Share". Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive. Diluted earnings per share excludes all dilutive potential shares if their effect is anti-dilutive.
Commitments and Contingencies
The Company has adopted ASC Topic 450 "Contingencies" subtopic 20, in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available before financial statements are issued or are available to be issued indicates that it is probable that an assets had been impaired or a liability had been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Foreign-currency Transactions
For the Company's subsidiaries in
Translation Adjustment
The accounts of the Company's subsidiaries in
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Recent Accounting Pronouncements
In
In
Estimates and Assumptions
In preparing our consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts.
Results of Operations - Year Ended
Revenues. We generated
Operating Expenses. Our operating expenses were
Other Income (expense). The other expense was
Interest income (expense), net, was
Government grant income was
Net Loss. The net loss was
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Liquidity and Capital Resources
Working Capital
As of As of
December 31, December 31,
2022 2021
Current Assets $ 2,987,247 $ 7,653,782
Current Liabilities $ 5,819,529 $ 3,692,312
Working (Deficit) Capital $ (2,832,282 ) $ 3,691,470 Cash Flow from Operating Activities
During the years ended
Cash Flow from Investing Activities
During the years ended
Cash Flow from Financing Activities
During the years ended
Off-Balance Sheet Arrangements
As of
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