MetaStat (MTST) Risk Analysis

Under standard clinical practice, tumor biopsies removed from patients are typically chemically preserved and embedded in paraffin wax and stored. Our clinical development relies on our ability to secure access to these archived tumor biopsy samples, as well as information pertaining to their associated clinical outcomes. Generally, the agreements under which we gain access to archival samples are nonexclusive. Other companies study archival samples and often compete with us for access. Additionally, the process of negotiating access to archived samples is lengthy since it typically involves numerous parties and approval levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, intellectual property ownership and research parameters. If we are not able to negotiate access to clinical samples with hospitals, clinical partners, pharmaceutical companies, or companies developing therapeutics on a timely basis, or at all, or if other laboratories or our competitors secure access to these samples before us, our ability to research, develop and commercialize future products will be limited or delayed. In addition, access to these clinical samples may be costly, and involve large upfront acquisition costs, which may have a material adverse effect on our cash flows and business.

Our operations have consumed substantial amounts of cash since inception. We expect to need substantial additional funding to pursue our development programs and launch and commercialize any product candidates for which we receive regulatory approval, which may include building internal sales and marketing forces to address certain markets. In past years, we have incurred significant costs in connection with the development of our prognostic diagnostic tests and in recent years, we have incurred significant costs in connection with the development of our driver-based biomarkers for anti-metastatic drugs and companion diagnostics. Our research and development expenses were approximately $1.3 million and $1.0 million for the fiscal years ended February 28, 2018 and February 28, 2017, respectively. We expect our research and development expenses to increase and remain high for the foreseeable future as we continue to develop our therapeutics and companion diagnostics and move them into the clinic. Additionally, we may not be able to successfully monetize or commercialization our prognostic diagnostic tests. As a result, we will need to generate significant revenue in order to achieve profitability. Our failure to achieve revenue or profitability in the future could cause the market price of our common stock to decline. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital.

Biopharmaceutical product development is generally a highly speculative undertaking and involves substantial risk. The field of personalized medicine, in which we engage, is an emerging field, and the scientific discoveries that form the basis of our therapeutic and companion diagnostic product development efforts are relatively new. Further, the scientific evidence to support the feasibility of developing product candidates based on those discoveries is both preliminary and limited. The failure of the scientific underpinnings of our business model to produce viable product candidates would substantially harm our operations and prospects.

We are a pre-commercial biotechnology company. We do not have any commercial products or laboratory services that generate revenue. Our therapeutic and companion diagnostics programs are in an early stage of development. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our therapeutic and companion diagnostic product products resulting from these programs and any others we may develop or acquire in the future, which may never occur. Before we could generate any revenues from our therapeutic and companion diagnostic product candidates, we must complete the following activities for each of them, any one of which we may not be able to successfully complete: - conduct substantial preclinical development;- manage preclinical and clinical activities;- achieve regulatory approval;- manage manufacturing activates and establish manufacturing relationships;- develop our companion diagnostics and conduct clinical testing and achieve regulatory approvals for use of our companion diagnostics with corresponding therapeutics;- build a commercial sales and marketing infrastructure, if we choose to market any such products ourselves, or enter into a collaboration to access sales and marketing functions;- develop and implement marketing and reimbursement strategies; and - invest significant additional cash in each of the above activities. If we are unable to commercialize and generate sales of our product candidates, or successfully develop, monetize or commercialization our prognostic diagnostic tests, we will not produce sufficient revenue to become profitable.

A key element of our product development strategy is to exploit the MENA platform to build a pipeline of drug candidates and paired companion diagnostic tests and progress those product candidates through preclinical and clinical development for the treatment patients with aggressive cancer in solid tumors indications. We may not be able to develop product candidates that are safe and effective. Even if we are successful in building a product pipeline, the potential product candidates that we identify may not be suitable for clinical development for a number of reasons, including causing harmful side effects or demonstrating other characteristics that indicate a low likelihood of receiving marketing approval or achieving market acceptance. If our methods of identifying potential product candidates fail to produce a pipeline of potentially viable product candidates, then our success as a business will be dependent on the success of fewer potential product candidates, which introduces risks to our business model and potential limitations to any success we may achieve.

Because we have limited financial and operational resources, we must focus our efforts on particular product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Further, our resource allocation decisions may result in our use of funds for research and development programs and product candidates for specific indications that may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Any such failure to properly assess potential product candidates could result in missed opportunities and/or our focus on product candidates with low market potential, which would harm our business and financial condition.

Preclinical development and clinical testing is expensive and can take many years to complete. The outcomes are inherently uncertain, and failure can occur at any time during the preclinical development and clinical trial process. Additionally, any positive results of preclinical studies and early clinical trials of a product candidate may not be predictive of the results of later-stage clinical trials, such that product candidates may reach later stages of clinical trials and fail to show the desired safety and efficacy traits despite having shown indications of those traits in earlier studies. A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. The results of any preclinical development and clinical trials we conduct may be delayed or unsuccessful for a variety of reasons.

If any of our product candidates enter the clinical development stage, we may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, because we are primarily focused on patients with molecularly defined cancers, which may have relatively low incidence rates, our pool of suitable patients may be smaller and more selective and our ability to enroll a sufficient number of suitable patients may be limited or take longer than anticipated. Additionally, some of our competitors have ongoing clinical trials for product candidates that treat the same indications that our product candidates target, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors' product candidates. The inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon our clinical trials altogether. Enrollment delays in our clinical trials would likely result in increased development costs, and we may not have or be able to obtain sufficient cash to fund such increased costs when needed, which could result in the further delay or termination of the trials.

Any delays in completing our preclinical development and clinical studies for any of our product candidates may delay our ability to raise additional capital or to generate revenue, and we may have insufficient capital resources to support our operations.  Even if we have sufficient capital resources, the ability to become profitable will be delayed if there are problems with the timing or completion of our clinical studies. We are conducting, and expect to conduct, certain preclinical development, validation studies and clinical studies alone and/or in collaboration with select academic institutions and other third-party institutions through services and collaboration agreements. We may experience delays that are outside of our control in connection with such services and collaboration agreements, including, but not limited to, receiving tissue samples, accompanying medical and clinical data, preparation, review and sign-off of results and/or manuscripts in a timely fashion. Any delays in completing our clinical studies and publishing of results in peer-reviewed journals will delay our commercialization efforts and may materially harm our business, financial condition and results of operations.

We rely on, and expect to continue to rely on, clinical collaborators, including CROs to perform portions of our clinical trial functions. If any of our collaborators were to breach or terminate its agreement with us or otherwise fail to conduct the contracted activities successfully and in a timely manner, the research, development or commercialization of the products contemplated by the collaboration could be delayed or terminated. If any of our collaboration agreements are terminated, or if we are unable to renew those agreements on acceptable terms, we would be required to seek alternatives. We may not be able to negotiate additional collaborations on acceptable terms, if at all, and these collaborations may not be successful. Our success in the future depends in part on our ability to enter into agreements with other leading cancer organizations. This can be difficult due to internal and external constraints placed on these organizations. Some organizations may limit the number of collaborations they have with any one company so as to not be perceived as biased or conflicted. Organizations may also have insufficient administrative and related infrastructure to enable collaborations with many companies at once, which can prolong the time it takes to develop, negotiate and implement collaboration. Additionally, organizations often insist on retaining the rights to publish the clinical data resulting from the collaboration. The publication of clinical data in peer-reviewed journals is a crucial step in commercializing and obtaining reimbursement for products such as ours, and our inability to control when, if ever, results are published may delay or limit our ability to derive sufficient revenue from any product that may result from a collaboration. From time to time we expect to engage in discussions with potential clinical collaborators, which may or may not lead to collaborations. However, we cannot guarantee that any discussions will result in clinical collaborations or that any clinical studies, which may result will be completed in a reasonable time frame or with successful outcomes. If news of discussions regarding possible collaborations become known in the medical community, regardless of whether the news is accurate, failure to announce a collaboration agreement or the entity's announcement of a collaboration with an entity other than us could result in adverse speculation about us, our products or our technology, resulting in harm to our reputation and our business.

Clinical utility studies show when and how to use a clinical test and describe the particular clinical situations or settings in which it can be applied and the expected results. Clinical utility studies also show the impact of the product results on patient care and management. Clinical utility studies are typically performed with collaborating oncologists or other physicians at medical centers and hospitals, analogous to a clinical trial, and generally result in peer-reviewed publications. Sales and marketing representatives use these publications to demonstrate to customers how to use a clinical test, as well as why they should use it. These publications are also used with payers to obtain coverage for a test, helping to assure there is appropriate reimbursement. We anticipate commencing clinical utility studies for our prognostic diagnostic tests following product launch. We will need to conduct additional studies for our prognostic diagnostic tests, and other tests we plan to introduce, to increase the market adoption and obtain coverage and adequate reimbursement. Should we not be able to perform these studies, or should their results not provide clinically meaningful data and value for oncologists and other physicians, adoption of our product could be impaired, and we may not be able to obtain coverage and adequate reimbursement for them.

Some patients may decide not to order our prognostic diagnostic tests due to its price, part or all of which may be payable directly by the patient if the applicable payer denies reimbursement in full or in part. Even if medical practitioners recommend that their patients use our test, patients may still decide not to use our prognostic diagnostic tests, either because they do not want to be made aware of the likelihood of metastasis or they wish to pursue a particular course of therapy regardless of test results. If only a small portion of the patient population decides to use our test, we will experience limits on our revenue and our ability to achieve profitability.