UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM SD

Specialized Disclosure Report

 

 

 

 

 

 

 

Check the appropriate box to indicate the rule pursuant to which this form is being filed, and provide the period to which the information in this form applies:

 

[✓]  Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2018.

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SECTION 1 – Conflict Minerals Disclosure

 

Item 1.01 - Conflict Minerals Report

 

Cytori Therapeutics, Inc. has included the Conflict Minerals Report as an exhibit to its Form SD for the period from January 1, 2018 to December 31, 2018. Unless the context otherwise indicates, “Cytori,” “the Company,” “we,” “us” and “our” refer to Cytori Therapeutics, Inc. and its consolidated subsidiaries.

 

For the year 2018, certain of our operations manufactured, or contracted to manufacture, products for which 3TGs, as defined below, are necessary to their functionality or production (“Covered Products”). Conflict minerals are defined in Section 13(p) as (A) cassiterite, columbite-tantalite (coltan), gold, wolframite, and their derivatives, which are limited to tin, tantalum and tungsten (together with gold collectively referred to as 3TGs), or (B) any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of Congo ("DRC") or any adjoining country that shares an internationally recognized border with the DRC (the “Covered Countries”). Accordingly, we have conducted a reasonable country of origin inquiry (“RCOI”) that was designed to determine whether any of the 3TGs in our Covered Products originated in the Democratic Republic of the Congo or an adjoining country (Angola, Burundi, the Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda or Zambia), or were from recycled or scrap sources.

 

A summary of our RCOI and steps of due diligence on the source and chain of custody of any 3TGs in our Covered Products, is included in our Conflict Minerals Report, which is filed as Exhibit 1.01 to this Form SD.  In addition to this, our Conflict Minerals Report is publicly available on our company website at: www.cytori.com.

 

 

Forward-Looking Statements

The Report contains forward-looking statements which express a belief, expectation or intention, as well as those that are historical fact, are forward-looking statements, including statements relating to our compliance efforts and expected actions.  The words “expects,” “intends,” “plans,” “believes,” and “anticipates” and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future actions or performance and are subject to various risks, uncertainties and assumptions. Undue reliance should not be placed on these statements, which are only effective as of the date of this report, and the Company undertakes no obligation to publicly update or revise any forward-looking statement.

 

Item 1.02Exhibit.

 

We have filed our Conflict Minerals Report as Exhibit 1.01 to this Form SD.

 

Item 2.01 Exhibits.

 

Exhibit 1.01 – Conflict Minerals Report as required by Item 1.01. of Form SD.

 

 

 

EXHIBIT INDEX

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the duly authorized undersigned.

 

 

 

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EXHIBIT 1.01

 

 

 

 

Cytori Therapeutics, Inc.

Conflict Minerals Report

For the Year Ended December 31, 2018

 

Introduction

 

This Conflict Minerals Report has been prepared by management of Cytori for the period from January 1, 2018 to December 31, 2018 (the “Reporting Period”). Unless the context otherwise indicates, "Cytori," "we," "us," the "Company" and "our" mean Cytori Therapeutics, Inc. and its consolidated and combined subsidiaries.

 

This Report is presented to comply with Rule 13p-1 under the Securities Exchange Act of 1934, as amended (the “Rule”). This Rule imposes certain reporting obligations on public companies that manufacture or contract to manufacture products containing conflict minerals that are necessary to the functionality or production of their products. Form SD defines “conflict minerals” as cassiterite, columbite-tantalite, gold, wolframite and their derivatives, which are currently limited to tin, tantalum and tungsten. We identified tin, tantalum, tungsten and gold (“3TGs”) that are necessary to the functionality or production of certain products that we manufactured or contracted to manufacture during the Reporting Period.

 

As described in this report, Cytori has reason to believe that some of the 3TGs present in its supply chain may have originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country (collectively, the “Covered Countries”). Therefore, we performed a reasonable country of origin inquiry (“RCOI”) to determine whether any of the 3TGs in our products originated from the Covered Countries and were not from recycled or scrap sources.  Based on the RCOI, we determined that we may have some suppliers that sourced 3TG from the Covered Countries and we proceeded to conduct due diligence on our supplier base. The results of this due diligence are covered below.

 

Company Overview

Our objective is to build a profitable and growing specialty therapeutics company.  To meet this objective, we have acquired and are developing two technology platforms that hold promise for treating millions of patients and represent significant potential for increasing shareholder value. Our current corporate activities fall substantially into advancing these platforms: Cytori Nanomedicine and Cytori Cell Therapy.

The Cytori Nanomedicine platform features a versatile nanoparticle technology for drug encapsulation and delivery that has thus far provided the foundation to bring two drugs into mid/late stage clinical trials.  Nanoparticle encapsulation is a clinically proven technology and has been shown to help improve the pharmacokinetic properties of many drugs, thus potentially enhancing the therapeutic profile and patient benefits.  Our lead oncology drug candidate, ATI-0918 is a generic version of Janssen’s Caelyx® pegylated liposomal encapsulated doxorubicin for the treatment of breast and ovarian cancer, multiple myeloma, and Kaposi’s sarcoma.  Pegylated liposomal encapsulated doxorubicin is a heavily relied upon chemotherapeutic used in many cancer types on a global basis.  We believe that data from a 60-patient European study of ATI-0918 has met the statistical criteria for bioequivalence to Janssen’s Caelyx®, the current reference listed drug in Europe.  We intend that these bioequivalence data will serve as a basis for our planned regulatory submission to the European Medicines Agency, or EMA, for ATI-0918. We are currently evaluating our strategic options to bring ATI-0918 to the U.S., China, and other markets.  Our second oncology drug candidate is ATI-1123, which is a patented, albumin-stabilized liposomal encapsulated docetaxel. Docetaxel is a well-accepted and often used chemotherapeutic drug used for many cancers.  A Phase I clinical trial of ATI-1123 has been completed and published, and we are investigating possible expansion of this trial to Phase II, potentially in conjunction with a development partner. We recently received FDA orphan drug designation for ATI-1123 for the treatment of small cell lung cancer. Finally, in connection with our acquisition of the ATI-0918 and ATI-1123 drug candidates, we have acquired know-how (including proprietary processes and techniques) and a scalable nanoparticle manufacturing plant in San Antonio, Texas from which we intend to manufacture commercial quantities of our nanoparticle-encapsulated and -delivered drugs.

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Cytori Cell Therapy, is based on the scientific discovery that the human adipose or fat tissue compartment is a source of a unique mixed population of stem, progenitor and regenerative cells that may hold substantial promise in the treatment of numerous diseases and conditions. We have developed certain novel therapies prepared and administered at the patient’s bedside with proprietary technologies that include therapy-specific reusable, automated, standardized Celution devices, single-use Celution consumable sets, Celase reagent, and Intravase reagent.  Cytori Cell Therapy is in various stages of development and is the subject of investigator-initiated trials conducted by our partners, licensees and other third parties, some of which are supported by us and/or funded by government agencies and other funding sources. In March 2018, we announced a Japanese investigator-initiated study of ECCI-50 Cell Therapy in men with stress urinary incontinence, or SUI, following prostatic surgery for prostate cancer or benign prostatic hypertrophy, called ADRESU, completed enrollment of 45 patients. Patients will be followed up for one-year post treatment and data from the ADRESU trial is expected in the first half of 2019. The ADRESU trial costs are substantially supported by the Japan Agency for Medical Research and Development, or AMED, an independent administrative agency of the Government of Japan, with additional support from Cytori. In conjunction with the U.S. Department of Health and Human Service’s Biomedical Advanced Research and Development Authority, or BARDA, we have initiated the clinical trial and expect to first treat patients in the RELIEF trial in 2019. On April 24, 2019 the Company completed the sale transaction of the Company’s UK subsidiary, Cytori Ltd., and the Company’s Cell Therapy assets, and on April 25, 2019 the Company completed the sale of the Cytori Therapeutics, K.K., and substantially all of the Company’s Cell Therapy assets used in Japan.

 

We were initially formed as a California general partnership in July 1996, and incorporated in the State of Delaware in May 1997. We were formerly known as MacroPore Biosurgery, Inc., and before that as MacroPore, Inc. Our corporate offices are located at 3020 Callan Road, San Diego, CA  92121.  Our common stock is currently listed on the Nasdaq Capital Market under the symbol “CYTX.”  Our telephone number is (858) 458-0900. We maintain an Internet website at www.cytori.com.

 

Our products

 

We conducted an analysis of our products to determine which of our products were likely to contain 3TGs. We have identified one or more of the 3TGs in certain of our Celution system products, including our Celution 800 system, that are necessary to the functionality or production of such products.

 

Description of RCOI

 

We began our scoping process by extracting a list of our suppliers that provide us with products that may contain one or more of the 3TGs. Once the filtering was completed, we populated the list with contact information and provided the list to our third-party service provider. This supplier list was then uploaded to our third-party provider’s software platform that allows us to store and manage supplier requests and documentation.

 

From there, we defined our scoping process even further by ensuring that any service providers, indirect materials suppliers and inactive suppliers were removed. This ensures that all suppliers surveyed provided items to Cytori that were used in final products in the year 2018. At this time, there were no such instances where we determined that particular suppliers should be removed from this year’s scope. However, we will continue to assess our supplier list to ensure that our surveyed suppliers are in scope.

 

Our service provider then conducted the supplier survey portion of the RCOI. This was done by utilizing the Conflict Minerals Reporting Template (the “CMRT”), version 5.11 or higher, developed by the Responsible Business Alliance and The Global e-Sustainability Initiative. Using the CMRT, suppliers identified through the procedures above were surveyed on their sourcing of the 3TGs that we identified in our products. The CMRT was developed to facilitate disclosure and communication of information regarding smelters that provide material to a company’s supply chain. It includes questions regarding a direct supplier’s conflict minerals policy, its due diligence process, and information about its supply chain such as the names and locations of smelters and refiners as well as the origin of 3TGs used by those facilities.

 

During the supplier survey, suppliers were contacted and asked to complete the CMRT. All communications were tracked and monitored in the software platform. Non-responsive suppliers were contacted a minimum of three times and then were also managed by our service provider’s Supply Chain Team in one on one communications. This included at least two follow-ups in order to encourage their response via CMRTs. To ensure that our suppliers

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understand our expectations regarding the sourcing of 3TGs, we and our third-party consultant have provided training to suppliers though webinars, videos, documentation, and one-on-one discussions.

 

The RCOI also included automated data validation on all submitted CMRTs. The goal of data validation is to increase the accuracy of submissions and identify any contradictory answers in the CMRT. All submitted forms are accepted and classified as valid or invalid so that data is still retained. All suppliers who submitted CMRTs that were flagged as “invalid” were contacted to address items such as incomplete data, missing smelter information, or inconsistent answers. All of these communications were monitored and tracked in our service provider’s system for future reporting and transparency. As of May 27, 2019, there were no invalid submissions that were not corrected by suppliers.

 

Based on the RCOI, we determined that we may have some suppliers that sourced 3TGs from the Covered Countries; therefore, we proceeded to conduct due diligence on our supplier base.

 

Due Diligence

 

Design of due diligence

 

We have designed our due diligence procedures based upon the due diligence framework presented by the Organisation for Economic Co-operation and Development (“OECD”) in the publication OECD (2013) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Second Edition, OECD Publishing and the related Supplements for gold and for tin, tantalum and tungsten.

 

Cytori’s conflict minerals due diligence process references the five steps as defined by the Guidance: 1) establishing strong company management systems, 2) identifying and assessing risks in our supply chain, 3) designing and implementing a strategy to respond to identified risks, 4) utilizing independent third-party audits, and 5) publicly reporting on our supply chain due diligence. A summary of the due diligence measures undertaken by Cytori is outlined below.

 

Due diligence performed

 

Company Management Systems

 

Internal team; External resources

 

Our due diligence program involves a cross-functional team comprised of relevant personnel throughout our organization, including our chief legal and compliance personnel, our principal purchasing and operations personnel, senior engineering personnel, senior research and development personnel, and other members of executive management and their respective teams as appropriate. Our senior management team and our Board of Directors are given appropriate updates on our Conflict Minerals program.

 

We have also taken on other management systems that include the use of a third-party vendor. Through our vendor’s tool we are able to collect and store supplier data and CMRTs, communicate with suppliers and monitor risks in our supply chain. The use of these tools has allowed us to assist our suppliers in understanding our expectations and requirements and increase the rate of responses we have received from our suppliers to our survey requests.

 

Control systems

 

Controls include, but are not limited to, our Code of Business Conduct and Ethics, which outlines expected behaviors for all Cytori employees and third parties doing business with Cytori, and our policy statement regarding Conflict Minerals. Our Conflict Minerals policy statement is available on our website at www.cytori.com within the “Investor Relations” section under “Corporate Governance Materials.”

 

Supplier engagement

 

With respect to the OECD requirement to strengthen engagement with suppliers, we have utilized the CMRT version 5.11 or higher and a third-party vendor’s software reporting tool for collecting conflict minerals declarations from our

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supply base. The use of these tools has allowed us to assist our suppliers in understanding our expectations and requirements and increase the rate of responses we have received from our suppliers to our survey requests.

 

We have also communicated with suppliers potentially affected by our Conflict Minerals program and related compliance efforts as identified through our RCOI process our expectation that they assist us in complying with our efforts related to our conflict minerals program. This includes obtaining information to support chain of custody of the 3TG identified in our products. Our suppliers are able to access our Conflict Minerals policy statement through the website above or upon request.

 

Identify and Assess Risks in the Supply Chain

 

It is important to note that Cytori has relied on supplier responses to provide us with the information about the source of 3TGs contained in the parts and components they supply to us. Similarly, our direct suppliers also rely on information provided by their suppliers. This chain of information creates a level of uncertainty and risk related to the accuracy of the information. We will continue to monitor, adapt, and modify our due diligence practices in response to the recognized industry best practices.

 

In accordance with OECD Guidelines, it is important to identify and assess risk associated with conflict minerals in the supply chain. Risks were identified by assessing the due diligence practices of smelters and refiners identified in the supply chain by upstream suppliers that listed mineral processing facilities on their CMRT declarations. Assent compared these facilities listed in the responses to the list of smelters and refiners maintained by the RMI to ensure that the facilities met the RMI definition of a 3TG processing facility that was operational during the 2018 calendar year.

In order to assess the risk that any of these smelters posed to our supply chain, Assent determined if the smelter had been audited against a standard in conformance with the OECD Guidance, such as the RMAP. We do not typically have a direct relationship with 3TG smelters and refiners and do not perform or direct audits of these entities within our supply chain. Smelters that have completed an RMAP audit are considered to be DRC-Conflict Free. In cases where the smelter’s due diligence practices have not been audited against the RMAP standard, a potential supply chain risk exists.

 

As of May 27^th, 2019, we have validated 318 smelters or refiners and are working to validate the additional smelter/refiner entries from the submitted CMRTs. Due to the provision of primarily supplier-level CMRTs, we cannot definitely determine their connection to the Covered Products.

 

Each facility that meets the RMI definition of a smelter or refiner of a 3TG mineral is assessed according to red flag indicators defined in the OECD Guidance. Assent uses 3 factors to determine the level of risk that each smelter poses to the supply chain by identifying red flags.

 

Based on this criteria the following facilities have been identified with red-flag risk to their supply chain:

As part of our risk management plan under the OECD Guidance, when these facilities were reported on a CMRT by one of the suppliers surveyed, risk mitigation activities are initiated. Through our third-party vendor, Assent Compliance, submissions that include any of the above facilities immediately produce a receipt instructing the supplier to take their own risk mitigation actions, including submission of a product specific CMRT to better identify the connection to products that they supply to us, and escalating up to removal of these red -flag smelters from their

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supply chain.

As per the OECD Guidance, risk mitigation will depend on the supplier’s specific context. Suppliers are given clear performance objectives within reasonable timeframes with the ultimate goal of progressive elimination of these red flags from the supply chain.  

In addition, suppliers are guided to the Assent University learning platform to engage in educational materials on mitigating the risk of smelters or refiners on the supply chain.

 

Additionally, suppliers are evaluated on program strength (further assisting in identifying risk in the supply chain). Many companies continue to be in the middle of the process and still have “unknown” as some of the answers. It has been decided that penalizing or failing them for working through the process is likely not the best approach for the initial years of compliance, it does not meet the goals or spirit of the Rule; however, evaluating and tracking the strength of the program does meet the OECD Due Diligence Guidelines and can assist in making key risk mitigation decisions as the program progresses. The criteria used to evaluate the strength of the program are:

 

A. Have you established a conflict minerals sourcing policy?

E. Have you implemented due diligence measures for conflict-free sourcing?

G. Do you review due diligence information received from your suppliers against your company’s expectations?

H. Does your review process include corrective action management?

 

When suppliers meet or exceed the above criteria, by answering yes to all four questions, they are deemed to have a strong program. When suppliers do not meet those criteria, they are presumed to have a weak program. We store all of this information and will continue to assess our suppliers’ program strength and monitor any improvements or changes.

 

Design and Implement a Strategy to Respond to Identified Risks

 

Cytori has established a Conflict Minerals policy statement that outlines our expectations for suppliers. If these expectations are not met, our business relationship with that supplier will be evaluated. For example, if we find that we source 3TGs that directly or indirectly finance or benefit armed groups in the Covered Countries, Cytori will assess the supplier relationship and encourage that supplier to establish an alternative source of the minerals that does not support such conflict. If an alternative source cannot be found or the supplier chooses not to respond to this risk, we will assess whether to continue our relationship with such provider. We have yet to encounter an instance where this type of action was necessary.

 

Carry Out Independent Third Party Audit of Supply Chain Due Diligence at Identified Points in the Supply Chain

 

We do not have a direct relationship with smelters and refiners of Conflict Minerals and therefore do not perform or direct audits of these entities.  In connection with our due diligence, we utilized information made available by the RMI concerning independent third-party audits of smelters and refiners.

 

Assent also directly contacts smelters and refiners that are not currently enrolled in the Responsible Minerals Assurance Process (RMAP) to encourage their participation and gather information regarding each facilities sourcing practices on behalf of its compliance partners.

 

Report on Supply Chain Due Diligence

 

This Report, which constitutes our annual report on our due diligence efforts, is available on our website at ir.cytori.com under “Corporate Governance Materials” and is filed with the SEC.

 

Results of Due Diligence

 

Survey results

 

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As of May 27^th, 2019, we received responses from 89.7% of our 39 surveyed suppliers for the 2018 year. Of those, 5 claimed no 3TGs and 9 claimed they did have tin, tungsten, tantalum, and/or gold in their products.

 

As described above, Cytori surveys our supply chain and reviews all responses against set criteria that have been developed to determine whether further communication is needed. These criteria include: non-responsiveness, incomplete responses and overall inconsistencies. Those suppliers that provided us with a CMRT were also asked to submit Smelter or Refiner (SOR) information. The results of this are discussed the Smelters and Refiners section below.

 

Smelters and refiners

 

Of the suppliers surveyed, many completed their CMRTs at the company, business unit or entity level. Due to this we are unable to conclude that which 3TGs from which of the processing facilities they listed have actually been included in parts or products that they supplied to us.  Many of the responses provided by a supplier via the CMRT included the names of facilities listed by the suppliers as SORs. The CMRTs submitted by suppliers that do not list at least one smelter for each 3TG claimed on the CMRT are considered invalid and our third-party provider follows up on these, urging suppliers to resubmit the form and include smelter information. That being said, there are still suppliers that are unable to provide SORs used for the materials supplied to us.

 

For all responses that indicated a smelter, our third party consultant compared the facilities listed to the list of smelters maintained by the Responsible Minerals Initiative (“RMI”). If a supplier indicated that the facility was certified as “Conflict-Free,” our vendor confirmed that the name was listed by RMI as a certified smelter. No violations were identified. As of May 27^th, 2019, we have validated 318 smelters or refiners and we are working to validate the additional smelter/refiner entries from the submitted CMRTs. Of the valid SOR facilities, 256 have been designated as conflict-free by the RMI and another 56 are in the process of being audited. Appendix A lists the smelters and refiners that the suppliers we surveyed reported as being in their supply chains. We have not listed in Appendix A any smelters or refiners that we have not been able to validate. Appendix B also includes an aggregated list of the potential countries of origin from which the reported facilities collectively source conflict minerals, based on information provided by suppliers and RMI.

 

As our suppliers are largely unable to provide us with the information necessary to determine country of origin at the product level, we are unable to provide additional smelter and refiner names and country of origin of the necessary 3TG in this report at this time. We will continue to work with our suppliers to obtain smelter information at the product level.

 

Future Steps to be Taken

 

We expect to continue our efforts to improve our Conflict Minerals program and related due diligence. As we further develop our program and procedures, we intend to take the following steps to mitigate the risk that any of the 3TGs contained in our products could benefit armed groups in the Covered Countries. These may include, but are not limited to the following:

 

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Appendix A

 

The table below lists, as of May 27^th, 2018 the 318 smelters or refiners identified by our responsive suppliers that may have been used to process the Conflict Minerals necessary to the functionality or production of our products during 2018. As described above, this list may contain more facilities than are actually linked to our products. Alternatively, this list may not include all applicable facilities as not all of our suppliers were able to provide SOR information at this time.

 

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Appendix B: Potential Countries of Origin

 

This list of potential countries of origin is populated based on publicly available information, our RCOI and due diligence. It is important to note that this is also based on company level responses and therefore, it is not certain which of these countries of origin can be linked to our products.

 

Argentina, Australia, Austria, Benin, Bolivia (Plurinational State of), Brazil, Burkina Faso, Burundi, Cambodia, Canada, Chile, China, Colombia, Congo, Democratic Republic of the, Ecuador, Eritrea, Ethiopia, France, Germany, Ghana, Guatemala, Guinea, Guyana, Honduras, India, Indonesia, Japan, Kazakhstan, Laos, Madagascar, Malaysia, Mali, Mexico, Mongolia, Mozambique, Myanmar, Namibia, Nicaragua, Nigeria, Panama, Peru, Portugal, Russian Federation, Rwanda, Senegal, Sierra Leone, South Africa, Spain, Thailand, Togo, Uganda, United Kingdom of Great Britain and Northern Ireland, United States of America, Uzbekistan, Vietnam, Zimbabwe

 

 

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