Item 1A.
Risk Factors.
This report contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially from those discussed in this report. Factors that
could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report
and in any documents incorporated in this report by reference.
You should carefully consider the following
risk factors, together with all other information in this report, including our financial statements and notes thereto, and in
our other filings with the Securities and Exchange Commission. If any of the following risks, or other risks not presently known
to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results
of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could
decline, and stockholders may lose all or part of their investment.
Risks Related to Our Business
We have no approved products and currently
are dependent on the success of our HBV-cure and microbiome programs.
To date, we have no approved product on the
market and have generated no product revenues. Our prospects are substantially dependent on our ability to develop and commercialize
our HBV and microbiome therapies. Unless and until we receive approval from the FDA and other regulatory authorities for our product
candidates, we cannot sell our product candidates and will not have product revenues. We will have to fund all of our operations
and capital expenditures from cash on hand, any future securities offerings or debt financings and any fees we may generate from
out-licensing or other strategic arrangements.
In addition, all of our product candidates
are in an early stage of development and their risk of failure is high. The data supporting our drug discovery and development
programs are derived from either laboratory or pre-clinical studies. We cannot predict when or if any one of our product candidates
will prove effective or safe in humans or will receive regulatory approval. The scientific evidence to support the feasibility
of our product candidates is limited, and many companies, some with more resources than we have, are and may be developing competitive
product candidates. For these and other reasons, our drug discovery and development may not be successful and we may not generate
viable products or revenue.
We depend entirely on the success of
product candidates from our HBV-cure and microbiome programs, both of which are in late pre-clinical development. We cannot be
certain that we will be able to obtain regulatory approval for, or successfully commercialize, product candidates from either of
our current programs or any of our other product candidates we may subsequently identify.
Our lead compounds for HBV and microbiome therapies
are our only current product candidates. Both are in preclinical development. None of our current product candidates has advanced
into clinical testing, and it may be years before the larger, pivotal trials necessary to support regulatory approval are initiated,
if ever. The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will
be, subject to extensive and rigorous review and regulation by numerous government authorities in the U.S. and in other countries
where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial
sale of any product candidate, we must successfully meet a number of critical developmental milestones, including:
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developing dosages that will be tolerated, safe and effective;
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demonstrating through clinical trials that the product candidate is safe and effective in patients for the intended indication;
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determining the appropriate delivery mechanism;
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demonstrating that the product candidate formulation will be stable for commercially reasonable time periods; and
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completing the development and scale-up to permit manufacture of our product candidates in commercial quantities and at acceptable prices.
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The time necessary to achieve these developmental
milestones for any individual product candidate is long and uncertain, and we may not successfully complete these milestones for
our HBV and microbiome therapies or any other product candidates that we may develop. We have not yet completed and may never complete
the development of any product. If we are unable to complete development of our HBV or microbiome therapies, or any other product
candidates that we may develop, we will be unable to generate revenue or build a sustainable or profitable business.
Preclinical models may not be representative
of disease behavior in clinical trials. Results of earlier preclinical studies and clinical trials may not be predictive of future
clinical trial results and preclinical testing and clinical trials involve a lengthy and expensive process with an uncertain outcome.
The results of preclinical models may not be
representative of disease behavior in a clinical setting and thus may not be predictive of the outcomes of our clinical trials.
In addition, the results of preclinical studies and early clinical trials of product candidates may not be predictive of the results
of later-stage clinical trials and the results of any study or trial for any of our product candidates may not be as positive as
the results from any prior studies or trials, if at all. For example, in late June 2012, we reported that our second Phase III
randomized, double-blind, placebo-controlled clinical trial of iferanserin in patients with hemorrhoidal disease did not meet its
endpoints, despite favorable Phase II trial results. We also reported in February 2014 that our Phase III clinical trial for diltiazem
for the treatment of anal fissures demonstrated no significant improvement compared to placebo despite favorable results in a prior
Phase III trial. Based on these unfavorable clinical results, we decided to cease development of these two prior product candidates.
These risks apply to our planned development of our current and any other product candidates.
Preclinical studies and clinical testing are
expensive, can take many years to complete and their outcomes are highly uncertain. Failure can occur at any time during the preclinical
study and clinical trial processes due to inadequate performance of a drug candidate or inadequate adherence by patients or investigators
to clinical trial protocols. Further, clinical trials might not provide statistically significant data supporting a product candidate’s
safety and effectiveness to meet the requisite regulatory approvals. Our failure to replicate earlier positive results in later-stage
clinical trials or otherwise demonstrate the required characteristics to support marketing approval for any of our product candidates
would substantially harm our business, prospects, financial condition and results of operations.
Preclinical and clinical testing required
for our product candidates is expensive and time-consuming, and may result in delays or may fail to demonstrate safety and efficacy
for desired indications.
In order to obtain FDA approval to market a
new drug product, we must demonstrate safety and effectiveness in humans. To meet these requirements, we must conduct extensive
preclinical testing and sufficient adequate and well-controlled clinical trials. Conducting clinical trials is a lengthy, time
consuming, and expensive process. The length of time might vary substantially according to the type, complexity, novelty, and intended
use of the product candidate, and often can be several years or more per trial. Delays associated with product candidates for which
we are directly conducting preclinical studies or clinical trials might cause us to incur additional operating expenses. The commencement
and rate of completion of clinical trials might be delayed by many factors, including, for example:
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the lack of effectiveness during clinical trials;
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the emergence of unforeseen safety issues;
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inability to manufacture sufficient quantities of qualified materials under cGMP for use in clinical trials;
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slower than expected rates of patient recruitment;
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failure to recruit a sufficient number of patients;
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modification of clinical trial protocols;
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changes in regulatory requirements for clinical trials;
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delays, suspension, or termination of clinical trials by the institutional review board or ethics committee responsible for overseeing the study at a particular study site; and
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government, institutional review board, ethics committee, or other regulatory delays or clinical holds requiring suspension or termination of the trials.
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We have used and intend to continue to rely
on one or more contract research organizations, or CROs, to conduct our preclinical studies and clinical trials. We are highly
dependent on these CROs to conduct our studies and trials in accordance with the requirements of the FDA and good scientific practice.
In the event the CROs fail to perform their duties in such a fashion, we may not obtain regulatory approval for any of our product
candidates.
The failure of preclinical studies and clinical
trials to demonstrate safety and effectiveness for the desired indications could harm the development of that product candidate
and other product candidates. This failure could cause us to abandon a product candidate and could delay development of other product
candidates. Any delay in, or termination of, our preclinical studies or clinical trials would delay the filing of our New Drug
Applications, or NDAs, with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenues.
Any change in, or termination of, our clinical trials could materially harm our business, financial condition, and results of operation.
We have a limited operating history and
a history of operating losses, and expect to incur significant additional operating losses.
We were established in October 2005, began
active operations in the spring of 2007 and have only a limited operating history. In addition, we have terminated our programs
related to our three prior product candidates. Therefore, there is limited historical financial information upon which to base
an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties
frequently encountered by companies in their early stages of operations. We, and Assembly Pharmaceuticals prior to our merger,
have generated losses since we began operations and, as of June 30, 2016, the combined company had an accumulated deficit of $185.1
million. We expect to incur substantial additional losses over the next several years as we continue to pursue our research, development,
preclinical studies and clinical trial activities. The amount of future losses and when, if ever, we will achieve profitability
are uncertain. We have no products that have generated any commercial revenue, do not expect to generate revenues from the commercial
sale of products unless and until our HBV or microbiome therapies or any other product candidate is approved by the FDA for sale,
and we might never generate revenues from the sale of products.
We are not currently profitable and might
never become profitable.
We have a history of losses and expect to incur
significant operating and capital expenditures and resultant substantial losses and negative operating cash flow for the next several
years, and beyond if we do not successfully launch and commercialize any therapies from our HBV or microbiome programs. We might
never achieve or maintain profitability. We anticipate that our expenses will continue to be substantial in the foreseeable future
as we:
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continue to undertake research and development to identify potential product candidates;
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continue to undertake preclinical studies and clinical trials for our product candidates; and
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seek regulatory approvals for our product candidates.
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As a result, we will need to generate significant
revenues in order to achieve and maintain profitability. Our ability to generate revenue and achieve profitability will depend
on, among other things:
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successful completion of research, preclinical studies and clinical trials for our product candidates;
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obtaining necessary regulatory approvals from the FDA and international regulatory agencies for our product candidates;
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establishing manufacturing, sales, and marketing arrangements with third parties for any approved products; and
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raising sufficient funds to finance our activities, if and when needed.
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We might not succeed at any of these undertakings.
If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations might be materially
adversely affected.
We are an early stage company and might
not be able to commercialize any product candidates.
We are an early stage company and have not
demonstrated our ability to perform the functions necessary for the successful commercialization of any product candidates. The
successful commercialization of any product candidates will require us to perform a variety of functions, including:
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continuing to undertake research and development and preclinical studies and clinical trials;
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participating in regulatory approval processes;
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formulating and manufacturing products; and
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conducting sales, marketing and distribution activities.
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Our development of our product candidates is
subject to the risks of failure and delay inherent in the development of new pharmaceutical products and products based on new
technologies, including:
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delays in product development, preclinical and clinical testing;
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unplanned expenditures in product development, preclinical and clinical testing;
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failure of a product candidate to demonstrate acceptable safety and efficacy;
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failure to receive regulatory approvals;
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emergence of superior or equivalent products;
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inability to manufacture and sell on our own, or through any others, product candidates on a commercial scale or at a financially viable cost; and
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failure to achieve market acceptance.
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Because of these risks,
our research and development efforts might not result in any commercially viable products. If we do not successfully complete
a significant portion of these development efforts, obtain required regulatory approvals, and have commercial success with any
approved products, our business, financial condition and results of operations will be materially harmed.
There are substantial risks inherent
in attempting to commercialize new drugs, and, as a result, we may not be able to successfully develop products for commercial
use.
Our HBV therapy research and development efforts
involve therapeutics based on modulating forms of HBV core proteins, or HBc, with core protein Allosteric Modulators, or CpAMs,
which is a clinically unproven mechanism of action. The development of our CpAM technology is in the early stages, and the commercial
feasibility and acceptance of our CpAM technology are unknown. Similarly, the technology underlying our microbiome platform is
in preclinical development.
Scientific research and development requires
significant amounts of capital and takes a long time to reach commercial viability, if it can be achieved at all. To date, our
research and development projects have not produced commercially viable drugs, and may never do so. During the research and development
process, we may experience technological barriers that we may be unable to overcome. Further, certain underlying premises in our
development programs are not fully proven. More specifically, the theory that CpAMs can selectively reduce viral antigens
in HBV patients and result in a functional cure is unproven. Thus, even if CpAM technology is successful at reducing
antigen levels in HBV patients, it may not be a commercially viable drug if there is not a corresponding medical benefit related
to the underlying HBV infection. Similarly, the ability to effectively and reliably deliver bacteria to the GI tract
using our microbiome technology is unproven, and, even if it can be proven, it may be difficult or impossible to provide the treatment
economically. Because of these uncertainties, it is possible that no commercial products will be successfully developed. If we
are unable to successfully develop commercial products, we will be unable to generate revenue or build a sustainable or profitable
business.
We will need additional financing to
complete the development of any product candidate and fund our activities in the future.
We anticipate that we will incur operating
losses for the next several years as we continue to develop our HBV therapy and our microbiome platform as well as initiate any
development of any other product candidate and will require substantial funds during that time to support our operations. We expect
that our current resources will provide us with sufficient capital to fund our operations into the fourth quarter of 2017. However,
we might consume our available capital before that time if, for example, we are not efficient in managing our resources or if we
encounter unforeseen costs, delays or other issues or if regulatory requirements change. If that happens, we may need additional
financing to continue the development of our HBV therapy and our microbiome program. Thereafter, we will need additional capital
to fund our operations in the future. However, there is no assurance that we will be successful in raising any necessary additional
capital on terms that are acceptable to us, or at all. If such event or other unforeseen circumstances occurred and we were unable
to raise capital, we could be forced to discontinue product development, sacrifice attractive business opportunities, cease operations
entirely and sell or otherwise transfer all or substantially all of our remaining assets.
Our product candidates face significant
development and regulatory hurdles prior to marketing which could delay or prevent licensing, sales and/or milestone revenue.
Before we or any commercial partner can obtain
the approvals necessary to sell any of our product candidates, we must show through preclinical studies and human testing in clinical
trials that each potential product is safe and effective. The rates at which we complete our scientific studies and clinical trials
depend on many factors, including, but are not limited to, our ability to obtain adequate supplies of the products to be tested
and patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the trial and other potential drug candidates being studied. Delays
in patient enrollment for our trials may result in increased costs and longer development times. In addition, we will need additional
financing to develop our product candidates, which we might seek and receive from third party commercial partners. Further, we
currently do not have the infrastructure to market and sell our product candidates. If we partner with one or more third party
entities, those commercial partners may demand and receive rights to control product development and commercialization. As a result,
these commercial partners may conduct these programs and activities more slowly or in a different manner than expected. If any
of these events were to occur, the development of any product candidate could be significantly delayed, more expensive or less
lucrative to us than anticipated, any of which would have a significant adverse effect on our business.
We are dependent on a license relationship
for each of our HBV-cure program and our microbiome program.
Our license agreement with Indiana University
Research and Technology Corporation, or IURTC, from whom we have licensed intellectual property rights to our HBV therapy, requires
us to make milestone payments based upon the successful accomplishment of clinical and regulatory milestones related to our HBV
therapy. The total amount of all potential future milestone payments at June 30, 2016 is $825,000. We also are obligated to pay
IURTC royalty payments based on net sales of the licensed technology. We are also obligated to pay diligence maintenance fees ($25,000-$100,000)
each year to the extent that the royalty, sublicensing, and milestone payments to IURTC are less than the diligence maintenance
fee for that year. Our license with Therabiome, LLC, from whom we have licensed intellectual property rights to our microbiome
delivery mechanism, also requires us to pay regulatory and clinical milestones as well as royalty payments to Therabiome. If we
breach any of these obligations, we could lose our rights to the delivery mechanism for our microbiome program. If we fail to comply
with similar obligations to any other licensor, it would have the right to terminate the license, in which event we would not be
able to commercialize drug candidates or technologies that were covered by the license. Also, the milestone and other payments
associated with licenses will make it less profitable for us to develop our drug candidates than if we owned the technology ourselves.
Our collaboration with Adam Zlotnick,
the scientific founder of our HBV-cure program, is advantageous. If that collaboration is not maintained, we may not be able to
capitalize on the market potential of our HBV-cure program.
Dr. Adam Zlotnick is the founder of our HBV-cure
program. We have entered into a three-year consulting agreement with Dr. Zlotnick, the initial term of which expires on July 11,
2017, pursuant to which he serves as the Chairman of our Scientific Advisory Board and provides consulting services as we request.
Dr. Zlotnick could refuse to extend the agreement after it expires on July 11, 2017 or we could terminate the consulting agreement
for cause or no cause. Although Dr. Zlotnick assigned to us any rights to intellectual property related to our HBV therapy that
arise during the term of the consulting agreement, and while the consulting agreement contains a non-compete during the term of
the agreement, the loss of Dr. Zlotnick’s services could materially impair our ability to further the development of our
HBV therapy program.
Corporate and academic collaborators
might take actions to delay, prevent, or undermine the success of our product candidates.
Our operating and financial strategy for the
development, preclinical and clinical testing, manufacture, and commercialization of drug candidates heavily depends on collaborating
with corporations, academic institutions, licensors, licensees, and other parties. However, there can be no assurance that we will
successfully establish these collaborations. In addition, should a collaboration be terminated, replacement collaborators might
not be available on attractive terms, or at all. The activities of any collaborator will not be within our control and might not
be within our power to influence. There can be no assurance that any collaborator will perform its obligations to our satisfaction
or at all, that we will derive any revenue or profits from these collaborations, or that any collaborator will not compete with
us. If any collaboration is not successful, we might require substantially greater capital to undertake development and marketing
of our proposed products and might not be able to develop and market these products effectively, if at all. In addition, a lack
of development and marketing collaborations might lead to significant delays in introducing proposed products into certain markets
and/or reduced sales of proposed products in such markets.
We rely on data provided by our collaborators
and others that has not been independently verified and could prove to be false, misleading, or incomplete.
We rely on third-party vendors, scientists,
and collaborators to provide us with significant data and other information related to our projects, preclinical studies and clinical
trials, and our business. If these third parties provide inaccurate, misleading, or incomplete data, our business, prospects, and
results of operations could be materially adversely affected.
Research, development and commercialization
goals may not be achieved in the time frames that we publicly estimate, which could have an adverse impact on our business and
could cause our stock price to decline.
We set goals, and make public statements regarding
our expectations, regarding the timing of certain accomplishments, developments and milestones under our research and development
programs. The actual timing of these events can vary significantly due to a number of factors, including, without limitation, the
amount of time, effort and resources committed to our programs by us and any collaborators and the uncertainties inherent in the
clinical development and regulatory approval process. As a result, there can be no assurance that we or any collaborators will
make regulatory submissions or receive regulatory approvals as planned or that we or any collaborators will be able to adhere to
our current schedule for the achievement of key milestones under any of our programs. If we or any collaborators fail to achieve
one or more of the milestones as planned, our business could be materially adversely affected and the price of our common stock
could decline.
Unforeseen safety issues could hinder
the development of our product candidates and their adoption, if approved.
Safety issues could arise during development
of our product candidates, which might delay testing or prevent further development entirely. Unforeseen safety issues could emerge
in any future study or trial of our HBV or microbiome product candidates, which could severely hamper the likelihood of FDA or
other regulatory approval of any such product candidate. If any of these events were to occur, the development of any product candidate
could be significantly delayed and become more expensive than anticipated, and could lead us to abandon our development efforts
entirely, any of which would have a significant adverse effect on our business.
If a product is approved, any limitation on
use that might be necessary due to safety issues could hinder its adoption in the marketplace. In addition, if any product is approved,
it could be used against any instructions that we publish that limit its use, which could subject us to litigation.
We lack suitable facilities for certain
preclinical and clinical testing and expect to rely on third parties to conduct some of our research and preclinical testing and
our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion
of such research, testing or trials.
We do not have sufficient facilities to conduct
all of our anticipated preclinical and clinical testing. As a result, we expect to contract with third parties to conduct most
or all preclinical and clinical testing required for regulatory approval for our product candidates. We currently plan to outsource
all clinical testing to third parties and will be reliant on the services of these third parties to conduct studies on our behalf.
If we are unable to retain or continue with third parties for these purposes on acceptable terms, we may be unable to successfully
develop our product candidates. In addition, any failures by third parties to adequately perform their responsibilities may delay
the submission of our product candidates for regulatory approval, which would impair our financial condition and business prospects.
Our reliance on these third parties for research
and development activities also reduces our control over these activities but will not relieve us of our responsibilities. For
example, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal
and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. In addition,
these third parties are not our employees, and except for remedies available to us under our agreements with such third parties,
we cannot control whether or not they devote sufficient time and resources to our clinical and preclinical programs. If these third
parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, our research, preclinical studies or clinical trials may be extended, delayed or
terminated and we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates. As
a result, our results of operations and business prospects would be harmed, our costs could increase and our ability to generate
revenues could be delayed.
We expect to rely exclusively on third
parties to formulate and manufacture our product candidates.
We do not have and presently do not intend
to establish our own manufacturing facilities. Consequently, we lack the physical plant to formulate and manufacture our own product
candidates for use in our planned clinical trials. In addition, if any product candidate we might develop or acquire in the future
receives FDA approval, we expect to rely on one or more third-party contractors to manufacture our products. If, for any reason,
we become unable to rely on any future source to manufacture our product candidates, either for clinical trials or, at some future
date, for commercial quantities, then we would need to identify and contract with additional or replacement third-party manufacturers
to manufacture compounds for preclinical, clinical and commercial purposes. We might not be successful in identifying additional
or replacement third-party manufacturers, or in negotiating acceptable terms with any that we do identify. If we are unable to
secure and maintain third-party manufacturing capacity, the development and sales of our products and our financial performance
might be materially affected.
In addition, before any of our collaborators
can begin to commercially manufacture our product candidates, each manufacturing facility and process is subject to regulatory
review. Manufacturing of drugs for clinical and commercial purposes must comply with the FDA’s cGMPs, and applicable non-U.S.
regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures. Complying with
cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and
quality control to assure that the product meets applicable specifications and other requirements. Any contracted manufacturing
facility must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection might significantly
delay FDA approval of our product candidates. If any of our future contract manufacturers fails to comply with these requirements,
it would be subject to possible regulatory action which could limit the jurisdictions in which we are permitted to sell our products,
if approved. As a result, our business, financial condition, and results of operations might be materially harmed.
Our reliance on third-party manufacturers exposes
us to the following risks:
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We might be unable to identify manufacturers for commercial supply on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would generally require compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.
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Our third-party manufacturers might be unable to formulate and manufacture our product candidates in the volume and of the quality required to meet our clinical and, if approved, commercial needs.
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Our contract manufacturers might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.
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One or more of our contract manufacturers could be foreign, which increases the risk of shipping delays and adds the risk of import restrictions.
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Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign regulatory agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign requirements. We would not have complete control over third-party manufacturers’ compliance with these regulations and requirements.
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If any third-party manufacturer makes improvements in the manufacturing process for our product candidates, we might not own, or might have to share, the intellectual property rights to the innovation with our licensors.
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We might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other clients higher priority than us.
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Each of these risks could delay our development
efforts, preclinical studies and clinical trials or the approval, if any, of our product candidates by the FDA or the commercialization
of our product candidates and could result in higher costs or deprive us of potential product revenues. As a result, our business,
financial condition, and results of operations might be materially harmed.
If we cannot compete successfully for
market share against other drug companies, we might not achieve sufficient product revenues and our business will suffer.
If our product candidates receive FDA approval,
they will compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. Existing
or future competing drugs might provide greater therapeutic convenience or clinical or other benefits for a specific indication
than our product candidates, or might offer comparable performance at a lower cost. If our product candidates fail to capture and
maintain market share, we might not achieve sufficient product revenues and our business will suffer.
We might compete against fully integrated pharmaceutical
companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government
agencies and other public and private research organizations. Many of these competitors, either alone or together with their collaborative
partners, operate larger research and development programs or have substantially greater financial resources than we do, as well
as significantly greater experience in:
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developing drugs;
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undertaking preclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals of drugs;
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formulating and manufacturing drugs; and
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launching, marketing and selling drugs.
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We may not have or be able to obtain the same
resources and experience as our competitors. If we are unable to perform these tasks effectively and efficiently, our results of
operations might be materially adversely affected.
Developments by competitors might render
our product candidates or technologies obsolete or non-competitive.
The pharmaceutical and biotechnology industries
are intensely competitive. In addition, the clinical and commercial landscape for HBV and CDI is rapidly changing; we expect new
data from commercial and clinical-stage products to continue to emerge. We will compete with organizations that have existing treatments
and that are or will be developing treatments for the indications that our product candidates target. If our competitors develop
effective treatments for HBV, CDI or any other indication or field we might pursue, and successfully commercialize those treatments,
our business and prospects might be materially harmed, due to intense competition in these markets.
If we are not able to develop collaborative
marketing relationships with licensees or partners, or create effective internal sales, marketing, and distribution capability,
we might be unable to market our products successfully.
To market our product candidates, if approved,
we will have to establish our own marketing and sales force or out-license our product candidates to, or collaborate with, larger
firms with experience in marketing and selling pharmaceutical products. There can be no assurance that we will be able to successfully
establish our own marketing capabilities or establish marketing, sales, or distribution relationships with third parties; that
such relationships, if established, will be successful; or that we will be successful in gaining market acceptance for our product
candidates. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our product
revenues will be lower than if we marketed and sold our products directly, and any revenues we receive will depend upon the efforts
of such third parties. If we are unable to establish such third-party sales and marketing relationships, or choose not to do so,
we will have to establish our own in-house capabilities. We, as a company, have no experience in marketing or selling pharmaceutical
products and currently have no sales, marketing, or distribution infrastructure. To market any of our products directly, we would
need to develop a marketing, sales, and distribution force that both has technical expertise and the ability to support a distribution
capability. To establish our own marketing, sales, and distribution capacity would significantly increase our costs, and require
substantial additional capital. In addition, there is intense competition for proficient sales and marketing personnel, and we
might not be able to attract individuals who have the qualifications necessary to market, sell, and distribute our products. There
can be no assurance that we will be able to establish internal marketing, sales, or distribution capabilities.
The commercial success of our product
candidates will depend upon the degree of market acceptance by physicians, patients, third-party payers and others in the medical
community.
The commercial success of our products, if
approved for marketing, will depend in part on the medical community, patients and third-party payers accepting our product candidates
as effective and safe. If these products do not achieve an adequate level of acceptance, we may not generate significant product
revenue and may not become profitable. The degree of market acceptance of our products, if approved for marketing, will depend
on a number of factors, including:
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the actual or perceived safety and efficacy of the products, and advantages over alternative treatments;
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the pricing and cost-effectiveness of our products relative to competing products or therapies;
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the labeling of any approved product;
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the prevalence and severity of any side effects, including any limitations or warnings contained in a product's approved labeling;
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the emergence, and timing of market introduction, of competitive products;
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the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and
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the availability of third-party insurance coverage or governmental reimbursement.
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Even if a potential product displays a favorable
efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be known until
after it is launched. Any failure to achieve market acceptance for our product candidates will harm our business, results and financial
condition.
If we lose key management or scientific
personnel, cannot recruit qualified employees, directors, officers, or other significant personnel or experience increases in our
compensation costs, our business might materially suffer.
We are highly dependent on the services of
our Chief Executive Officer and President, Derek Small, our Chief Medical Officer and Vice President of Research and Development,
Dr. Uri Lopatin, our Chief Scientific Officer, Dr. Richard Colonno, our Chief Discovery Officer, Lee D. Arnold, our Chief Development
Officer and Head of Microbiome, Thomas E. Rollins, and our Chief Financial Officer and Chief Operating Officer, David J. Barrett.
Our employment agreements with Mr. Small, Dr. Lopatin, Dr. Colonno, Dr. Arnold, Mr. Rollins and Mr. Barrett do not ensure their
retention. This is also true for our other management team members, both present and future.
Furthermore, our future success also depends,
in part, on our ability to identify, hire, and retain additional management team members as our operations grow. We expect to experience
intense competition for qualified personnel and might be unable to attract and retain the personnel necessary for the development
of our business. Finally, we do not currently maintain, nor do we intend to obtain in the future, “key man” life insurance
that would compensate us in the event of the death or disability of any of the members of our management team.
The failure by us to retain, attract and motivate
executives and other key employees could have a material adverse impact on our business, financial condition and results of operations.
If we are unable to hire additional qualified
personnel, our ability to grow our business might be harmed.
As of August 1, 2016, we had 61 employees,
and various consultants and multiple contract research organizations with whom we have contracted. We will need to hire or contract
with additional qualified personnel with expertise in clinical research and testing, formulation and manufacturing and sales and
marketing to commercialize our HBV-cure program and our microbiome program or any other product candidate we may seek to develop.
We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition
for these individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and
retaining qualified personnel will be critical to our success.
We might not successfully manage our
growth.
Our success will depend upon the expansion
of our operations and the effective management of our growth, which will place a significant strain on our current and future management
and other administrative and operational resources. To manage this growth, we may need to expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified personnel. If we are unable to manage our growth effectively,
our business would be harmed.
We might seek to develop our business
through acquisitions of or investment in new or complementary businesses, products or technologies, and the failure to manage these
acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect
on us.
We might consider opportunities to acquire
or invest in other technologies, products and businesses that might enhance our capabilities or complement our current product
candidates. Potential and completed acquisitions and strategic investments involve numerous risks, including potential problems
or issues associated with the following:
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assimilating the purchased technologies, products or business operations;
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maintaining uniform standards, procedures, controls and policies;
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unanticipated costs associated with the acquisition or investment;
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diversion of our management’s attention from our preexisting business;
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maintaining or obtaining the necessary regulatory approvals or complying with regulatory requirements; and
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adverse effects on existing business operations.
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We have no current commitments with respect
to any acquisition or investment in other technologies or businesses. We do not know if we will identify suitable acquisitions,
whether we will be able to successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired
product, technology or business into our business or retain key personnel, suppliers or collaborators.
Our ability to successfully develop our business
through acquisitions would depend on our ability to identify, negotiate, complete and integrate suitable target businesses or technologies
and obtain any necessary financing. These efforts could be expensive and time consuming and might disrupt our ongoing operations.
If we are unable to efficiently integrate any acquired business, technology or product into our business, our business and financial
condition might be adversely affected.
Risks Related to Our Regulatory and Legal
Environment
We are subject to extensive and costly
government regulation.
Product candidates employing our technology
are subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare
and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice, state
and local governments, and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical
testing, manufacture, safety, effectiveness, record-keeping, reporting, labeling, storage, approval, advertising, promotion, sale,
distribution, import, and export of pharmaceutical products. The FDA regulates small molecule chemical entities, whether administered
orally, topically or by injection, as drugs, subject to an NDA, under the Federal Food, Drug, and Cosmetic Act. If products employing
our technologies are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not
they have obtained FDA approval for a given product and its uses. Such foreign regulation might be equally or more demanding than
corresponding U.S. regulation.
Government regulation substantially increases
the cost and risk of researching, developing, manufacturing, and selling our product candidates. The regulatory review and approval
process, which includes preclinical testing and clinical trials of each product candidate, is lengthy, expensive, and uncertain.
We or our collaborators must obtain and maintain regulatory authorization to conduct clinical trials and approval for each product
we intend to market, and the manufacturing facilities used for the products must be inspected and meet legal requirements. Securing
regulatory approval requires submitting extensive preclinical and clinical data and other supporting information for each proposed
therapeutic indication in order to establish the product’s safety and efficacy for each intended use. The development and
approval process might take many years, requires substantial resources, and might never lead to the approval of a product.
Even if we are able to obtain regulatory approval
for a particular product, the approval might limit the intended medical uses for the product, limit our ability to promote, sell,
and distribute the product, require that we conduct costly post-marketing surveillance, and/or require that we conduct ongoing
post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes or revised labeling,
might require further regulatory review and approval. Once obtained, any approvals might be withdrawn, including, for example,
if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety issue.
If we, our collaborators, or our contract manufacturers
fail to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance could result
in, among other things, delays in the approval of applications or supplements to approved applications; refusal by a regulatory
authority, including the FDA, to review pending market approval applications or supplements to approved applications; untitled
letters or warning letters; fines; import and export restrictions; product recalls or seizures; injunctions; total or partial suspension
of production; civil penalties; withdrawals of previously approved marketing applications; recommendations by the FDA or other
regulatory authorities against governmental contracts; and/or criminal prosecutions.
We might not obtain the necessary U.S.
or worldwide regulatory approvals to commercialize any product candidate.
We cannot assure you that we will receive the
approvals necessary to commercialize for sale any of our product candidates, or any product candidate we acquire or develop in
the future. We will need FDA approval to commercialize our product candidates in the U.S. and approvals from the FDA-equivalent
regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. In order to obtain
FDA approval of any product candidate, we must submit to the FDA an NDA demonstrating that the product candidate is safe for humans
and effective for its intended use. This demonstration requires significant research, preclinical studies, and clinical trials.
Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty
of the product candidate and requires substantial resources for research, development and testing. We cannot predict whether our
research and clinical approaches will result in drugs that the FDA considers safe for humans and effective for their indicated
uses. The FDA has substantial discretion in the drug approval process and might require us to conduct additional preclinical and
clinical testing, perform post-marketing studies or otherwise limit or impose conditions on any approval we obtain.
The approval process might also be delayed
by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or
during our regulatory review. Delays in obtaining regulatory approvals might:
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delay commercialization of, and our ability to derive product revenues from, our product candidates;
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impose costly procedures on us; and
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diminish any competitive advantages that we might otherwise enjoy.
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Even if we comply with all FDA requests, the
FDA might ultimately reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory approval for our product
candidates. Failure to obtain FDA approval of our product candidates will severely undermine our business by leaving us without
a saleable product, and therefore without any source of revenues, until another product candidate could be developed or obtained.
There is no guarantee that we will ever be able to develop an existing, or acquire another, product candidate.
In foreign jurisdictions, we must receive approval
from the appropriate regulatory authorities before we can commercialize any product candidates. The risks associated with foreign
regulatory approval processes are similar to the risks associated with the FDA approval procedures described above. We cannot assure
you that we will receive the approvals necessary to commercialize our product candidates for sale outside the U.S.
Even if approved, our product candidates
will be subject to extensive post-approval regulation.
Once a product candidate is approved, numerous
post-approval requirements apply. Among other things, the holder of an approved NDA is subject to ongoing FDA oversight monitoring
and reporting obligations, including obligations to monitor and report adverse events and instances of the failure of a product
to meet the specifications in the NDA. Application holders must submit new or supplemental applications and obtain FDA approval
for changes to the approved product, product labeling, or manufacturing process, depending on the nature of the change. Application
holders also must submit advertising and other promotional material to the FDA and report on ongoing clinical trials. The FDA also
has the authority to require changes in the labeling of approved drug products and to require post-marketing studies.
Advertising and promotional materials must
comply with FDA rules in addition to other applicable federal and state laws. The distribution of product samples to physicians
must comply with the requirements of the Prescription Drug Marketing Act. Manufacturing facilities remain subject to FDA inspection
and must continue to adhere to the FDA’s cGMP requirements. Sales, marketing, and scientific/educational grant programs,
among other activities, must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act,
and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus
Budget Reconciliation Act of 1990 and the Veteran’s Health Care Act of 1992, each as amended. If products are made available
to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.
All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.
Depending on the circumstances, failure to
meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products, total
or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into
supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information
regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
Even if we are able to commercialize
any product candidates, those products may become subject to unfavorable pricing regulations, third party reimbursement practices
or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals,
pricing and reimbursement for new medicines vary widely from country to country. In the U.S., recently enacted legislation may
significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals.
Some countries require approval of the sale price of a medicine before it can be marketed. In many countries, the pricing review
period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing
remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing
approval for a medicine in a particular country, but then be subject to price regulations that delay our commercial launch of the
medicine, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the medicine
in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates,
even if our product candidates obtain marketing approval.
Our ability to commercialize any medicines
successfully also will depend in part on the extent to which reimbursement for these medicines and related treatments will be available
from government health administration authorities, private health insurers and other organizations. Government authorities and
third party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay
for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government
authorities and third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. Increasingly, third party payors are requiring that drug companies provide them with predetermined discounts from
list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available
for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may
impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available
or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain
marketing approval.
There may be significant delays in obtaining
reimbursement for newly approved medicines, and coverage may be more limited than the purposes for which the medicine is approved
by the FDA or similar regulatory authorities outside the U.S. Moreover, eligibility for reimbursement does not imply that any medicine
will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution.
Interim reimbursement levels for new medicines, if applicable, may also not be sufficient to cover our costs and may not be made
permanent. Reimbursement rates may vary according to the use of the medicine and the clinical setting in which it is used, may
be based on reimbursement levels already set for lower cost medicines and may be incorporated into existing payments for other
services. Net prices for medicines may be reduced by mandatory discounts or rebates required by government healthcare programs
or private payors and by any future relaxation of laws that presently restrict imports of medicines from countries where they may
be sold at lower prices than in the U.S. Third party payors often rely upon Medicare coverage policy and payment limitations in
setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded
and private payors for any approved product candidates that we develop could have a material adverse effect on our operating results,
our ability to raise capital needed to commercialize product candidates and our overall financial condition.
In the U.S. and in other countries, there have
been and we expect there will continue to be a number of legislative and regulatory proposals to change the healthcare system in
ways that could significantly affect our business. International, federal and state lawmakers regularly propose and, at times,
enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce
the costs of medical products and services. The U.S. government and other governments have shown significant interest in pursuing
healthcare reform, as evidenced by the Patient Protection and Affordable Care Act and its amendment, the Health Care and Education
Reconciliation Act. Such government-adopted reform measures may adversely impact the pricing of healthcare products and services
in the U.S. or internationally and the amount of reimbursement available from governmental agencies or other third-party payors.
In addition, in some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare
system in ways that could affect our ability to sell our products profitably. The continuing efforts of U.S. and other governments,
insurance companies, managed care organizations and other payors of healthcare services to contain or reduce healthcare costs may
adversely affect our ability to set satisfactory prices for our products, to generate revenues, and to achieve and maintain profitability.
We face the risk of product liability
claims and might not be able to obtain insurance.
Our business exposes us to the risk of product
liability claims that are inherent in the development of drugs. If the use of one or more of our or our collaborators’ product
candidates or approved drugs, if any, harms people, we might be subject to costly and damaging product liability claims brought
against us by clinical trial participants, consumers, health care providers, pharmaceutical companies or others selling our products.
Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of pharmaceutical products we develop. We expect to obtain clinical trial
insurance for our product candidates prior to beginning clinical trials. We cannot predict all of the possible harms or side effects
that might result and, therefore, the amount of insurance coverage we obtain, if any, in the future might not be adequate to cover
all liabilities we might incur. We intend to expand our insurance coverage to include product liability insurance covering the
sale of commercial products if we obtain marketing approval for our drug candidates in development, but we might be unable to obtain
commercially reasonable product liability insurance for any products approved for marketing. If we are unable to obtain insurance
at an acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities,
which might materially and adversely affect our business and financial position. If we are sued for any injury allegedly caused
by our or our collaborators’ products, our liability could exceed our total assets and our ability to pay the liability.
Any successful product liability claims or series of claims brought against us would decrease our cash and could cause the value
of our common stock to decrease.
We might be exposed to liability claims
associated with the use of hazardous materials and chemicals.
Our research, development and manufacturing
activities and/or those of our third-party contractors might involve the controlled use of hazardous materials and chemicals. Although
we will strive to have our safety procedures, and those of our contractors, for using, storing, handling and disposing of these
materials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury
or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages, and
any liability could materially adversely affect our business, financial condition and results of operations. In addition, the federal,
state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive
materials and waste products might require us to incur substantial compliance costs that could materially adversely affect our
business, financial condition and results of operations. We currently do not carry hazardous materials liability insurance. We
intend to obtain such insurance in the future if necessary, but cannot give assurance that we could obtain such coverage.
Risks Related to Our Intellectual Property
Our business depends on protecting our
intellectual property.
If we and our licensors IURTC and Therabiome
do not obtain protection for our respective intellectual property rights, our competitors might be able to take advantage of our
research and development efforts to develop competing drugs. Our success, competitive position and future revenues, if any, depend
in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes
and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to
operate without infringing the proprietary rights of third parties.
We seek to protect our proprietary position
by filing patent applications in the U.S. and abroad related to our novel technologies and chemical and biological compositions
that are important to our business. To date, although our licensors have filed patent applications, we do not own or have any rights
to any issued patents that cover any of our product candidates, and we cannot be certain that we will secure any rights to any
issued patents with claims that cover any of our proprietary product candidates and technologies. The patent prosecution process
is expensive and time-consuming and we may not be able to file and prosecute all necessary or desirable patent applications at
a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent protection.
The patent process also is subject to numerous
risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending
patents. These risks and uncertainties include the following:
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Any patent rights, if obtained, might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;
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Our competitors, many of which have substantially greater resources than we do and many of which might make significant investments in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products either in the U.S. or in international markets;
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As a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for disease treatments that prove successful; and
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Countries other than the U.S. might have patent laws that provide less protection than those governing U.S. courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products.
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In addition, the U.S. Patent and Trademark
Office and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or
biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the
patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents might be substantially narrower than anticipated.
Patent and other intellectual property protection
is crucial to the success of our business and prospects, and there is a substantial risk that such protections, if obtained, will
prove inadequate. Our business and prospects will be harmed if we fail to obtain these protections or they prove insufficient.
If we fail to comply with our obligations
under our license agreements, we could lose rights to our product candidates or key technologies.
We have obtained rights to develop, market
and sell some of our product candidates through intellectual property license agreements with third parties, including IURTC and
Therabiome. These license agreements impose various diligence, milestone payment, royalty and other obligations on us. If we fail
to comply with our obligations under our license agreements, we could lose some or all of our rights to develop, market and sell
products covered by these licenses, and our ability to form collaborations or partnerships may be impaired. In addition, disputes
may arise under our license agreements with third parties, which could prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms and to develop and commercialize the affected product candidates.
We may incur substantial costs as a result
of litigation or other proceedings relating to patent and other intellectual property rights.
If we choose to go to court to stop another
party from using the inventions claimed in any patents we obtain, that individual or company has the right to ask the court to
rule that such patents are invalid or should not be enforced against that third party. These lawsuits are expensive and would consume
time and resources and divert the attention of managerial and scientific personnel even if we were successful in stopping the infringement
of such patents. There is a risk that the court will decide that such patents are not valid and that we do not have the right to
stop the other party from using the inventions. There is also the risk that, even if the validity of such patents is upheld, the
court will refuse to stop the other party on the ground that such other party's activities do not infringe our rights to such patents.
If we were not successful in defending our intellectual property, our competitors could develop and market products based on our
discoveries, which may reduce demand for our products.
We rely on trade secret protections through
confidentiality agreements with our employees, customers and other parties, and the breach of these agreements could adversely
affect our business and prospects.
We rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality, invention, and non-disclosure agreements with our employees, scientific
advisors, consultants, collaborators, suppliers, and other parties. There can be no assurance that these agreements will not be
breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become known to
or independently developed by our competitors. If any of these events occurs, or we otherwise lose protection for our trade secrets
or proprietary know-how, the value of this information may be greatly reduced.
If our employees, or consultants breach their
confidentiality obligations, to be able to enforce these confidentiality provisions, we would need to know of the breach and have
sufficient funds to enforce the provisions. We cannot assure you that we would know of or be able to afford enforcement of any
breach. In addition, such provisions are subject to state law and interpretation by courts, which could limit the scope and duration
of these provisions. Any limitation on or non-enforcement of these confidentiality provisions could have an adverse effect on our
business.
We may infringe the intellectual property
rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs
of commercializing our product candidates.
Our success will depend in part on our ability
to operate without infringing the proprietary rights of third parties. Our competitors may have filed, and may in the future file,
patent applications covering products and technologies similar to ours. Any such patent application may have priority over our
patent applications, which could further require us to obtain rights from third parties to issued patents covering such products
and technologies. We cannot guarantee that the manufacture, use or marketing of any product candidates that we develop will not
infringe third-party patents.
A third party may claim that we are using inventions
covered by the third party's patent rights and may go to court to stop us from engaging in our normal operations and activities,
including making or selling our product candidates. Patent litigation is costly and time consuming. We may not have sufficient
resources to address these actions, and such actions could affect our results of operations and divert the attention of managerial
and scientific personnel.
If a patent infringement suit were brought
against us, we may be forced to stop or delay developing, manufacturing, or selling potential products that are claimed to infringe
a third party's intellectual property, unless that third party grants us rights to use its intellectual property. In such cases,
we may be required to obtain licenses to patents or proprietary rights of others in order to continue development, manufacture
or sale of our products. If we are unable to obtain a license or develop or obtain non-infringing technology, or if we fail to
defend an infringement action successfully, or if we are found to have infringed a valid patent, we may incur substantial monetary
damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling
our product candidates, any of which could harm our business significantly.
Risks Related to Our Common Stock
We might not be able to maintain the
listing of our common stock on The NASDAQ Capital Market.
Our common stock is listed on The NASDAQ Capital
Market under the symbol “ASMB.” We might not be able to maintain the listing standards of that exchange. If we fail
to maintain the listing requirements, our common stock might trade on the OTC Bulletin Board or in the “pink sheets”
maintained by OTC Markets Group, Inc. These alternative markets are generally considered to be markets that are less efficient
and less broad than The NASDAQ Capital Market. A delisting of our common stock from The NASDAQ Capital Market and our inability
to list the stock on another national securities exchange could negatively impact us by: (i) reducing the liquidity and market
price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively
impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely
tradable securities, thereby preventing us from accessing the public capital markets and (iv) impairing our ability to provide
equity incentives to our employees.
The price of our common stock might fluctuate
significantly, and you could lose all or part of your investment.
Since we went public on December 22, 2010 and
through August 1, 2016, the closing price of our common stock has fluctuated between $4.30 and $101.25 (after giving effect to
the 1-for-5 reverse stock split effected on July 11, 2014), with significant volatility after we announced on June 25, 2012 that
our prior product candidate iferanserin failed to meet the endpoints of our Phase III trial, and after we announced in February
2014 that our prior product candidate diltiazem demonstrated no significant improvement compared to placebo. Continued volatility
in the market price of our common stock might prevent a stockholder from being able to sell shares of our common stock at or above
the price paid for such shares. The trading price of our common stock might be volatile and subject to wide price fluctuations
in response to various factors, including:
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the receipt or loss of required regulatory approvals for our product candidates;
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the timing, costs and results of our preclinical studies and clinical trials and other studies involving our product candidates;
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availability of capital;
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future sales of our common stock;
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any sales of shares of our common stock by our significant stockholders or members of our management;
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additions or departures of key personnel;
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investor perceptions of us and the pharmaceutical industry;
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issuance of new or changed securities analysts’ reports or recommendations, or the announcement of any changes to our credit rating;
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success or failure of our product candidates;
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introduction of new products or announcements of significant contracts, acquisitions or capital commitments by us or our competitors;
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threatened or actual litigation and government investigations;
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legislative, political or regulatory developments;
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the overall performance of the equity markets;
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actual or anticipated fluctuations in our quarterly financial and operating results;
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general economic conditions;
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changes in interest rates; and
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changes in accounting standards, policies, guidance, interpretations or principles.
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These and other factors might cause the market
price of our common stock to fluctuate substantially, which might limit or prevent investors from readily selling their shares
of our common stock and might otherwise negatively affect the liquidity of our common stock. In addition, in recent years, the
stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market
price of securities issued by many companies across many industries. The changes frequently appear to occur without regard to the
operating performance of the affected companies. Accordingly, the price of our common stock could fluctuate based upon factors
that have little or nothing to do with our company, and these fluctuations could materially reduce our share price.
Our principal stockholders and management
own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
At August 1, 2016, our executive officers,
directors and one of our founders beneficially owned approximately 24.1% of our voting common stock, and this group together with
other stockholders holding beneficially 5% of more of our outstanding voting common stock, owned approximately 71.0% of our outstanding
voting common stock. Therefore, these stockholders, if acting together, have the ability to influence us through their ownership
position. These stockholders may be able to determine the outcome of certain significant matters requiring stockholder approval.
For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval
of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals
or offers for our common stock that you may feel are in your best interest as one of our stockholders.
We do not intend to pay dividends for
the foreseeable future and our stock may not appreciate in value.
We currently intend to retain our future earnings,
if any, to finance the operation and growth of our business and do not expect to pay any cash dividends in the foreseeable future.
As a result, the success of an investment in shares of our common stock will depend upon any future appreciation in its value.
There is no guarantee that shares of our common stock will appreciate in value or that the price at which our stockholders have
purchased their shares will be able to be maintained.
The requirements of being a public company
add to our operating costs and might strain our resources and distract our management.
As a public company, we face increased legal,
accounting, administrative and other costs and expenses not faced by private companies. We are subject to the reporting requirements
of the Securities Exchange Act of 1934, which requires that we file annual, quarterly and current reports with respect to our business
and financial condition, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act of 2002, and The NASDAQ Capital
Market, each of which imposes additional reporting and other obligations on public companies. These rules and regulations increase
our legal and financial compliance costs and make some activities more time-consuming and costly, although we are currently unable
to estimate these costs with any degree of certainty. Complying with these requirements might divert management’s attention
from other business concerns, which could have a material adverse effect on our prospects, business, and financial condition.
Additionally, the expenses incurred by public
companies generally for reporting and corporate governance purposes have been increasing. These increased costs will require us
to divert a significant amount of money that we could otherwise use to develop our product candidates or otherwise expand our business.
If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions
and other regulatory action and potentially civil litigation.
Several provisions of the Delaware General
Corporation Law and our Amended and Restated Certificate of Incorporation and Bylaws could discourage, delay or prevent a merger
or acquisition, which could adversely affect the market price of our securities.
Several provisions of the Delaware General
Corporation Law and our Amended and Restated Certificate of Incorporation and Bylaws could discourage, delay or prevent a merger
or acquisition that stockholders may consider favorable, and the market price of our securities could be reduced as a result. These
provisions may include:
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prohibiting us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless certain provisions are met;
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prohibiting cumulative voting in the election of directors;
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limiting the persons who may call special meetings of stockholders; and
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establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
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If securities analysts downgrade our
stock or cease coverage of us, the price of our stock could decline.
The trading market for our common stock relies
in part on the research and reports that industry or financial analysts publish about us or our business. We do not control any
industry or financial analysts, and these analysts may not publish an adequate amount of research on our company, or may publish
unfavorable or inaccurate research about our business, which could negatively impact our stock price. Furthermore, there are many
large, well-established, publicly traded companies active in our industry and market, which may mean that it is less likely that
we will receive widespread analyst coverage. If any of the analysts who cover us downgrade our stock, our stock price would likely
decline rapidly. If these analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause
our stock price to decline.