Item
1. Business
Overview
Ritter
Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases.
We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality
of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health.
Our
first novel microbiome modulator, RP-G28, an orally administered, high purity galactooligosaccharide (“GOS”), is currently
under development for the reduction of symptoms associated with lactose intolerance. RP-G28 is designed to stimulate the growth
of lactose-metabolizing bacteria in the colon, thereby effectively adapting the gut microbiome to assist in digesting the lactose
that reaches the large intestine. RP-G28 has the potential to become the first drug approved by the Food and Drug Administration
(“FDA”) for the reduction of symptoms associated with lactose intolerance. RP-G28 has been studied in a Phase 2a clinical
trial and an adaptive design Phase 2b/3 clinical trial and is a first-in-class compound.
On
October 17, 2016, we announced that the last patient had completed dosing and all monitoring visits in our Phase 2b/3 clinical
trial of RP-G28 for the treatment of lactose intolerance. Topline results of the trial are expected to be announced in the first
quarter of 2017. The Phase 2b/3 trial is a double-blind, placebo-controlled, three arm, multicenter study evaluating safety, efficacy
and tolerability of two dosing regimens of RP-G28 in patients with moderate to severe lactose intolerance symptoms. Enrollment
was initiated in March 2016 and completed in August 2016, achieving our projected enrollment time period. The study aims to evaluate
a patient’s ability to consume dairy foods post-treatment with improved tolerance and reduced digestive symptoms. A total
of 377 subjects were enrolled in the trial with 18 clinical sites participating throughout the United States. Patients underwent
a 30-day treatment, followed by a 30-day post-treatment evaluation of dairy tolerance. A subset of subjects have been rolled into
a 12-month extension study to evaluate long-term durability of treatment. The study will also evaluate each participant’s
microbiome, expanding knowledge of the effects that RP-G28 may have on adapting the gut microbiota in a beneficial manner. The
subjects are expected to complete the 12-month evaluation during the fourth quarter 2017.
We
have had communications with the FDA regarding our clinical program and regulatory path towards getting RP-G28 adequately studied
and eventually approved. We intend to hold two meetings with the FDA in the near future about our Phase 2b/3 study, including
a Type C meeting as well as an End of Phase 2 meeting, both of which the FDA has encouraged us to schedule. These meetings and
communications are typical for development stage companies and include the clinical pathway, regulatory requirements, statistical
plan and endpoints and similar matters.
The
Gut Microbiome
The
human gut is a relatively under-explored ecosystem but provides a great opportunity for using dietary intervention strategies
to reduce the impact of gastrointestinal disease. The human body carries about 100 trillion microorganisms in the intestines,
which is 10 times greater than the number of cells in the human body. This microbial population is responsible for a number of
beneficial activities such as fermentation, strengthening the immune system, preventing growth of pathogenic bacteria, providing
nutrients, and providing hormones. The increasing knowledge of how these microbial populations impact human health provides opportunities
for novel therapies to treat an assortment of diseases such as neurological disease, cardiovascular disease, obesity, irritable
bowel syndrome, inflammatory bowel disease, colon cancer, allergies, autism and depression.
Platform
Approach
Our
platform is based on selectively colonizing microbiota (increasing beneficial bacteria) in the colon, and thus changing the colon’s
composition of microbiota. This process has been shown to stimulate the growth of endogenous bifidobacteria, which after a short
feeding period become predominant in the colon. The result is believed to reduce inflammation and improve digestion, thereby potentially
reducing digestive symptoms.
RP-G28
selectively increases colonization of lactose-metabolizing bacteria in the colon, such as bifidobacteria and lactobacilli, without
increasing the growth of harmful bacteria, such as Escherichia coli (“E. coli”). Increased colonization of lactose-metabolizing
colonic microbiota is associated with increased lactase activity, thereby increasing the fermentation of lactose into galactose,
glucose and short chain fatty acids. We believe this process could reduce lactose-derived gas production and thereby mitigate
the symptoms of lactose intolerance.
Lactose
Intolerance
Studies
have suggested that lactose intolerance is a widespread condition affecting over one billion people worldwide and over 40 million
people in the United States (or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating
moderate to severe symptoms.
Current
annual spending on over-the-counter lactose intolerance aids in the United States has been estimated at approximately $2.45 billion
.
However, these options are limited and there is no long-term treatment available.
Lactose
intolerance develops in lactose maldigesters when consuming too much lactose or when lactose is added to a previously low-lactose
diet. People with lactose maldigestion have a low activity level of lactase, the enzyme responsible for breaking down human lactose,
located in the brush border membrane of the small intestine. Lactose intolerance is characterized by one or more of the cardinal
symptoms; including abdominal pain/cramps, bloating, gas, and diarrhea following the ingestion of lactose or lactose-containing
foods.
In
lactose maldigesters, unhydrolyzed lactose passes into the large intestine, where it is fermented by the indigenous microflora
into gases and short chain fatty acids. The excessive gas production and the osmotic effects of excessive undigested lactose cause
the symptoms of lactose intolerance. Symptoms begin about 30 minutes to two hours after eating or drinking foods containing lactose.
The severity of symptoms depends on many factors, including the amount of lactose a person can tolerate and a person’s age,
ethnicity, and digestion rate. The symptoms of lactose intolerance are caused by gases and toxins produced by anaerobic bacteria
in the large intestine. The problem of lactose intolerance has been exacerbated because many foods and drinks contain traces of
lactose without lactose being clearly stated on the product’s label.
Diagnosis
Lactose
intolerance is often diagnosed by evaluating an individual’s clinical history, which reveals a relationship between lactose
ingestion and onset of symptoms. Hydrogen breath tests may also be utilized to diagnose lactose malabsorption and a milk challenge
may be used to differentiate between lactose malabsorption and lactose intolerance. Further tests can be conducted to rule out
other digestive diseases or conditions, including: stool examination to document the presence of a parasite, blood tests to determine
the presence of celiac disease, and intestinal biopsies to determine mucosal problems leading to malabsorption, such as inflammatory
bowel disease or ulcerative colitis.
Our
History
We
were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. Our first prototype,
Lactagen
™
, was an alternative lactose intolerance treatment method. In 2004, clinical testing was conducted,
which included a 60 subject double-blind placebo controlled clinical trial. The results were published in the Federation of American
Societies for Experimental Biology in May 2005 and demonstrated Lactagen
™
to be an effective and safe product
for reducing symptoms for nearly 80% of the clinical participants who were on Lactagen
™
.
In
2008, we expanded our focus by developing a prescription drug development program. We initiated the program by developing RP-G28,
a second generation edition of Lactagen
™
. We believe that RP-G28 enables us to state stronger claims, garner
more medical community support and reach a wider market in the effort to treat lactose intolerance.
To
help fund the development of RP-G28, we were awarded a grant from the United States government’s Health Care Bill program,
the Qualifying Therapeutic Discovery Project, in 2008. The grant program provides support for innovative projects that are determined
by the U.S. Department of Health and Human Services to have reasonable potential to result in new therapies that treat areas of
unmet medical need and/or prevent, detect or treat chronic or acute diseases and conditions.
On
September 16, 2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc.
Our
Leading Product Candidate — RP-G28
Overview
RP-G28
is a novel highly purified GOS, which is synthesized enzymatically. The product is being developed to reduce the symptoms and
frequency of episodes of abdominal pain associated with lactose intolerance. The therapeutic is taken orally (a powder solution
mixed in water) for 30 consecutive days. The proposed mechanism of action of RP-G28 is to increase the intestinal growth and colonization
of bacteria that can metabolize lactose to compensate for a patient’s intrinsic inability to digest lactose. Once colonization
of bacteria has occurred, it is hypothesized that patients will continue to tolerate lactose as long as they maintain their microflora
balance. RP-G28 has the potential to become the first FDA-approved drug for the reduction of symptoms associated with lactose
intolerance.
Galactooligosaccharides
(GOS)
RP-G28
is a >95% purified GOS product. GOS refers to a group of compounds containing β-linkages of 1 to 6 galactose units with
a single glucose on the terminal end and are found at low levels in human milk. GOS products resist hydrolysis by salivary and
intestinal enzymes because of the configuration of their glycosidic bonds and reach the colon virtually intact. The undigested
GOS enhances the growth of beneficial, lactose metabolizing, colonic bacteria that already exist in the subject’s digestive
track, including multiple species and strains of bifidobacteria and lactobacilli. Once colonies of these bacteria have increased,
continued lactose exposure should maintain tolerability of lactose without further exposure to RP-G28.
The
significance of a higher purity GOS, namely RP-G28, was highlighted in a 2010 study by Klaenhammer. The in vitro study concluded
that RP-G28 promoted growth of lactobacilli and bifidobacteria, but did not promote multiple strains of E. coli. In contrast,
lower purity GOS stimulated both bifidobacteria as well as the strains of E. coli evaluated. (As seen below in Figure 1, NCK 430
(e. coli) grew in the presence of low purity GOS (GOS 2). Alternatively, the higher purity GOS (RP-G28/GOS 1) did not promote
the growth of E. coli.).
Figure
1
Mechanism
of Action
RP-G28
selectively increases colonization of lactose-metabolizing bacteria in the colon, such as bifidobacteria and lactobacilli, without
increasing the growth of harmful bacteria, such as E. coli
.
Increased colonization of lactose-metabolizing colonic bacteria
is associated with increased lactase activity and GOS utilization, thereby increasing the fermentation of lactose into galactose,
glucose and short chain fatty acids. Digestion of lactose reduces lactose-derived gas production and thereby mitigates the symptoms
of lactose intolerance.
Safety
& Toxicology of GOS
Clinical
studies of GOS products were reviewed as part of the safety evaluation to support our Investigational New Drug (“IND”)
Application for RP-G28. The safety of GOS products in humans has been evaluated in 486 adults at doses of 2.5 to 15 gm/day for
up to 14 weeks, 342 children at doses of 2.0 – 2.4 gm/day for up to 1 year, and in 2415 newborns and infants for up to 6
months. Overall, no reports of severe adverse events attributable to the consumption of GOS were reported in the literature.
Among
the studies that included tolerance endpoints, side effects were limited to reports of flatulence, fullness, gastronintestinal
symptoms, and changes in stool consistency and frequency when GOS was consumed on a repeat basis at quantities of between 5.5
to 15 g/day (Ito 1990; Deguchi 1997; Teuri 1998); however, this effect was not consistently reported in all studies (Teuri and
Korpela 1998; Depeint 2008; Drakoularako 2010; van de Heuval 1998; van Dokkum 1999; Bouhnik 2004; Sairanen and Piirainen 2007;
Shadid 2007). Similar observations of increased flatulence have been reported following the consumption of fructooligosaccharides
(15 gm/day) over a 7-day period (Alles 1996), and this symptom represents a localized effect that is expected in association with
the consumption of indigestible fiber in large quantities. There were no reports of events in other System Organ Class (“SOC”)
suggestive of systemic toxicity.
RP-G28
Clinical Safety
In
addition to the nonclinical studies evaluating GOS products, the safety of RP-G28 for clinical investigation is supported by clinical
safety results from our Phase 2a study, G28-001. In this study, RP-G28 was escalated from 1.5 grams per day to 15 grams per day
over a 35-day dosing period.
RP-G28
was well-tolerated. There were no serious adverse effects. The most common adverse effects were headache, dizziness, nausea, upper
respiratory tract infection, nasal congestion and pain. All adverse effects were mild or moderate in severity, and event occurrence
was distributed over the treatment and post-treatment follow-up phase. No clinically significant changes or findings were noted
from clinical lab evaluations, vital sign measurements, physical exams, or 12-lead electrocardiograms.
Our
Market Opportunity
Unmet
Medical Needs
Lactose
intolerance is a challenging condition to manage. According to a market research study conducted by Objective Insights in April
2012, approximately 60% of lactose intolerant sufferers reported experiencing symptoms daily, or bi-weekly. Not only can symptoms
be painful and embarrassing, they can also dramatically affect one’s quality of life, social activities, and health. Currently
there are few reliable, or effective, treatments available that provide consistent or satisfactory relief.
Currently,
there is no approved prescription treatment for lactose intolerance. Most persons with lactose intolerance avoid ingestion of
milk and dairy products while others substitute non-lactose-containing foods in their diet. However, complete avoidance of lactose-containing
foods is difficult to achieve (especially for those with moderate to severe symptoms) and can lead to significant long-term morbidity
(
i.e.
, dietary deficiencies of calcium and vitamin D).
At
the 2010 National Institute of Health (“NIH”) Consensus Development Conference: Lactose Intolerance and Health, the
NIH highlighted numerous health risks tied to lactose intolerance such as: osteoporosis; hypertension; and low bone density
.
There is substantial evidence indicating that lactose intolerance is a major factor in limiting calcium and nutrient intake
in the diet of people who are lactose intolerant. Adequate calcium intake is essential to reducing the risks of osteoporosis and
hypertension
.
In addition, chronic calcium depletion has been linked to increased arterial blood pressure in over 30 published
reports, thereby establishing a relationship between hypertension and low calcium intake
.
Moreover, there is evidence of
a correlation between calcium intake and both colon and breast cancer
.
Treatment
Options
Doctors
generally recommend the following treatments for the management of lactose intolerance: (1) dairy avoidance; (2) lactase supplements;
(3) probiotics/dietary supplements; and (4) dairy substitutes/lactose free products. Despite educating their patients on all viable
treatment options, physicians tend to advise their patients to refrain from consuming any dairy products whatsoever. However,
in a 2008 survey conducted by Engage Health, 47% of lactose intolerance sufferers reported that this method was not effective
(largely due to hidden dairy products in ingredients), and only 30% of lactose intolerance sufferers reported lactase supplements
as being effective in managing their lactose intolerance
.
Further, while probiotics/dietary supplements have been demonstrated
to aid and support one’s digestive system, helping break down general foods consumed, they don’t directly help with
lactose intolerance. The 2008 survey by Engage Health suggests that the majority of lactose intolerance patients are dissatisfied
with current treatment options.
Patients
Unsatisfied with Current Management Options
Growing
Awareness
Lactose
intolerance is a condition that continues to expand as society advances and evolves. It has been estimated that gastroenterologists
see approximately 15 new patients with lactose intolerance each month. Education and awareness have increased, and the American
diet has greatly changed over the past decade to include more dairy-based goods. As the populace is growing older, the prevalence
of lactose intolerance is increasing because more people tend to develop lactose intolerance later in life. Increased education
and diagnosis is making more people aware of their allergies and digestive conditions. Physicians may compound the growth of lactose
intolerance prevalence and its associated disorders by recommending individuals to avoid dairy products, a practice which in and
of itself may increase severity of the intolerance.
Doctors
tend to diagnose lactose intolerance in a patient before the patient is able to self-diagnose it
.
However, patients tend
to initiate discussion about lactose intolerance with their doctors. This is indicative of broad public awareness of lactose intolerance.
Doctors often administer two tests for diagnosing lactose intolerance: (i) a symptom history test and (ii) a hydrogen breath test.
Our
Competitive Strengths
Market
Opportunity
RP-G28
has the potential to become the first approved drug in the United States and Europe for the reduction of symptoms associated with
lactose intolerance.
Renowned
Scientific Team and Management Team
Our
leadership team has extensive biotechnology/pharmaceutical expertise in discovering, developing, licensing and commercializing
therapeutic products. We have attracted a scientific team comprised of innovative researchers who are renowned in their knowledge
and understanding of the host-microbiome in the field of lactose intolerance and gastroenterology.
Substantial
Patent Portfolio and Product Exclusivity
We
have an issued patent in the United Kingdom directed to the composition of non-digestible carbohydrates, and we have issued patents
in the United States directed to methods of using such compositions for the treatment of lactose intolerance and symptoms. Additional
worldwide patent applications are pending. The patent applications include claims covering compositions, methods, formulations
and packaging.
In
addition, in July 2015 we acquired the rights, title and interest to certain patents and related patent applications with claims
covering a process for producing ultra high purity GOS active pharmaceutical ingredients, including RP-G28 from our supplier.
See “Business—Clinical Supply and Cooperation Agreement with Ricerche Sperimentali Montale and Inalco SpA” for
additional details regarding the second amendment to the exclusive supply agreement and our exercise of the exclusive option.
See
“Business—Intellectual Property” for additional information regarding our patent portfolio.
Our
Growth Strategy
In
order to achieve our objective of developing safe and effective applications to treat conditions associated with microbiome dysfunctions,
our near-term and long-term strategies include the following:
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Complete
our adaptive design Phase 2b/3 clinical trial and any additional pivotal studies of RP-G28 for the reduction of symptoms associated
with lactose intolerance;
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seek
regulatory approval of RP-G28 for the reduction of symptoms associated with lactose intolerance if the clinical trials are
successful, initially in the United States and subsequently in the rest of the world;
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develop
and commercialize RP-G28 either by ourselves or in collaboration with others throughout the world;
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explore
the use of RP-G28 for additional potential therapeutic indications and orphan indications;
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establish
ourselves as a leader in developing therapeutics that modulates the human gut microbiome;
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continue
to develop a robust and defensible patent portfolio, including those we own and those we plan to in-license in the future;
and
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continue
to optimize our product development and manufacturing capabilities both internally and externally through outside manufacturers.
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Clinical
and Regulatory
IND
Application/Phase 1
We
submitted an IND application for RP-G28 to the FDA in June 2010. Because the safety and tolerability profile, pharmacokinetics
and dose response curve of GOS products is generally well understood, as part of our IND submission, we proposed that the data
supporting the IND was sufficient to support a Phase 2 proof-of-concept study in a small number of lactose-intolerant patients.
The FDA agreed with this proposal and the typical Phase 1 clinical program in healthy volunteers was replaced with a Phase 2a
program in subjects with lactose intolerance.
On
June 28, 2010, we received an advice letter from the FDA regarding our IND submission. The FDA suggested that we (1) consider
expanding our inclusion criteria to include females of childbearing potential who are willing to use appropriate contraception
throughout the duration of the protocol; (2) follow the FDA’s guidance regarding Patient-Reported Outcome Measures; and
(3) include a pharmacokinetic study in our proposed Phase 2a trial to determine the extent of systemic exposure of RP-G28.
Phase
2a Study
In
June 2011, we began a Phase 2a clinical trial on RP-G28 to validate the efficacy, safety, and tolerance of RP-G28 compared to
placebo when administered to subjects with symptoms of lactose intolerance. The clinical results from the study, which concluded
at the end of 2011, showed that RP-G28 improved lactose digestion versus placebo as measured by the improvement in digestive symptoms
associated with lactose intolerance and decline in hydrogen production present in a hydrogen breath test.
On
June 12, 2013, we announced positive data from our Phase 2a first-in-human, proof of concept clinical study of RP-G28. The purpose
of the study was to assess the effectiveness, safety and tolerability of RP-G28 compared to a placebo when administered to subjects
with symptoms associated with lactose intolerance. The results were presented at Digestive Diseases Week and the New York Academy
of Sciences Conference on Probiotics, Prebiotics and the Host Microbiome: The Science of Translation, and co-sponsored by the
Sackler Institute for Nutrition Science and the International Scientific Association of Probiotics and Prebiotics.
The
clinical microbiome data from this Phase 2a clinical trial of RP-G28 in patients with lactose intolerance was published in the
Proceedings of the National Academy of Science
(“PNAS-Plus”) PNAS 2017; Early Edition, published ahead of print
January 3, 2017. The paper titled, “Impact of short-chain galactooligosaccharides on the gut microbiome of lactose-intolerant
individuals,” reports findings on our lead therapeutic candidate, RP-G28, a short-chain GOS. The data validates RP-G28’s
mechanism of action and supports the product as a potential treatment for lactose intolerance. The newly published microbiome
data provides further insight into RP-G28’s Phase 2a 2013 clinical trial.
The
double-blinded, randomized, multi-center, placebo-controlled Phase 2a study evaluated RP-G28 in 62 patients with lactose intolerance
over a treatment period of 35 consecutive days. Post-treatment, subjects reintroduced dairy into their diets and were followed
for an additional 30 days to evaluate lactose digestion, as measured by hydrogen production and symptom improvements. In order
to confirm lactose intolerance and study participation, subjects underwent a 25-gram lactose challenge in the clinic. Lactose
intolerance symptoms and hydrogen production via hydrogen breath test were assessed for six hours post-lactose dose. Eligible
subjects were required to demonstrate a minimum symptom score and a “positive” hydrogen breath test in order to be
eligible for randomization. A “positive” breath test was defined as a hydrogen gas elevation of 20 parts per million
(ppm) at two time-points within the six hours following a lactose-loading dose. The primary endpoints included tracking patients’
gastrointestinal symptoms via a patient-reported symptom assessment instrument (a Likert Scale, measuring individual symptoms
of flatulence, bloating, cramping, abdominal pain and diarrhea, on a scale of 0 (none) to 10 (worst)) at baseline, day 36 and
day 66; as well as the measurement of hydrogen gas levels in their breath following a 25-gram lactose challenge.
RP-G28
was well tolerated, with no significant adverse events reported. The Phase 2a study demonstrated clinically meaningful benefits
to patients on treatment, whereas treated subjects reported increased tolerance to lactose and dairy foods: reduced lactose intolerance
symptoms (gas, bloating, cramping and abdominal pain) were reported in subjects on RP-G28, a durable reduction in abdominal pain
(p=0.019) was reported, and treated patients were six times more likely to describe themselves as lactose tolerant (p=0.039).
In sum, positive trends were seen when the entire per protocol study population was analyzed, including some statistically significant
subgroup analysis, suggesting that a therapeutically positive effect is seen. Although there were few primary and secondary efficacy
endpoints with statistically significant results, the combined data suggest that RP-G28 is exerting a positive therapeutic effect.
We believe these positive drug effect trends combined with the benign safety profile support continued drug development of RP-G28.
Key
findings of the Phase 2a study include:
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RP-G28
was well tolerated with no significant study-drug related adverse effects. The benign adverse event safety profile of RP-G28
with dose levels up to 15 gm/day observed in this study is consistent with the known safety of GOS products administered up
to 20 gm/day reported in literature.
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Subjects
in the RP-G28 group reported a reduction in total symptoms after treatment. Reported symptom improvement continued 30 days
post-treatment. Improvement in symptoms was assessed in the study using several different measures, including a pain Likert
scale and a patient global assessment. Subjects receiving RP-G28 had greater improvement in most of their symptoms (cramps,
bloating and gas) following lactose challenge compared to placebo, but the differences were not statistically significant
given the small cohort size. However, a clinically meaningful reduction in abdominal pain was seen in subjects receiving RP-G28
compared to placebo.
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An
analysis of “responders” for abdominal pain (defined as subjects who reported a score of zero in abdominal
pain severity following a lactose challenge at Day 36/Hour 6 and Day 66/Hour 6) was performed. In the 55 subjects who noted
abdominal pain following the baseline (Day 0) lactose challenge, 50% of RP-G28-treated subjects reported no abdominal pain
compared to 17% of the placebo-treated subjects. This difference was statistically significant (p = 0.0190). See Figure 2
below.
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An
analysis of “responders” for abdominal pain (defined as subjects who reported a greater than 50% decrease in abdominal
pain severity following lactose challenge between Day 0/Hour 6 and Day 36/Hour 6) was performed. In the 55 subjects who noted
abdominal pain following the baseline (Day 0) lactose challenge, 72.2% of RP-G28-treated subjects reported a >50% reduction
in abdominal pain severity compared to 42.1% of the placebo-treated subjects. This difference was also statistically significant
(p=0.0288).
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To
better explore a meaningful benefit to patients, a global assessment was explored. Six times as many patients in the treatment
group versus the placebo group described themselves as lactose tolerant and did not report symptoms associated with lactose
intolerance on Day 66. After completion of study treatment at Day 36, subjects were encouraged to re-introduce dairy foods
into their diet. Thirty days later (Day 66), subjects were asked to provide an assessment of their symptom status, i.e., whether
they considered themselves still lactose intolerant compared with subjects receiving placebo (Yes/No). As seen below in Figure
2 below, in the 58 subjects providing responses, a significantly larger percentage of subjects receiving RP-G28 (30%) considered
themselves no longer lactose intolerant compared with subjects receiving placebo (5.6%); this result was statistically significant
(p=0.0389).
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The
reduction in total symptoms following a post-treatment lactose challenge was consistent with the improvement in post-treatment
hydrogen breath test results as compared to baseline (pre-treatment) results. Although rarely used in clinical practice and
primarily used to identify lactase deficiency, hydrogen measurements were used as an eligibility criterion as well as an outcome
measure in our Phase 2a proof-of-concept study. Our intent was to better understand how lactose intolerant symptoms and hydrogen
values correlated and whether a treatment effect could be detected by hydrogen production. In the RP-G28 group, the median
peak hydrogen production was 113 ppm on Day 0 and 110 ppm on Day 36. In the placebo group, the median peak hydrogen production
was 94 ppm at Day 0 and 113 on day 36. At Day 0 and Day 36, the median total hydrogen production was 385 ppm and 367 ppm,
respectively, for the RP-G28 group and 347 and 436 ppm, respectively, for the placebo group. Comparison of the hydrogen breath
test results between RP-G28 and placebo shows that median hydrogen production was generally similar between the two treatment
groups at Day 0 while at Day 36, median hydrogen production was lower in the RP-G28 group compared to placebo at the peak
time points of 2 to 4 hours. While the differences were not large, the RP-G28 group had consistently lower levels of breath
hydrogen production from Hours 2 to 6 following lactose challenge, but the results did not correlate with clinical symptoms.
In the Placebo group, differences in hydrogen production following lactose challenge were not apparent.
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Figure
2
In
the Phase 2a study, changes in the fecal microbiome were investigated using both Terminal Restriction Fragment Length Polymorphisms
(“TRFLP”), a molecular biology technique for profiling microbial communities based on the position of a restriction
site closest to a labeled end of an amplified gene, and microme analysis of 16S rRNA genex by pyrosequencing, a method of DNA
sequencing (determining the order of nucleotides in DNA).
Figure
3
In
addition, Principal Component Analysis (“PCA”), a multivariate method that helps transform a number of possibly correlated
variables into a smaller number of uncorrelated variables called principal components, thereby reducing the dimensions of a complex
dataset, showed statistically significant shifts in the microbiome of subjects fed RP-G28, compared to placebo, at 66 days. Specifically,
RP-G28 significantly altered the microbiomes of 82% of the study participants who received the treatment. See Figure 3 above.
Pre-treatment,
three distinct clusters were identified, whereas post-treatment (Day 66) two distinct clusters were identified, showing a clear
shift in certain species represented before and after treatment.
Principal
Coordinates Analysis (“PCoA”), a multivariate method that helps visualize similarities and dissimilarities in large
datasets, was also utilized to analyze the microbiome data. For analysis of 16S amplicon sequencing data, we created Unweighted
Unifrac similarity matrices (that is we conducted PCoA) and applied ANOSIM (Analysis of Similarities) and PERMANOVA (Permutational
Analysis of Variance) statistical analyses. Our analysis showed a significant association between Day (day 0 or baseline, and
day 36 and 66 as categories) and microbiome composition (ANOSIM R = 0.218, P = 0.0001, PERMANOVA Pseudo-F = 3.4318, P = 0.0001).
These data indicate that RP-G28 and subsequent introduction of lactose into the diet had impacted the fecal microbiome of participants.
Further, lactose metabolizing bacteria were shown to increase in the treatment group.
The
results of our Phase 2a study were published in Nutrition Journal in a manuscript entitled “
Improving lactose digestion
and symptoms of lactose intolerance with a novel galactooligosaccharide (RP-G28): a randomized, double-blind clinical trial
.”
We
held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February 20, 2013. The purpose
of the meeting was to obtain the FDA’s feedback on the planned Phase 2 program and Phase 3 programs, inform the FDA of our
ongoing development plans, gain feedback on relevant clinical trial design and end points related to patient meaningful benefits,
and to inform the FDA of the status of our product characterization. We believe that this meeting was a significant step forward
in streamlining the pathway to initial U.S. approval of RP-G28 to reduce symptoms and frequency of symptomatic episodes associated
with lactose intolerance. The meeting and official meeting minutes provided valuable guidance on the development path of RP-G28:
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The
FDA agreed with our decision to develop and validate a new analytical assay for RP-G28 drug substance and drug product. This
adjustment will provide additional information about GOS components and non-GOS impurities, which the FDA agrees should be
in place before we prepare batches of the drug substance for use in any pivotal Phase 3 clinical trials.
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Based
on our plan to conduct ICH-compliant GLP embryo-fetal development toxicology studies (in two species) and the ICH standard
battery of genotoxicity tests using RP-G28, the FDA agreed that no additional nonclinical studies are needed to support Phase
3 studies.
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The
FDA advised us on potential end points and clinical trial design.
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We
addressed the FDA’s recommendation in its June 28, 2010 advice letter that we include a pharmacokinetic study in the
Phase 2b study to assess the extent of systemic exposure of RP-G28. We explained to the FDA that we did not collect serum
samples for pharmacokinetic measurement in the Phase 2a study because at the time assays for measuring RP-G28 were not available
and significant systemic absorption was not anticipated. We then informed the FDA of our plan to evaluate alternatives, as
a surrogate for RP-G28 systemic exposure as part of our Phase 2b program. The FDA agreed with this approach.
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Following
analysis of the Phase 2a clinical trial, discussions with the FDA in 2013 about our clinical development plan, and further discussions
with our regulatory consultants, we initiated a Phase 2b/3 clinical trial of RP-G28 in March 2016. We believe this trial could
serve as one of two pivotal trials should the resulting data and the FDA be supportive of this trial as a pivotal trial. We did
not discuss the Phase 2b/3 study design and development plan with the FDA before initiating the study in March 2016, though we
did submit a supplement to the IND detailing the protocols for the adaptive study and intend to hold two meetings with the FDA
in the near future.
Nonclinical
Safety Plans
Given
the established safety profile of GOS in humans and the lack of significant safety concerns with RP-G28 administered to subjects
in the Phase 2a study, no additional non-clinical safety studies are planned to support continued evaluation of RP-G28 in the
Phase 2 program.
Guidelines
adopted by the FDA and established by ICH require nonclinical studies that specifically address female fertility to be completed
before the inclusion of women of child bearing potential in large-scale or long-duration clinical trials (e.g., Phase 3 trials).
In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using precautions to prevent
pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue to evaluate females
of child-bearing potential who are willing to use appropriate contraception throughout the duration of any study.
Phase
2b/3 Study
Enrollment
in our Phase 2b/3 clinical trial of RP-G28 was initiated in March 2016 and completed in August 2016. The final patient completed
dosing and all monitoring visits in October 2016. Topline results of this trial are expected to be announced in the first quarter
of 2017.
The
Phase 2b/3 study was designed as a multi-center double-blinded, placebo controlled clinical trial of approximately 377 subjects
to determine the maximum tolerated dose and optimal dose-escalation schedule for RP-G28. The trial assessed patients with moderate
to severe abdominal pain as measured by a pain Likert scale after a lactose challenge. The Phase 2b/3 clinical trial was intended
to measure additional lactose intolerance symptoms (gas, bloating, diarrhea, cramps) as secondary endpoints. Entry criteria in
the Phase 2b/3 study included a hydrogen breath test to validate lactase deficiency. The Phase 2b/3 study design included a screening
phase; a 30-day course treatment phase and a 30-day post-treatment evaluation phase. The study was designed to gradually escalate
the dose beyond the 15 gm/day dose level evaluated in the Phase 2a study. Study subjects abstained from lactose containing food
products and were then randomized evenly (1:1:1:1) to receive one of three doses of RP-G28 or placebo for 30 days. Subjects were
then followed post-treatment for an additional 30 days while lactose containing food products were re-introduced into their diets.
The primary endpoint for the Phase 2b/3 clinical study was a durable reduction in abdominal pain, with secondary endpoints measuring
changes in individual lactose intolerance symptoms (gas, bloating, diarrhea, cramps). The Phase 2b/3 study was also designed to
include collection of blood samples to assess systemic exposure to RP-G28 using measurement of serum concentrations of a trisaccharide.
This was monitored as a surrogate to assess the systemic bioavailability of orally administered RP-G28. Additionally, the study
required the collection of fecal samples from patients enrolled to evaluate the baseline and changes to the patient’s microbiome
that correlate to symptom reduction and lactose tolerance.
In
order to gather long-term data on subjects exposed to RP-G28, we also offered enrollment in an observational extension study,
G28-004, to subjects who completed the Phase 2b/3 protocol. As RP-G28 is expected to provide extended relief from lactose intolerance
symptoms beyond the initial 30-day treatment phase, this extension study for the Phase 2b/3 program will assess the long-term
treatment effect. We intend for the results from this study to guide the need to evaluate an additional 30-day course of treatment
in a Phase 3 clinical trial in subjects who experience the return of lactose intolerance symptoms after an initial course of RP-G28.
Adaptive
seamless phase 2b/3 designs, such as the Phase 2b/3 pivotal clinical trial for RP-G28, are aimed at interweaving the two phases
of full development by combining them into one single, uninterrupted study conducted in two steps. Adaptive seamless phase 2b/3
designs enable a clinical trial to be conducted in steps with the sample size calculation selected on the basis of data observed
in the first step to continue along to the second step. The main statistical challenge in such a design is ensuring control of
the type I error rate. Most methodology for such trials is based on the same endpoint being used for interim and final analyses.
A type I error is one in which the adaptation process leads to design, analysis, or conduct flaws that introduce bias that increases
the chance of a false conclusion that a treatment is effective (a type I error). Controlling type I error can be accomplished
by prospectively specifying and including in the statistical analysis plan all possible adaptation plans that may be considered
during the course of the trial. We worked with Covance, Inc. (“Covance”), a contract research organization (“CRO”)
to control a type I error in our Phase 2b/3 study.
We
did not discuss the Phase 2b/3 study design and development plan with the FDA before initiating the study in March 2016, though
we did submit a supplement to the IND detailing the protocols for the adaptive study and have subsequently had communications
with the FDA regarding our clinical program. We intend to hold two meetings with the FDA in the near future about our Phase 2b/3
study, including a Type C meeting as well as an End of Phase 2 meeting, both of which the FDA has encouraged us to schedule. These
meetings and communications are typical for development stage companies and include the clinical pathway, regulatory requirements,
statistical plan and endpoints and similar matters.
Master
Service Agreement
On
December 30, 2015, we entered into a Master Service Agreement with Covance, with an effective date of December 29, 2015. Pursuant
to the terms of the Master Service Agreement, Covance (or one or more of its affiliates) will provide Phase 1, 2, 3, and 4 clinical
services for a clinical study or studies to us, and, at our request, assist us with the design of such studies, in accordance
with the terms of separate individual project agreements to be entered into by the parties. The term of the agreement is for three
years and will renew automatically for successive one year periods unless Covance is no longer providing services under the agreement
or either party has terminated the agreement upon written notice. We may terminate the Master Service Agreement or any individual
project agreement entered into under the Master Service Agreement prior to the applicable study’s completion at any time
for any reason upon 30 days written notice to Covance, except when the reason for termination is the safety of subjects, in which
case it may be terminated immediately. Covance may not terminate any individual project agreement without cause, except when the
reason for the termination is the safety of subjects, in which case it may be terminated immediately. In the event of a termination
of the Master Service Agreement, Covance will be entitled to full payment for (i) work performed on the applicable project upon
through the date work on such project is concluded and (ii) reimbursement for all non-cancellable and non-refundable expenses
and financial obligations which Covance (or an affiliate) has incurred or undertaken on our behalf.
Manufacturing
We
do not own or operate manufacturing facilities for the production of RP-G28 or any other product candidates we may develop, nor
do we have plans to develop our own manufacturing operations in the foreseeable future. We have an exclusive worldwide agreement
(the “Supply Agreement”) to manufacture a higher purity form of GOS (referred to as “Improved GOS”) with
Ricerche Sperimentali Montaleor (“RSM”) in connection with the clinical and nonclinical studies we will need to conduct
prior to receiving regulatory approval for RPG-28. RSM has also agreed that it will not, except as necessary for RSM to perform
its obligations under the Supply Agreement, market or sell Improved GOS, or any GOS that are of greater purity to any third party.
Pursuant
to the terms of the Supply Agreement, as amended on July 24, 2015, we purchased the exclusive worldwide assignment of all right,
title and interest to the Improved GOS (the “Improved GOS IP”) on July 30, 2015 for $800,000. We also issued 100,000
shares of our common stock to RSM pursuant to a stock purchase agreement. The shares issued to RSM are subject to a lock-up agreement,
pursuant to which RSM has agreed that it will not sell these shares for a period ending on the earlier of (i) the public release
by us of the final results of our Phase 2b/3 clinical trial of RP-G28 and (ii) the filing of a Form 10-Q with the SEC for the
fiscal quarter in which we receive the results of our Phase 2b/3 clinical trial of RP-G28.
Under
the terms of the Supply Agreement, as amended, if we fail to make any future option payment to RSM required under the terms of
the Supply Agreement, we may be required to return the Improved GOS IP to RSM. The terms of the Supply Agreement, as amended,
require us to pay RSM $400,000 within 10 days following FDA approval of a new drug application for the first product owned or
controlled by us using Improved GOS as its active pharmaceutical ingredient and to pay RSM the sum of $250 per kilo for clinical
supply of Improved GOS.
Commercialization
Given
our stage of development, we have not yet established a commercial organization or distribution capabilities. RP-G28, if approved,
is intended to be prescribed to patients suffering from lactose intolerance. These patients are normally under the care of a gastroenterologist
and/or a primary care physician. Our current plan is to evaluate a possible partnership to commercialize RP-G28 for the reduction
of symptoms associated with lactose intolerance in patients in the United States and Europe if it is approved. We may also build
our own commercial infrastructure or utilize contract reimbursement specialists, sales people and medical education specialists,
and take other steps to establish the necessary commercial infrastructure at such time as we believe that RP-G28 is approaching
marketing approval. Outside of the United States and Europe, subject to obtaining necessary marketing approvals, we will likely
seek to commercialize RP-G28 through distribution or other collaboration arrangements for patients suffering from lactose intolerance.
Competition
The
biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we know of no drug candidate,
other than RP-G28, in advanced clinical trials for treating lactose intolerance, other biopharmaceutical companies may be able
to develop compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational
pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research
institutions. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome-based development
companies such as Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix, Inc. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large,
established companies. We will also compete with providers of a wide variety of lactase supplements (the most widely used supplement
in the United States being Lactaid
®
), probiotic/dietary supplements, and lactose-free and dairy-free products.
We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy,
safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
Intellectual
Property
The
proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important
to our business. We have sought patent protection in the United States and internationally for uses of RP-G28 and our discovery
programs, and any other inventions to which we have rights, where available and when appropriate. Our policy is to pursue, maintain
and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions
and improvements that are commercially important to the development of our business. We also rely on trade secrets that may be
important to the development of our business. We do not have composition of matter patent protection in the United States for
RP-G28, which may result in competitors being able to offer and sell products so long as these competitors do not infringe any
other patents that we hold, including patents directed to methods of manufacturing and purified RP-G28 or directed to methods
of using RP-G28.
Patents
and Proprietary Rights Covering Our Drug Candidates
We
strive to protect our product candidates and exclusivity rights, as well as both maintain and fortify our position in the field
of reduction of symptoms associated with lactose intolerance. We believe our intellectual property portfolio consists of early
and broad filings in the area. We have focused on patents and patent applications relating to use of our products in disease treatment.
We have sought and continue to seek the strongest possible intellectual property protection available to us in order to prevent
others from directly competing with us, as well as to exclude competition around our products, their manufacture, and methods
for use of the products in disease treatment. Our intellectual property portfolio related to RP-G28 contains four issued patents
relating to RP-G28 and its uses. That portfolio also includes at least 15 other related, pending patent applications in the United
States and worldwide. We also own a patent family
,
including claims generally directed to processes for producing
an improved form of GOS mixtures (higher purity); this family includes issued patents in United States (not expiring until 2030),
Italy (not expiring until 2029), and China
,
Germany, and the Netherlands (not expiring until 2030), as well as applications
pending in the United States, Japan, India, and other jurisdictions that, if issued, will not expire until 2030.
This
portfolio includes patents and proprietary rights related to:
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U.S.
Patent No. 8,486,668, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for treating lactose intolerance comprising administering, for a predetermined number of days, a high purity GOS pharmaceutical
composition, and wherein the administration leads to a persistent decrease in at least one symptom of lactose intolerance;
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U.S.
Patent No. 8,492,124, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for treating lactose intolerance comprising administering, for a predetermined number of days, a controlled release pharmaceutical
composition that contains GOS, but does not contain a probiotic;
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U.S.
Patent No. 8,785,160, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for treating lactose intolerance comprising administering a hydrogen breath test, diagnosing lactose intolerance based upon
the hydrogen breath test, and administering a high purity GOS pharmaceutical composition;
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U.S.
Patent No. 9,200,303, which has a current expiry date of August 6, 2030 (subject to the payment of maintenance fee), includes
claims generally directed to the processes for producing ultra-pure GOS pharmaceutical compositions by utilizing sequential
microbiological purifications;
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U.S.
Patent No. 9,370,532, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for preventing or reducing diarrhea associated with lactose intolerance, and methods for the reduction of severity of diarrhea
associated with lactose intolerance, comprising administering a high purity GOS having 1-10% by weight pentasaccharides and
at least a 45% by weight trisaccharides.
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United
Kingdom Patent No. GB2480042, which has a current expiry date of February 16, 2030, includes claims generally directed to
a solid oral unit-dosage form of a high purity GOS;
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European
Patent No. EP 2,462,234, validated in six European countries, including Germany, Great Britain, and France, which has a current
expiry date of August 6, 2030 (subject to payment of annuities), includes claims generally directed to the processes for producing
preparing ultra-pure GOS pharmaceutical compositions by utilizing sequential microbiological purifications;
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Italian
Patent No. IT 1,395,068, which has a current expiry date of August 7, 2029 (subject to the payment of annuities), includes
claims generally directed to the production of ultra-pure GOS pharmaceutical compositions by utilizing sequential microbiological
purifications; and
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Chinese
Patent No. ZL 201080035013.2, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes
claims generally directed to the production of ultra-pure GOS pharmaceutical compositions by utilizing sequential microbiological
purifications.
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We
are pursuing patent applications. These applications are pending in the United States, Europe, Japan and other jurisdictions,
and, if they issue as patents, will not expire until at least 2030, and include claims generally directed to (i) oral dosage forms
of a higher purity GOS, (ii) use of GOS for treating lactose intolerance, and (iii) methods of preventing or reducing certain
symptoms of lactose intolerance using GOS dosage forms. For example, we have paid issue fees (and expect patents to issue in due
course) in two United States patent applications: one includes claims directed to an oral dosage forms comprising a prebiotic
composition comprising 95% or more GOS by weight and less than 5% digestible saccharides by weight, in which the GOS comprises
at least 45% by weight trisaccharides, and the other includes claims directed to oral dosage forms of GOS, comprising 0.1 to 10
g of a liquid GOS composition encapsulated in a gelatin capsule, in which the GOS composition comprises at least about 95% GOS
by weight, less than about 5% digestible saccharides by weight, and at least 45% by weight trisaccharides.
Trade
Secrets
In
addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and
know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and
invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These
agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of
our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of
our information technology systems.
Government
Regulation and Product Approval
Governmental
authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other
things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing
and export and import of products such as those we are developing. Our product candidates must be approved by the FDA through
the NDA process before they may be legally marketed in the United States and by the European Medicines Agency (the “EMA”)
through the Marketing Authorization Application (“MAA”) process before they may be legally marketed in Europe. Our
product candidates will be subject to similar requirements in other countries prior to marketing in those countries. The process
of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and financial resources.
United
States Government Regulation
NDA
Approval Processes
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and implementing
regulations. Failure to comply with the applicable U.S. requirements at any time during the product development process or approval
process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material
adverse effect on us. These sanctions could include:
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refusal
to approve pending applications;
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withdrawal
of an approval;
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imposition
of a clinical hold;
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warning
letters;
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product
seizures and/or condemnation and destruction;
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total
or partial suspension of production or distribution; or
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injunctions,
fines, disgorgement, or civil or criminal penalties.
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The
process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion
of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices (“GLPs”)
or other applicable regulations;
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submission
to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance
of adequate and well-controlled human clinical trials according to Good Clinical Practices (“GCPs”), to establish
the safety and efficacy of the proposed drug for its intended use;
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submission
to the FDA of a NDA;
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satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with current Good Manufacturing Practices (“cGMPs”) to assure that the facilities, methods and controls are adequate
to preserve the drug’s identity, strength, quality and purity; and
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FDA
review and approval of the NDA.
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Once
a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical
tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor
must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part
of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the
nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial,
the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself
to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within
the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one
or more specific studies or all studies conducted under the IND.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must
be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion
criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the
IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must
timely report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected
adverse reaction over that listed in the protocol or investigation brochure, or any findings from other studies or animal or in
vitro testing that suggest a significant risk in humans exposed to the drug. An institutional review board, or IRB, at each institution
participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution
and must also approve the information regarding the trial and the consent form that must be provided to each research subject
or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase
1
. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially
when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often
conducted in patients.
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Phase
2
. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage. Although there are no statutory or regulatory definitions for Phase 2a and Phase 2b, Phase 2a is commonly
used to describe a Phase 2 clinical trial designed to evaluate efficacy, adverse effects and safety risks and Phase 2b is
commonly used to describe a subsequent Phase 2 clinical trial that also evaluates dosage tolerance and optimal dosage.
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Phase
3
. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population
at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of
the product and provide an adequate basis for product labeling.
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Adaptive
seamless phase 2b/3 designs, such as the Phase 2b/3 pivotal clinical trial for RP-G28 that we recently completed enrolling and
dosing in October 2016, are aimed at interweaving the two phases of full development by combining them into one single, uninterrupted
study conducted in two steps. Adaptive seamless phase 2b/3 designs enable a clinical trial to be conducted in steps with the sample
size calculation selected on the basis of data observed in the first step to continue along to the second step. The main statistical
challenge in such a design is ensuring control of the type I error rate. Most methodology for such trials is based on the same
endpoint being used for interim and final analyses. A type I error is one in which the adaptation process leads to design, analysis,
or conduct flaws that introduce bias that increases the chance of a false conclusion that a treatment is effective (a type I error).
Controlling a type I error can be accomplished by prospectively specifying and including in the statistical analysis plan all
possible adaptation plans that may be considered during the course of the trial. We have worked with our CRO to determine how
best to control type I error in our Phase 2b/3 study.
Human
clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or
the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects
or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the
drug has been associated with unexpected serious harm to patients.
During
the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior
to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. For
instance, we held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February 20,
2013. The purpose of the meeting was to obtain the FDA’s feedback on the planned clinical development program and future
necessary clinical studies, inform the FDA of our ongoing development plans, gain feedback on relevant clinical trial design and
end points related to patient meaningful benefits, and to inform the FDA of the status of our product characterization. Following
analysis of the Phase 2a clinical trial, discussions with the FDA during the Type C Meeting in early 2013 about our clinical development
plan, and further discussions with our regulatory consultants, we initiated an adaptive design Phase 2b/3 clinical trial of RPG-28
in March 2016 and completed final enrollment and dosing in October 2016. As part of this process, we submitted a supplement to
the IND detailing the protocols for the adaptive study.
We
have had subsequent communications with FDA regarding our clinical program and regulatory path towards getting our product adequately
studied and eventually approved. We intend to hold two meetings with the FDA in the near future about our Phase 2b/3 study, including
a Type C meeting as well as an End of Phase 2 meeting, both of which the FDA has encouraged us to schedule. These meetings and
communications are typical for development stage companies and include the clinical pathway, regulatory requirements, statistical
plan and endpoints and similar matters.
FDA
meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide
advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical
results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new
drug.
Concurrent
with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about
the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product
in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the
drug and the manufacturer must develop methods for testing the quality, purity and potency of the drug. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not
undergo unacceptable deterioration over its proposed shelf-life.
The
results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part
of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver
of such fees may be obtained under specified circumstances. The FDA has 60 days from its receipt of an NDA to determine whether
the application will be accepted for filing based on the agency’s threshold determination of whether it is sufficiently
complete to permit substantive review. It may request additional information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the
FDA accepts it for filing.
Once
the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug
representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may
refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data.
Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA
reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its
manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee,
but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where
the product is manufactured and tested.
Patent
Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the
time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an
NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the
application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply
for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration
date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Market
exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not accept for review an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA submitted
by another company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, an application may be submitted after four years if it contains a certification of patent
invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement
to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the
applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages
or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations
and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity
will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct
or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Pediatric
Exclusivity and Pediatric Use
Under
the Best Pharmaceuticals for Children Act (“BPCA”), certain drugs may obtain an additional six months of exclusivity,
if the sponsor submits information requested in writing by the FDA (a Written Request) relating to the use of the active moiety
of the drug in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it
determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may
not produce health benefits in that population.
We
have not received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request for such
studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from
the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement,
in accordance with commonly accepted scientific principles, and submit reports of the studies. A Written Request may include studies
for indications that are not currently in the labeling if the FDA determines that such information will benefit the public health.
The FDA will accept the reports upon its determination that the studies were conducted in accordance with and are responsive to
the original Written Request or commonly accepted scientific principles, as appropriate, and that the reports comply with the
FDA’s filing requirements.
In
addition, the Pediatric Research Equity Act (“PREA”) requires all applications (or supplements to an application)
submitted under section 505 of the FDCA (21 U.S.C. §355) for a new active ingredient, new indication, new dosage form, new
dosing regimen or new route of administration to contain a pediatric assessment unless the applicant has obtained a waiver or
deferral. It also authorizes the FDA to require holders of approved NDAs for marketed drugs to conduct pediatric studies under
certain circumstances. In general, PREA applies only to those drugs developed for diseases and/or conditions that occur in both
the adult and pediatric populations. Products intended for pediatric-specific indications will be subject to the requirements
of PREA only if they are initially developed for a subset of the relevant pediatric population.
As
part of the Food and Drug Administration Safety and Innovation Act, Congress reauthorized both BPCA and PREA, which were slated
to expire on September 30, 2012, and made both laws permanent.
Orphan
Drugs
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition,
defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of
developing and making available the drug or biologic in the United States will be recovered from sales in the United States for
that drug or biologic.
If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for
the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA
may not approve any other applications, including a full NDA, to market the same product for the same indication for seven years,
except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the
FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same
drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for
certain research and a waiver of the NDA application user fee.
A
designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. Orphan drug exclusive marketing rights in the United States also may be lost if the
FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition.
We
intend to explore orphan drug designation for RP-G28 for any orphan indication in which there is a medically plausible basis for
treatment of the indication through colonic adaptation of gut bacteria.
Post-approval
Requirements
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions
on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review
and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that
have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including,
among other things:
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compliance
with current good manufacturing practices;
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record-keeping
requirements;
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reporting
of adverse experiences with the drug;
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providing
the FDA with updated safety and efficacy information;
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drug
sampling and distribution requirements;
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notifying
the FDA and gaining its approval of specified manufacturing or labeling changes; and
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complying
with FDA promotion and advertising requirements.
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Drug
manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some
state agencies for compliance with cGMP and other laws.
We
rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products.
Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt
production or distribution, or require substantial resources to correct.
From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions
governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance
are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible
to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact
of such changes, if any, may be.
Regulation
Outside of the United States
In
addition to regulations in the United States, we will be subject to regulations of other countries governing clinical trials and
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval
by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such
countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market
products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required
for FDA approval.
Under
European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized
procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended
to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides
for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization
may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report,
each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization,
the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Reimbursement
Sales
of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors,
such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly
challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become
a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state
legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and
cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could
further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared
to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level of
payment may not be sufficient to allow us to sell our products on a profitable basis.
The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”) imposed new requirements for the
distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in
prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans
include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage
plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required
to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will
cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category
and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part
D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of
the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated
prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain.
Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage
policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result
in a similar reduction in payments from non-governmental payors.
The
American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different
treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the
Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research
and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended
to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the
sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also
possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect
the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other
available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not
be sufficient to allow us to sell our products on a profitable basis.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “ACA”), enacted in March 2010, is a sweeping law intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health
policy reforms. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry
rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program.
Although it is too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical
pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition,
some members of the U.S. Congress have been seeking to repeal in full or amend portions of the legislation and we expect they
will continue to review and assess this legislation and alternative health care reform proposals. Ongoing Congressional efforts
to repeal or amend the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.
In
addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options
for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product
or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product
on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical
products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched
in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Employees
As
of the date of this Annual Report, we have seven employees, all of whom are full time employees. None of our employees are represented
by a labor union, and we consider our relationship with our employees to be good.
Available
Information
We
file with the Securities and Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections
13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may obtain these filings at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains
a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding Ritter
Pharmaceuticals, Inc. and other companies that file materials with the SEC electronically. As soon as practicable after filing
with the SEC, we make copies of our reports on Form 10-K, Forms 10-Q and Forms 8-K available to the public, free of charge, through
the investor relations tab on our web site,
http://www.ritterpharmaceuticals.com/investors
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Item
1A. Risk Factors
We
operate in a dynamic and rapidly changing business environment that involves multiple risks and substantial uncertainty. The following
discussion addresses risks and uncertainties that could cause, or contribute to causing, actual results to differ from expectations
in material ways. In evaluating our business, investors should pay particular attention to the risks and uncertainties described
below and in other sections of this Annual Report and in our subsequent filings with the SEC. These risks and uncertainties, or
other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations,
cash flows and financial condition. The trading price of our common stock could also decline due to any of these risks, and you
could lose all or part of your investment. The following information should be read in conjunction with Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes
included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report.
Risks
Relating to Our Financial Position and Need for Additional Capital
We
have incurred net losses in each year since our inception. Currently, we have no products approved for commercial sale. As a result,
our ability to reduce our losses and reach profitability is unknown, and we may never achieve or sustain profitability.
We
have incurred net losses in each year since our inception. The accompanying financial statements have been prepared assuming that
we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities
in the normal course of business. For the years ended December 31, 2016 and 2015, we had net losses of approximately $18.4 million
and $8.8 million, respectively, and had net cash used in operating activities of approximately $15.2 million and $5.7 million,
respectively. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’
equity and working capital.
To
date, we have devoted most of our financial resources to our corporate overhead and research and development, including our drug
discovery research, preclinical development activities and clinical trials. We currently have no products that are approved for
commercial sale. We expect to continue to incur net losses and negative operating cash flow for the foreseeable future, and we
expect these losses to increase as we continue our development of, and seek regulatory approvals for, RP-G28, and other product
candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support
our product development efforts and operations as a public company. We anticipate that any such losses could be significant for
the next several years as we complete our Phase 2b/3 and begin any Phase 3 clinical trials for RP-G28 for the reduction of symptoms
associated with lactose intolerance and related activities required for regulatory approval of RP-G28. If RP-G28 does not gain
regulatory approval, or does not achieve market acceptance, we may never become profitable, unless we are able to develop and
market some other product. These net losses and negative cash flows have had, and will continue to have, an adverse effect on
our stockholders’ equity and working capital.
Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses
could increase if we are required by the FDA or the EMA, to perform studies or trials in addition to those currently expected,
or if there are any delays in completing our clinical trials or the development of RP-G28, or any other product candidate we may
develop in the future. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and
our ability to generate revenues.
We
will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available,
may require us to delay, limit, reduce or cease our operations.
Developing
pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. As of December 31, 2016,
we have a total of approximately $7.0 million in cash.
On
June 29, 2015, we closed our initial public offering of 4,000,000 shares of common stock at a public offering price of $5.00 per
share. Total gross proceeds from our initial public offering were $20.0 million before deducting underwriting discounts and commissions
and other offering expenses payable by us, resulting in net proceeds of $17.4 million.
On
December 18, 2015, we entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire
Capital Fund, LLC (“Aspire Capital”), which provides that, upon the terms and subject to the conditions and limitations
set forth therein, Aspire Capital is committed to purchase up to an aggregate of $10.0 million of our shares of common stock over
the approximately 30-month term of the Aspire Purchase Agreement. As of the date of this Annual Report, we have sold 1,577,699
shares of common stock to Aspire Capital for proceeds of $3.0 million.
On
October 31, 2016, we closed a public offering of 2,127,660 shares of our common stock at a price to the public of $2.35 per share,
for net proceeds of approximately $4.4 million, after deducting underwriting discounts and commissions and offering expenses payable
by us in the offering.
We
expect our existing cash and cash equivalents, together with interest, and any proceeds received from our sale of shares of common
stock to Aspire Capital in the future pursuant to the Aspire Purchase Agreement, will be sufficient to fund our current operations
through 2017. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources
sooner than we currently expect. For example, our clinical trials may encounter technical, enrollment or other difficulties that
could increase our development costs more than we expect.
We
do not expect our existing capital resources will be sufficient to enable us to complete the commercialization of RP-G28, if approved,
or to initiate any clinical trials or additional development work for other product candidates, other than as described above.
We will need to secure additional financing in order to complete clinical development and commercialize RP-G28 and to generally
fund our operations. To complete the work necessary to file a NDA and a MAA for RP-G28 as a treatment for patients with lactose
intolerance, which is currently anticipated to occur in 2019, we estimate that our RP-G28 clinical trials, and our planned clinical
and nonclinical studies, as well as other work needed to submit RP-G28 for regulatory approval in the United States, Europe and
other countries, will cost approximately $85 million, including the internal resources needed to manage the program. If the FDA
or EMA requires that we perform additional nonclinical studies or clinical trials, our expenses would further increase beyond
what we currently expect and the anticipated timing of any potential NDA or MAA would likely be delayed.
If
we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or
development programs. We also could be required to seek funds through arrangements with collaborative partners or otherwise that
may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable
to us.
The
extent to which we utilize the Aspire Purchase Agreement with Aspire Capital as a source of funding will depend on a number of
factors, including the prevailing market price of our common stock, the volume of trading in our common stock and the extent to
which we are able to secure funds from other sources. The number of shares that we may sell to Aspire Capital under the Aspire
Purchase Agreement on any given day and during the term of the agreement is limited. Additionally, we and Aspire Capital may not
effect any sales of shares of our common stock under the Aspire Purchase Agreement during the continuance of an event of default
or on any trading day that the closing sale price of our common stock is less than $0.50 per share. Even if we are able to access
the full $10 million under the Aspire Purchase Agreement, we will still need additional capital to fully implement our business,
operating and development plans.
We
may sell additional equity or debt securities to fund our operations, which would result in dilution to our stockholders and imposed
restrictions on our business.
We
may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding,
commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Additional funding may not be available to us on acceptable terms or at all. To the extent that we raise additional funds by issuing
equity securities (including any common stock issued to Aspire Capital pursuant to the Aspire Purchase Agreement), our stockholders
may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability
to conduct business. If we are not able to raise additional capital when required or on acceptable terms, we may have to (i) significantly
delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators
for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise
be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would
otherwise seek to develop or commercialize. In addition, the terms of any financing may adversely affect the holdings or the rights
of our stockholders and the issuance of additional shares by us, or the possibility of such issuance, may cause the market price
of our shares to decline.
Our
financial condition and operating results have varied significantly since our formation and are expected to continue to fluctuate
significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control.
Our
operations since 2010 have been limited to developing our technology and undertaking preclinical studies and clinical trials of
our lead product candidate, RP-G28. We have not yet obtained regulatory approvals for RP-G28, or any other product candidate.
Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had approved
products on the market. Our financial condition and operating results have varied significantly since our formation and are expected
to continue to significantly fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are
beyond our control. Factors relating to our business that may contribute to these fluctuations include:
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any
delays in regulatory review and approval of our product candidates in clinical development, including our ability to receive
approval from the FDA and the EMA for RP-G28 based on our Phase 2b/3 and any Phase 3 trials of RP-G28, and our other completed
and planned clinical and nonclinical studies and other work, as the basis for review and approval of RP-G28;
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delays
in the commencement, enrollment and timing of clinical trials;
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difficulties
in identifying and treating patients suffering from our target indications;
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the
success of our clinical trials through all phases of clinical development, including our Phase 2b/3 and any Phase 3 trials
of RP-G28;
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potential
side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the
market;
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our
ability to obtain additional funding to develop our product candidates;
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our
ability to identify and develop additional product candidates;
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market
acceptance of our product candidates;
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our
ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties;
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competition
from existing products or new products that may emerge;
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the
ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
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our
ability to adhere to clinical study requirements directly or with third parties such as CROs;
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our
dependency on third-party manufacturers to manufacture our products and key ingredients;
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our
ability to establish or maintain collaborations, licensing or other arrangements;
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the
costs to us, and our ability and our third-party collaborators’ ability to obtain, maintain and protect our intellectual
property rights;
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costs
related to and outcomes of potential intellectual property litigation;
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our
ability to adequately support future growth;
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our
ability to attract and retain key personnel to manage our business effectively; and
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potential
product liability claims.
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Accordingly,
the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
Risks
Relating to Regulatory Review and Approval of Our Product Candidates
We
are substantially dependent on the success of RP-G28.
We
currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. We currently
invest nearly all of our efforts and financial resources in the research and development of RP-G28, which is currently our only
product candidate. Our business currently depends entirely on the successful development and commercialization of RP-G28.
We
cannot be certain that RP-G28 will receive regulatory approval, and without regulatory approval we will not be able to market
RP-G28 as a prescription drug.
The
development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the
FDA in the United States, the EMA in Europe, and regulatory authorities in other countries, with regulations differing from country
to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of
a NDA from the FDA or a MAA from the EMA, respectively. We have not submitted any marketing applications for RP-G28.
NDAs
and MAAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s
safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry,
manufacturing and controls for the product. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process,
and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval
is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing.
We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators of other jurisdictions,
such as the EMA, have their own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA,
as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product
labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities
in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must
comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country
does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections
of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory
requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different
interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of
new information regarding our product candidates or other products. Also, regulatory approval for any product candidates may be
withdrawn.
We
have completed one Phase 2a trial and an adaptive design Phase 2b/3 clinical trial for RP-G28. Before we submit a NDA to the FDA
or a MAA to the EMA for RP-G28 for the treatment of pain and the reduction in the frequency of symptomatic episodes of lactose
intolerance, we must successfully complete a Phase 2b/3 trial and Phase 3 trials. Following analysis of the Phase 2a clinical
trial, discussions with the FDA during the Type C meeting in 2013 about our clinical development plan, and further discussions
with our regulatory consultants, we initiated an adaptive design Phase 2b/3 clinical trial of RPG-28 in March 2016. A trial that
is designed as an adaptive seamless clinical trial refers to a trial that combines the objectives of what are typically separate
trials into a single uninterrupted trial with multiple objectives.
Regulatory
authorities in the United States and Europe have both published guidance documents on the use and implementation of adaptive design
trials. These documents include description of adaptive trials and include a requirement for prospectively written standard operating
procedures and working processes for executing adaptive trials and a recommendation that sponsor companies engage with CROs that
have the necessary experience in running such trials. In addition, the regulations governing INDs are extensive and involve numerous
notification requirements including that, generally, an IND supplement must be submitted to and cleared by the FDA before a sponsor
or an investigator may make any change to the investigational plan that may affect its scientific soundness or the rights, safety
or welfare of human subjects. We intend to comply with these requirements. We submitted an IND supplement containing amended protocols
for the Phase 2b/3 adaptive trial, and have had subsequent communications with FDA regarding our clinical program and regulatory
path towards getting our product adequately studied and eventually approved. We intend to hold two meetings with the FDA in the
near future about our Phase 2b/3 study, including a Type C meeting as well as an End of Phase 2 meeting, both of which the FDA
has encouraged us to schedule. These meetings and communications are typical for development stage companies and include the clinical
pathway, regulatory requirements, statistical plan and endpoints and similar matters. There can be no assurance that this trial
and other trials will not be delayed or disrupted as a result of our current development plan.
In
addition, guidelines adopted by the FDA and established by the International Conference on Harmonization of Technical Requirements
for Registration of Pharmaceuticals for Human Use (ICH) require nonclinical studies that specifically address female fertility
to be completed before the inclusion of women of child bearing potential in large-scale or long-duration clinical trials (e.g.,
Phase 3 trials). In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using
precautions to prevent pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue
to evaluate females of child-bearing potential who are willing to use appropriate contraception throughout the duration of any
study. We cannot predict whether our future trials and studies will be successful or whether regulators will agree with our conclusions
regarding the preclinical studies and clinical trials we have conducted to date.
If
we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for RP-G28, or if, subsequent to approval,
we are unable to successfully commercialize RP-G28, we will not be able to generate sufficient revenue to become profitable or
to continue our operations.
Any
statements in this document indicating that RP-G28 has demonstrated preliminary evidence of efficacy are our own and are not based
on the FDA’s or any other comparable governmental agency’s assessment of RP-G28 and do not indicate that RP-G28 will
achieve favorable efficacy results in any later stage trials or that the FDA or any comparable agency will ultimately determine
that RP-G28 is effective for purposes of granting marketing approval.
The
FDA and other regulatory agencies outside the United States, such as the EMA, may not agree to our proposed endpoint for approval
of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients, in which case we would need to complete
an additional clinical trial in order to seek approval outside the United States.
During
our Type C Meeting with the FDA in February 2013, we had proposed that future studies with RP-G28 in subjects with lactose intolerance
would utilize a total lactose intolerance symptom score, measured by a patient reporting instrument that we were going to develop,
as the primary, stand-alone endpoint. However, based on RP-G28’s mechanism of action, data from the Phase 2a clinical study,
further research conducted after the Type C Meeting with the FDA along with FDA guidance and products under the review of the
Division of Gastroenterology and Inborn Errors Products, we used abdominal pain, measured by the Patient Assessment of Adequate
Relief Item instrument administered monthly, as the primary endpoint for the Phase 2b/Phase 3 study that assessed RP-G28 for the
management of lactose intolerant patients with moderate to severe abdominal pain associated with lactose intake. We believe that
evaluation of abdominal pain is a reliable clinical assessment of treatment response and treatment benefit in a lactose intolerant
patient. Although no FDA-approved product exists for lactose intolerance, the use of a pain scale as a primary endpoint has been
used as a validated primary measurement in many approved products, including other gastrointestinal products used to treat diseases
such as Irritable Bowel Syndrome (IBS). We did not consult with the FDA about our intent to use abdominal pain as a primary endpoint.
We also did not discuss the Phase 2b/3 study design and development plan with the FDA before initiating the study in March 2016,
though we did submit a supplement to the IND detailing the protocols for the adaptive study. We intend to hold two meetings with
the FDA in the near future about our Phase 2b/3 study, including a Type C meeting as well as an End of Phase 2 meeting, both of
which the FDA has encouraged us to schedule.
We
do not know if the FDA, the EMA or regulatory authorities in other countries will agree with our final primary endpoint for approval
of RP-G28. The FDA, the EMA and regulatory authorities in other countries in which we may seek approval for and market RP-G28,
may require additional nonclinical studies and/or clinical trials prior to granting approval. It may be expensive and time consuming
to conduct and complete additional nonclinical studies and clinical trials that the EMA and other regulatory authorities may require
us to perform. As such, any requirement by the EMA or other regulatory authorities that we conduct additional nonclinical studies
or clinical trials could materially and adversely affect our business, financial condition and results of operations. Furthermore,
even if we receive regulatory approval of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients,
the labeling for RP-G28 in the United States, Europe or other countries in which we seek approval may include limitations that
could impact the commercial success of RP-G28.
The
results from our planned Phase 2b/3 trial with adaptive design may not be sufficiently robust to support the submission of marketing
approval for RP-G28.
We
conducted our Phase 2b clinical trial as an adaptive design seamless Phase 2b/3 clinical trial. We did not meet with the FDA to
discuss the Phase 2b/3 study design or the development plan for RP-G28 before initiating the Phase 2b/3 study in march 2016. The
FDA standard for traditional approval of a drug generally requires two well-controlled Phase 3 studies. If the FDA disagrees with
our choice of primary endpoint for our Phase 2b/3 trial or the results for the primary endpoint are not robust or significant
relative to control, are subject to confounding factors, or are not adequately supported by other study endpoints, the FDA may
not recognize the Phase 2b/3 trial as one of the required pivotal trials required for FDA approval. If the FDA or other regulatory
authorities do not recognize this trial as a pivotal trial, we would incur increased costs and delays in the marketing approval
process, which would require us to expend more resources than we have available.
Delays
in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our
ability to obtain regulatory approval for RP-G28 or our other product candidates we may develop in the future.
Delays
in the commencement, enrollment and completion of clinical trials could increase our product development costs or limit the regulatory
approval of RP-G28 or other product candidates we may develop in the future. Although we believe that our existing cash and cash
equivalents, together with interest, and any proceeds received from our sale of shares of common stock to Aspire Capital in the
future pursuant to the pursuant to the Aspire Purchase Agreement should be sufficient to fund our projected operating requirements
through the completion of the Phase 2b/3 and the design of any Phase 3 trials of RP-G28, we may not be able to complete these
trials on time or we may be required to conduct additional clinical trials or nonclinical studies not currently planned to receive
approval for RP-G28 as a treatment for lactose intolerance. The commencement, enrollment and completion of clinical trials may
be delayed or suspended for a variety of reasons, including:
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inability
to obtain sufficient funds required for a clinical trial;
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inability
to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
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clinical
holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval
to commence a clinical trial in countries that require such approvals;
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discussions
with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials;
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inability
to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial
programs, including some that may be for the same indications targeted by our product candidates;
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inability
to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;
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severe
or unexpected drug-related adverse effects experienced by patients;
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inability
to timely manufacture sufficient quantities of the product candidate required for a clinical trial;
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difficulty
recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment
criteria for our study and competition from other clinical trial programs for the same indications as our product candidates;
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inability
to get FDA approval of our end points; and
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inability
to retain enrolled patients after a clinical trial is underway.
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Changes
in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols to reflect these changes
with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a clinical trial. In addition, a clinical trial may be suspended
or terminated at any time by us, our future collaborators, the FDA or other regulatory authorities due to a number of factors,
including:
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our
failure or the failure of our potential future collaborators to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols;
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unforeseen
safety issues or any determination that a clinical trial presents unacceptable health risks;
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lack
of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
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a
breach of the terms of any agreement with, or for any other reason by, future collaborators who have responsibility for the
clinical development of our product candidates.
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In
addition, if we or any of our potential future collaborators are required to conduct additional clinical trials or other nonclinical
studies of our product candidates beyond those contemplated, our ability to obtain regulatory approval of these product candidates
and to generate revenue from their sales would be similarly harmed.
Clinical
failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive
of future results and any product candidate we or our potential future collaborators advance through clinical trials may not have
favorable results in later clinical trials or receive regulatory approval.
Clinical
failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and
we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies.
In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret
our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early
clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide
adequate data to demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry,
including those with greater resources and experience than us, have suffered significant setbacks in Phase 2b and/or Phase 3 clinical
trials, including adaptive seamless clinical trials even after seeing promising results in earlier clinical trials.
In
addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the
design of a clinical trial may not become apparent until the clinical trial is well-advanced. We may be unable to design and execute
a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical
or feasible to continue development efforts.
If
RP-G28, or any of the other product candidates that we may develop in the future, is found to be unsafe or lack efficacy, we will
not be able to obtain regulatory approval for it and our business would be harmed. For example, if the results of our Phase 2b/3
and any Phase 3 trials of RP-G28 do not achieve the primary efficacy endpoints or demonstrate expected safety, the prospects for
approval of RP-G28 would be materially and adversely affected.
In
some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations,
adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not
know whether any Phase 2, Phase 3 or other clinical trials we or any of our potential future collaborators may conduct will demonstrate
the consistent or adequate efficacy and safety that would be required to obtain regulatory approval and market RP-G28. Our adaptive
Phase 2b/3 clinical trial for RP-G28 may not be deemed to be a pivotal trial by the FDA or may not provide sufficient support
for NDA approval. The FDA may require us to make changes to the proposed study design for this adaptive trial or may require us
to conduct one or more additional clinical trials, possibly involving a larger sample size or a different clinical trial design,
or may require longer follow-up periods, particularly if the FDA does not find the results from our adaptive Phase 2b/3 clinical
trial to be sufficiently persuasive as one of the required pivotal trials required for FDA approval. If we are unable to bring
RP-G28 to market, our ability to create long-term stockholder value will be limited.
Our
product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received,
require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Unforeseen
side effects from RP-G28, or other product candidates we may develop in the future, could arise either during clinical development
or, if approved, after the approved product has been marketed. The most common side effects observed in clinical trials of RP-G28
were headache (nine out of 57), nausea (three out of 57), upper respiratory tract infection (two of 57), nasal congestion (two
of 57), and pain (two out of 57). No patients were withdrawn from our Phase 2b/3 clinical trial for these side effects.
Any
undesirable or unacceptable side effects associated with our product candidates could interrupt, delay or halt clinical trials,
and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.
In
addition:
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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we
may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or
change the labeling of the product;
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we
may be subject to limitations on how we may promote the product;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from
generating significant revenues from the sale of our products.
Reimbursement
decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement
for our products, it is less likely that they will be widely used.
Market
acceptance and sales of RP-G28, or any other product candidates we may develop in the future, if approved, will depend on reimbursement
policies and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party
payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish
payment levels. We cannot be certain that reimbursement will be available for RP-G28 or any other product candidates that we may
develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products.
If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize RP-G28,
or other product candidates that we develop.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), changed
the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare
coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that
will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices
for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely
be lower than the prices we might otherwise obtain in the United States. Moreover, while the MMA applies only to drug benefits
for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own
payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental
payors.
The
United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy
makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States,
the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. We expect to experience pricing pressures in connection with the sale of RP-G28, and any other product candidates
that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and
additional legislative proposals.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “ACA”), enacted in March 2010, is a sweeping law intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health
policy reforms. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry
rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program.
Although it is too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical
pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition,
some members of the U.S. Congress have been seeking to repeal in full or amend portions of the legislation and we expect they
will continue to review and assess this legislation and alternative health care reform proposals. Ongoing Congressional efforts
to repeal or amend the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.
If
we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent
terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for a limited
Patent Term Extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (which is sometimes referred to
as the “Hatch-Waxman Act”), provided our U.S. patent claims a method of treating lactose intolerance that is approved
by the FDA. The Hatch-Waxman Act, 35 U.S.C. §156, permits a patent extension of up to five years as compensation for patent
term lost during the FDA regulatory review process. The scope of protection afforded by the patent during the extended term is
not commensurate with the scope of the unextended portion of the patent; for example, the “rights derived” from a
method of use patent during the extended period are “limited to any use claimed by the patent and approved for the product.”
35 U.S.C. §156(b)(2). We may not be granted an extension because of, for example, failing to apply for the extension within
applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable statutory
and/or regulatory requirements including, for example, the requirement that the patent to be extended “claim” the
approved product or a method of using the approved product. Moreover, the applicable period of extension could be less than we
request. If we are unable to obtain patent term extension or if the term of any such extension is shorter than we request, the
period during which we will be able to exclude others from marketing their versions of our product will be shortened and our competitors
may obtain approval of generic products following our patent expiration, and our revenue could be reduced, possibly materially.
Similar concerns are associated with obtaining Supplemental Protection Certificates (SPCs) of certain patents issued in Europe
and owned by Inalco, to which we have an exclusive options of assignment, based upon patent terms lost during European regulatory
review processes. In the event that we are unable to obtain any patent term extension, the issued patents for RP-G28 are expected
to expire in 2030, assuming they withstand any challenge toothier validity and/or patentability.
If
we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws,
we may be subject to civil or criminal penalties.
In
addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws,
commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices
in the pharmaceutical industry. Other jurisdictions such as Europe have similar laws. These laws include false claims and anti-kickback
statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business
activities could be subject to challenge under one or more of these laws.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare
program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers
on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most
states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to
items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative,
civil and criminal sanctions may be imposed under these federal and state laws.
Over
the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety
of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other
monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement
rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce
liability for Medicaid rebates.
Any
delay or disruption in the manufacture and supply of RP-G28 may negatively impact our operations.
We
do not intend to manufacture the pharmaceutical products that we plan to sell. We have an agreement with RSM, our contract manufacturer,
for the production of Improved GOS, the active pharmaceutical ingredient in RP-G28, and the formulation of sufficient quantities
of Improved GOS for the clinical and nonclinical studies that we believe we will need to conduct prior to seeking regulatory approval
for RPG-28. However, we do not have agreements for commercial supplies of RP-G28 and we may not be able to reach agreements with
these or other contract manufacturers for sufficient supplies to commercialize RP-G28 if it is approved.
Reliance
on third-party manufacturers entails risks, to which we would not be subject if we manufactured the product candidates ourselves,
including:
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the
possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our product candidates;
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the
possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and
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the
possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified
replacement third-party manufacturer.
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Any
of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur higher costs
or prevent us from commercializing our product candidates successfully. Furthermore, if RP-G28 or other product candidates are
approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and
at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially
equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand
for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for
our product candidates and to have any such new source approved by the government agencies that regulate our products. In the
event we do need to identify alternative manufacturing partners, we may have to secure licenses to manufacturing and/or purification
technologies, including third-party patent licenses, to allow us to manufacture RP-G28 that is suitable for the late-stage regulatory
review process and/or adequate to manufacture commercial quantities of RP-G28.
If
the FDA and EMA and other regulatory agencies do not approve the manufacturing facilities of our future contract manufacturers
for commercial production, we may not be able to commercialize any of our product candidates.
The
facilities used by any contract manufacturer to manufacture RP-G28, or other product candidates we may develop in the future,
must be the subject of a satisfactory inspection before the FDA or the regulators in other jurisdictions approve the product candidate
manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements
of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture
material that conform to our specifications and current good manufacturing practice requirements of any governmental agency whose
jurisdiction to which we are subject, our product candidates will not be approved or, if already approved, may be subject to recalls.
Even
if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.
RP-G28
and any other product candidates we develop in the future, if approved, will be subject to ongoing regulatory requirements for
labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information.
In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and
EMA requirements and requirements of other similar agencies, including ensuring that quality control and manufacturing procedures
conform to current cGMPs. As such, we and our contract manufacturers are subject to continual review and periodic inspections
to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in
all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report
certain adverse reactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply with certain
requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs
are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s
approved label. Accordingly, we may not promote our approved products, if any, for indications or uses for which they are not
approved.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market.
If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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issue
warning letters;
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mandate
modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require
us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include imposition
of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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impose
other administrative or judicial civil or criminal penalties;
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withdraw
regulatory approval;
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refuse
to approve pending applications or supplements to approved applications filed by us or our potential future collaborators;
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impose
restrictions on operations, including costly new manufacturing requirements; or
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detain,
seize and/or condemn and destroy products.
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Risks
Relating to the Commercialization of Our Products
Even
if approved, our product candidates may not achieve broad market acceptance among physicians, patients and healthcare payors,
and as a result our revenues generated from their sales may be limited.
The
commercial success of RP-G28, if approved, will depend upon its acceptance among the medical community, including physicians,
health care payors and patients. The degree of market acceptance of RP-G28, or other product candidates we may develop in the
future, will depend on a number of factors, including:
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limitations
or warnings contained in our product candidates’ FDA-approved labeling;
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changes
in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for
such product candidates;
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limitations
in the approved clinical indications for such product candidates;
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demonstrated
clinical safety and efficacy compared to other products;
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lack
of significant adverse side effects;
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sales,
marketing and distribution support;
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availability
of reimbursement from managed care plans and other third-party payors;
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timing
of market introduction and perceived effectiveness of competitive products;
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the
degree of cost-effectiveness;
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availability
of alternative therapies at similar or lower cost, including generics and over-the-counter products;
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enforcement
by the FDA and EMA of laws and rulings that prohibit the illegal sale of RP-G28 (or any other product candidate) as a dietary
supplement;
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the
extent to which our product candidates are approved for inclusion on formularies of hospitals and managed care organizations;
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whether
our product candidates are designated under physician treatment guidelines for the treatment of or reduction of symptoms associated
with the indications for which we have received regulatory approval;
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adverse
publicity about our product candidates or favorable publicity about competitive products;
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convenience
and ease of administration of our product candidates; and
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potential
product liability claims.
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If
our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients, the medical community
and healthcare payors, sufficient revenue may not be generated from these products and we may not become or remain profitable.
In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require
significant resources and may never be successful.
We
have no internal sales, distribution and/or marketing capabilities at this time and we will have to invest significant resources
to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.
We
have no internal sales, distribution and/or marketing capabilities at this time. To develop these capabilities, we will have to
invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that
RP-G28 will be approved. For product candidates for which we decide to perform sales, marketing and distribution functions ourselves
or through third parties, we could face a number of additional risks, including:
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we
or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;
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the
cost of securing or establishing a marketing or sales force may exceed the revenues generated by any products; and
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our
direct sales and marketing efforts may not be successful.
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We
may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues
may depend heavily on the success of the efforts of these third parties.
We
may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely
affect our ability to develop RP-G28 or other product candidates and our financial condition and operating results.
Because
developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities
and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more experience.
Additionally, if RP-G28, or any other product candidate we develop in the future, receives marketing approval, we may enter into
sales and marketing arrangements with third parties with respect to our unlicensed territories. If we are unable to enter into
arrangements on acceptable terms, we may be unable to effectively market and sell our products in our target markets. We expect
to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming
to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts
to establish and implement collaborations or other alternative arrangements for the development of our product candidates.
When
we collaborate with a third party for the development and commercialization of a product candidate, we can expect to relinquish
some or all of the control over the future success of that product candidate to the third party. For example, we may relinquish
the rights to RP-G28 in jurisdictions outside of the United States. Our collaboration partner may not devote sufficient resources
to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration
or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful
in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical
and initial clinical development of a product candidate or research program under a collaboration arrangement, and the payment
we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach
agreements with suitable collaborators for our product candidates, we would face increased costs, we may be forced to limit the
number of our product candidates we can commercially develop or the territories in which we commercialize them and we might fail
to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successful collaborations,
our operating results and financial condition will be materially and adversely affected.
Risks
Relating to Our Business and Strategy
We
may face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to
compete effectively.
Although
we know of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid and significant technological change. We have potential competitors
in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology
companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of these
potential competitors have greater financial and other resources, such as larger research and development staff and more experienced
marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical
testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have
significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading
companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and
development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete.
As a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval
or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome based development
companies: Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix Inc. In addition, many
universities and private and public research institutes may become active in our target disease areas. These potential competitors
may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective
or less costly than RP-G28 or any other product candidates that we are currently developing or that we may develop, which could
render our products obsolete and noncompetitive.
We
believe that our ability to successfully compete will depend on, among other things:
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the
results of our and our potential strategic collaborators’ clinical trials and preclinical studies;
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our
ability to recruit and enroll patients for our clinical trials;
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the
efficacy, safety and reliability of our product candidates;
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the
speed at which we develop our product candidates;
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our
ability to design and successfully execute appropriate clinical trials;
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our
ability to maintain a good relationship with regulatory authorities;
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the
ability to get FDA approval of our end points;
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the
timing and scope of regulatory approvals, if any;
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our
ability to commercialize and market any of our product candidates that receive regulatory approval;
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the
price of our products;
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adequate
levels of reimbursement under private and governmental health insurance plans, including Medicare;
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our
ability to protect intellectual property rights related to our products;
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our
ability to manufacture and sell commercial quantities of any approved products to the market; and
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acceptance
of our product candidates by physicians and other health care providers.
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If
our competitors market products that are more effective, safer or less expensive than ours, or that reach the market sooner than
ours, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological
change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes
in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological
advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive
or not economical.
We
depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively
as if we performed these functions ourselves.
We
outsource substantial portions of our operations to third-party service providers, including the conduct of preclinical studies
and clinical trials, collection and analysis of data, and manufacturing. Our agreements with third-party service providers and
CROs are on a study-by-study and project-by-project basis. Typically, we may terminate the agreements with notice and are responsible
for the supplier’s previously incurred costs. In addition, any CRO that we retain will be subject to the FDA’s and
EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over
compliance with these regulations by these providers. Consequently, if these providers do not adhere to applicable governing practices
and standards, the development and commercialization of our product candidates could be delayed or stopped, which could severely
harm our business and financial condition.
Because
we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing
these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner
or may fail to perform at all. Although we have not experienced any significant difficulties with our third-party contractors,
it is possible that we could experience difficulties in the future. In addition, the use of third-party service providers requires
us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
There are a limited number of third-party service providers that specialize or have the expertise required to achieve our business
objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming
and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources
we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully
manage the performance of third-party service providers in the future, our business may be adversely affected, and we may be subject
to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.
We
may enter into agreements with other third parties for the development and commercialization of RP-G28, or other product candidates
we develop in the future, in international markets. International business relationships subject us to additional risks that may
materially adversely affect our ability to attain or sustain profitable operations, including:
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differing
regulatory requirements for drug approvals internationally;
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potentially
reduced protection for intellectual property rights;
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potential
third-party patent rights in the United States and/or in countries outside of the United States;
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the
potential for so-called “parallel importing,” which is what occurs when a local seller, faced with relatively
high local prices, opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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economic
weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several
countries in Europe;
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compliance
with tax, employment, immigration and labor laws for employees traveling abroad;
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taxes
in other countries;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident
to doing business in another country;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business
interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes,
volcanoes, typhoons, floods, hurricanes and fires.
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We
will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As
we increase the number of ongoing product development programs and advance our product candidates through preclinical studies
and clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these
programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities.
Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively
manage our operations, growth and various projects requires that we:
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successfully
attract and recruit new employees or consultants with the expertise and experience we will require;
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manage
our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop
a marketing and sales infrastructure; and
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continue
to improve our operational, financial and management controls, reporting systems and procedures.
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If
we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
We
may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We
may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the
intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are
not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints
that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our
ability to implement our business strategy.
We
are highly dependent on the development, regulatory, commercialization and business development expertise of Michael D. Step,
our Chief Executive Officer, Andrew J. Ritter, our Founder and President, and Ira E. Ritter, our Executive Chairman and Chief
Strategic Officer. If we were to lose one or more of these key employees, our ability to implement our business strategy successfully
could be seriously harmed. Any of our executive officers may terminate their employment at any time. Replacing any of these persons
would be difficult and could take an extended period of time because of the limited number of individuals in our industry with
the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
There
is also a risk that other obligations could distract our officers and employees from our business, which could have negative impact
on our ability to effectuate our business plans.
In
addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and
clinical strategies. Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors
are not our employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their
availability to us, and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between
their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements
with other companies to assist those companies in developing products or technologies that may compete with ours.
If
we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately
report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and,
as a result, the value of our common stock.
The
Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), requires, among other things, that we maintain
effective internal controls for financial reporting and disclosure controls and procedures. Commencing with this Annual Report,
we are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness
of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified
by our management in our internal control over financial reporting. A material weakness is a control deficiency, or combination
of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that
a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section
404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on
the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company,
as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with
the independent registered public accounting firm’s requirement to attest to the effectiveness of our internal controls
over financial reporting.
Our
compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts.
We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation
and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will
be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not
be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure
to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition,
results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective,
or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our
internal control over financial reporting once that firm begin its Section 404 reviews, we could lose investor confidence in the
accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject
to sanctions or investigations by the NASDAQ stock market, the SEC, or other regulatory authorities. Failure to remedy any material
weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required
of public companies, could also restrict our future access to the capital markets.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to
reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated
and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control
system, misstatements or insufficient disclosure due to error or fraud may occur and not be detected.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements
and insider trading, which could significantly harm our business.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply
with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately
or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry
are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive
practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper
use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our
reputation. We have adopted an employee handbook, but it is not always possible to identify and deter employee misconduct, and
the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or
losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with
these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines
or other sanctions.
We
face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability
for a product candidate and may have to limit its commercialization.
The
use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose
us to the risk of product liability claims. Product liability claims may be brought against us or our potential future collaborators
by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our
products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial programs;
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costs
of related litigation;
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substantial
monetary awards to patients or other claimants;
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decreased
demand for our product candidates and loss of revenues;
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impairment
of our business reputation;
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diversion
of management and scientific resources from our business operations; and
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the
inability to commercialize our product candidates.
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We
have product liability insurance coverage for our Phase 2b/3 clinical trials in the United States and in selected other jurisdictions
where we intend to conduct clinical trials at levels we believe are sufficient and consistent with industry standards for companies
at our stage of development. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for
any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we
may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due
to product liability. We intend to expand our insurance coverage for products to include the sale of commercial products if we
obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product
liability insurance for any products approved for marketing. Large judgments have been awarded in class action lawsuits based
on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly
if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business.
Our
insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured
liabilities.
We
do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain
include general liability ($2.0 million coverage), employment practices liability, workers’ compensation, and directors’
and officers’ insurance at levels we believe are typical for a company in our industry and at our stage of development.
We currently carry clinical trial liability insurance for our Phase 2b/3 clinical trials at levels we believe are sufficient and
consistent with industry standards for companies at our stage of development. We do not know, however, if we will be able to maintain
insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which
would adversely affect our financial position and results of operations.
If
we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect
our business operations or our stockholders.
From
time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further
the expansion and development of our business. These initiatives may include acquiring businesses, technologies or products or
entering into a business combination with another company. If we pursue such a strategy, we could, among other things:
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issue
equity securities that would dilute our current stockholders’ percentage ownership;
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incur
substantial debt that may place strains on our operations;
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spend
substantial operational, financial and management resources to integrate new businesses, technologies and products;
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assume
substantial actual or contingent liabilities;
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reprioritize
our development programs and even cease development and commercialization of our product candidates; or
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merge
with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or
shares of the other company on terms that certain of our stockholders may not deem desirable.
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Although
we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have no agreements
or understandings with respect to any acquisition, reorganization or business combination at this time.
Risks
Relating to Our Intellectual Property
It
is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position
does not adequately protect our product candidates, others could compete against us more directly, which would harm our business,
possibly materially.
Our
commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving
and enforcing current trade secret protection. In particular, it will depend in part on our ability to obtain, maintain and enforce
patents, especially those related to methods of using our current product, RP-G28, and other future drug candidates, and those
related to the methods used to develop and manufacture our products, as well as successfully defending these patents against third-party
challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends
on the extent to which we have rights under valid and enforceable patents (and/or trade secrets) that cover these activities.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted
to us in the future will withstand subsequent challenges to their validity and or patentability, or if they will be commercially
useful in protecting our product candidates, discovery programs and processes. Furthermore, we cannot be sure that our existing
patents and patent applications will embrace (or “claim”) the particular uses for RP-G28 that will be approved by
FDA.
The
patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved.
No
consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged,
to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they
substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of claims that will issue or will be enforceable
in the patents that have or may be issued from the patents and applications we currently own or may in the future own or license
from third parties. Further, if any patents we obtain, or to which we obtain licenses, are deemed invalid, unpatentable and unenforceable,
our ability to commercialize or license our technology could be adversely affected.
In
the future others may file patent applications covering products, uses for products, and manufacturing techniques and related
technologies that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent
application owned by a third party will not have priority over patent applications filed or in-licensed by us in the future, or
that we or our licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings before
U.S. or non-U.S. patent offices or courts.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others
may be able to develop a platform similar to, or better than, ours in a way that is not covered by the claims of our patents;
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others
may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;
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others
may be able to manufacture compounds that are similar or identical to our product candidates using processes that are not
covered by the claims of our method of making patents;
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others
may obtain regulatory approval for uses of compounds, similar or identical to our product, that are not covered by the claims
of our method of use patents;
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we
may not be able to obtain licenses for patents that are essential to the process of making the product;
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we
might not have been the first to make the inventions covered by our pending patent applications;
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we
might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies;
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any
patents that we obtain may not provide us with any competitive advantages;
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we
may not develop additional proprietary technologies that are patentable; or
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the
patents of others may have an adverse effect on our business.
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Patents
covering methods of using RP-G28 expire in 2030 if the appropriate maintenance fee renewal, annuity, or other government fees
are paid, unless a patent term extension based on regulatory delay is obtained. We expect that expiration in 2030 of some of our
method-of-use patents covering use of RP-G28 for treating lactose intolerance will have a limited impact on our ability to protect
our intellectual property in the United States, where we have additional issued patents covering this use that extend until 2030.
In other countries, our pending patent applications covering use of RP-G28 for treating other indications, if issued, would expire
in 2030. We will attempt to mitigate the effect of patent expiration by seeking data exclusivity, or the foreign equivalent thereof,
in conjunction with product approval, as well as by filing additional patent applications covering improvements in our intellectual
property.
We
expect that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity
or other governmental fees are paid, would expire in 2030. We own pending applications in the United States and Europe covering
RP-G28 analogs, and uses of such analogs as therapeutics to treat a variety of disorders, including lactose intolerance. Patent
protection, to the extent it issues, would be expected to extend to 2030, unless a patent term extension based on regulatory delay
is obtained.
Due
to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not
obtain patent coverage for all of our product candidates or methods involving these candidates in the parent patent application.
We plan to pursue divisional patent applications or continuation patent applications in the United States and other countries
to obtain claim coverage for inventions which were disclosed but not claimed in the parent patent application.
We
may also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate
or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets,
our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes
less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
RP-G28
does not have composition of matter patent protection.
Although
we own certain patents and patent applications with claims directed to specific methods of using RP-G28 to treat lactose intolerance,
RP-G28 has no composition of matter patent protection in the United States or elsewhere. As a result, we may be limited in our
ability to list our patents in the FDA’s Orange Book if the use of our product, consistent with its FDA-approved label,
would not fall within the scope of our patent claims. Also, our competitors may be able to offer and sell products so long as
these competitors do not infringe any other patents that we (or third parties) hold, including patents with claims directed to
the manufacture of RP-G28 and/or method of use patents. In general, method of use patents are more difficult to enforce than composition
of matter patents because, for example, of the risks that FDA may approve alternative uses of the subject compounds not covered
by the method of use patents, and others may engage in off-label sale or use of the subject compounds. Physicians are permitted
to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions
may infringe our method of use patents, the practice is common across medical specialties and such infringement is difficult to
prevent or prosecute. FDA approval of uses that are not covered by our patents would limit our ability to generate revenue from
the sale of RP-G28, if approved for commercial sale. Off-label sales would limit our ability to generate revenue from the sale
of RP-G28, if approved for commercial sale.
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 may seek a post grant review (including inter parte review) of our patents, and 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 and administrative proceedings
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. In addition, there is a risk that the court or administrative body
will decide that such patents are not valid or unpatentable 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/patentability 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. In
addition, the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have recently articulated and/or modified certain
tests used by the U.S. Patent and Trademark Office (the “USPTO”), in assessing patentability and by the courts in
assessing validity and claim scope, which may decrease the likelihood that we will be able to obtain patents and increase the
likelihood that others may succeed in challenging any patents we obtain or license.
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. We cannot guarantee
that our products, our methods of manufacture, or our uses of RP-G28 (or our other product candidates), will not infringe third-party
patents. Furthermore, a third party may claim that we or our manufacturing or commercialization collaborators 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. These lawsuits are costly and could affect our results of operations and divert
the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization
collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered
by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need
to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators
to pay the other party damages for having violated the other party’s patents. In the future, we may agree to indemnify our
commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical
and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including
us, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation
by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, the patentee would need to
demonstrate, by a preponderance of the evidence that our products or methods infringe the patent claims of the relevant patent,
and we would need to demonstrate either that we do not infringe or, by clear and convincing evidence, that the patent claims are
invalid; we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if
we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing
these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of
others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity
of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions
to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend
an infringement action successfully or have infringed patents declared invalid, 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.
We
cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we
were the first to invent the technology, because:
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some
patent applications in the United States may be maintained in secrecy until the patents are issued;
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patent
applications in the United States are typically not published until at least 18 months after the earliest asserted priority
date; and
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publications
in the scientific literature often lag behind actual discoveries.
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Our
competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent
application may have priority over our patent applications, which could further require us to obtain rights to issued patents
covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to
participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs
of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the
other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our
U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications,
and may be entitled to priority over our applications in such jurisdictions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and/or applications. We employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S.
patent agencies and this outside firm has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S.
governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions
during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases,
an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However,
there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting
in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to
enter the market and this circumstance would have a material adverse effect on our business.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees,
or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation
could result in substantial costs and be a distraction to management.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees,
consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other
proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently
considering whether to make additional information publicly available on a routine basis, including information that we may consider
to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies
may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
Failure
to secure trademark registrations could adversely affect our business.
We
have not developed a trademark for our RP-G28 product. Hence, we do not currently own any actual or potential trademark rights
associated with our RP-G28 product. If we seek to register additional trademarks, including trademarks associated with our RP-G28
product, our trademark applications may not be allowed for registration or our registered trademarks may not be maintained or
enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond
to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many
other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such
proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against
third parties than we otherwise would.
Risks
Relating to Our Common Stock
An
active trading market for our common stock may not develop or be sustained.
Prior
to our initial public offering, there was no public market for our common stock. Since our initial public offering in June 2015,
there has been, and we expect that there will continue to be, only a limited volume of trading in our common stock. An active
trading market in our common stock may not develop or, if developed, may not be sustained. The lack of an active market may impair
your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital
to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using
our shares as consideration.
Our
share price may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell
your shares at or above your purchase price.
The
market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this
section, and others beyond our control, including:
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results
of our clinical trials;
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results
of clinical trials of our competitors’ products;
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regulatory
actions with respect to our products or our competitors’ products;
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actual
or anticipated fluctuations in our financial condition and operating results;
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actual
or anticipated changes in our growth rate relative to our competitors;
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actual
or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;
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competition
from existing products or new products that may emerge;
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announcements
by us, our potential future collaborators or our competitors of significant acquisitions, strategic collaborations, joint
ventures, or capital commitments;
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issuance
of new or updated research or reports by securities analysts;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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share
price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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additions
or departures of key management or scientific personnel;
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disputes
or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our technologies;
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announcement
or expectation of additional financing efforts;
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sales
of our common stock by us, our insiders or our other stockholders;
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market
conditions for biopharmaceutical stocks in general; and
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general
economic and market conditions.
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Furthermore,
the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market
prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market
conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market
price of shares of our common stock. In addition, such fluctuations could subject us to securities class action litigation, which
could result in substantial costs and divert our management’s attention from other business concerns, which could seriously
harm our business.
Our
executive officers, directors and principal stockholders maintain the ability to exert substantial influence over all matters
submitted to stockholders for approval.
Our
executive officers, directors and principal stockholders beneficially own shares representing approximately 28.6% of our outstanding
capital stock. As a result, if these stockholders were to choose to act together, they would be able to exert substantial influence
over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons,
if they choose to act together, would exert substantial influence over the election of directors and approval of any merger, consolidation
or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of
our Company on terms that other stockholders may desire.
We
are an “emerging growth company” and avail ourselves of reduced disclosure requirements applicable to emerging growth
companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely
on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may be more volatile.
We
may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain
an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary
of the date we completed our initial public offering, which was June 29, 2015, (b) in which we have total annual gross revenue
of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common
stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30
th
, and (ii) the date on which
we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Future
sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline,
even if our business is doing well.
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could occur in the future. These
sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could
reduce the market price of our common stock. We had 11,619,197 outstanding shares of common stock as of December 31, 2016. Of
the shares outstanding, a total of 8,144,018 shares may be resold in the public market at any time and the remaining 3,475,179
shares are currently restricted under securities laws.
In
connection with the Aspire Capital financing transaction, we registered and issued 1,577,699 shares of our common stock to Aspire
Capital under the Aspire Purchase Agreement. We have registered an additional 3,000,000 shares of common stock that we may issue
to Aspire Capital in the future under the terms of the Aspire Purchase Agreement. The number of shares ultimately offered for
sale by Aspire Capital is dependent upon the number of shares we elect to sell to Aspire Capital under the Aspire Purchase Agreement.
Aspire Capital may sell all, some or none of our shares that it holds or comes to hold under the Aspire Purchase Agreement. The
sale of a substantial number of shares of our common stock by Aspire Capital, or anticipation of such sales, could cause the trading
price of our common stock to decline or make it more difficult for us to sell equity or equity-related securities in the future
at a time and at a price that we might otherwise desire. However, we have the right under the Aspire Purchase Agreement to control
the timing and amount of sales of our shares to Aspire Capital, and the Aspire Purchase Agreement may be terminated by us at any
time at our discretion without any penalty or cost to us.
We
have also registered 2,565,284 shares of common stock that have been or may be issued under our equity compensation plans. These
shares may be sold in the public market subject to any vesting conditions.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
share price and trading volume could decline.
The
trading market for our common stock will depend on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide
favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our
share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Our
failure to meet the continued listing requirements of NASDAQ could result in a de-listing of our common stock.
If
we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum
closing bid price requirement, NASDAQ may take steps to de-list our common stock. Such a de-listing would likely have a negative
effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do
so. In the event of a de-listing, we would take actions to restore our compliance with NASDAQ’s listing requirements, but
we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid
price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent
a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions
in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition,
because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate
or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders
to replace members of our board of directors. Among other things, these provisions provide that:
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the
authorized number of directors can be changed only by resolution of our board of directors;
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our
bylaws may be amended or repealed by our board of directors or our stockholders;
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stockholders
may not call special meetings of the stockholders or fill vacancies on the board of directors;
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our
board of directors is authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined
at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the
stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
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our
stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common
stock outstanding will be able to elect all of our directors; and
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our
stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder
meeting.
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Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law (the “DGCL”), which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging
or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15%
of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against
us and may reduce the amount of money available to us.
As
permitted by Section 102(b)(7) of the DGCL, our amended and restated certificate of incorporation limits the liability of our
directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our amended and restated
certificate of incorporation and our amended and restated bylaws provide that we shall indemnify, to the fullest extent authorized
by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer
of our company or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. Our amended and restated certificate of incorporation provides that the
right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition,
provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director
or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification.
If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification,
except in the case of a claim for an advancement of expenses, in which case such period is 20 days, our restated certificate of
incorporation and our restated bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense
to such action.
Section
145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted
in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful.
In a derivative action, (
i.e.
, one brought by or on behalf of the corporation), indemnification may be provided only for
expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action
or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to
be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine
that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
The
rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized
to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify
such persons. We have entered into indemnification agreements with each of our officers and directors.
The
above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers
for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us.
Although we plan to increase the coverage under our directors’ and officers’ liability insurance, certain liabilities
or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts
may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations,
which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to
bring a claim against our company.
We
have never paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future, and accordingly,
stockholders must rely on stock appreciation for any return on their investment.
We
have never paid dividends on our common stock and we do not anticipate paying dividends on our common stock for the foreseeable
future. Accordingly, any return on an investment in our common stock will be realized, if at all, only when stockholders sell
their shares. In addition, our failure to pay dividends may make our stock less attractive to investors, adversely impacting trading
volume and price.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As
of December 31, 2016, we had federal net operating loss carryforwards, or NOLs, of approximately $26.7 million which begin to
expire in 2028. Our ability to utilize our NOLs may be limited under Section 382 and 383 of the Internal Revenue Code. The limitations
apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders
increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period
(typically three years). Although we have not undergone a Section 382 analysis, it is possible that the utilization of the NOLs,
could be substantially limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against
future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes.
Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.