Item 1. Business
Overview
We are
a clinical stage biotechnology company advancing two innovative platform programs: a new class of oral therapeutics for the
treatment of hepatitis B virus (HBV) infection and novel class of oral synthetic live biotherapeutics, which are designed to
restore health to a dysbiotic microbiome. The company’s HBV-cure program is aimed at increasing the current low cure
rate for patients with HBV and is pursuing multiple drug candidates that inhibit multiple steps of the HBV lifecycle.
Assembly has discovered several novel core protein Allosteric Modulators (CpAMs), which are small molecules that directly
target and allosterically modulate the HBV core (HBc) protein. The lead product candidate from this program, ABI-H0731 has
completed a Phase 1a human clinical trial, with the Phase 1b/2a portion of the clinical trial expected to commence in the
second quarter of 2017. The company’s Microbiome program consists of a fully integrated platform that includes a
disease targeted strain identification and selection process, methods for strain isolation and growth under current Good
Manufacturing Practice, or cGMP, conditions, and a patent pending delivery system, that we call GEMICEL
®
,
which allows for targeted oral delivery of live biologic and conventional therapies to the lower gastrointestinal, or GI
tract. The lead product candidate from this platform, ABI-M101, is in development for the treatment of
clostridium
difficile
infections (CDI). Using its microbiome platform, the company is developing additional product candidates.
Business Strategy
Assembly is currently focused on enhancing the health and well-being of patients with hard-to-treat infectious
diseases, such as chronic HBV and illnesses associated with a dysbiotic microbiome. This commitment drives our efforts to forge
a new and differentiated path to treating these conditions, inspired by the needs of millions of affected patients. We are pursuing
a portfolio of novel CpAMs with potential to substantially increase the cure rates of treated HBV patients and a novel class of
oral synthetic live biotherapeutics designed to correct or repair a dysbiotic microbiome. Both of these conditions include substantial
numbers of patients for whom current therapies may successfully suppress disease, but offer only low rates of cure. We intend to
progress our HBV-cure and Microbiome programs using a variety of strategic arrangements, which may include collaborations, licenses,
partnerships and other types of business arrangements. In January 2017, we entered into a Research, Development, Collaboration
and License Agreement (the “Collaboration Agreement”) with Allergan Pharmaceuticals International Limited (“Allergan”)
to develop and commercialize select microbiome gastrointestinal disease therapies.
Pursuant to the terms of the Collaboration Agreement, in connection with the closing of the transaction on February 10, 2017, we
received from Allergan an upfront payment of $50 million. Additionally, we are eligible to receive up to approximately $630 million
in development milestone payments and up to approximately $2.15 billion in commercial milestone payments contingent upon the successful
development and commercialization of licensed compounds for up to six different indications. We are also eligible to receive tiered
royalties at rates ranging from the mid-single digits to the mid-teens based on net sales.
HBV-Cure Program
The goal of our HBV-cure program is to substantially increase clinical cure rates for those chronically infected
with HBV, a pathogen that infects approximately 240 million people worldwide and is associated with an estimated 680,000 deaths
each year. Our HBV-cure research team is working on discovering and developing multiple CpAMs with the potential to inhibit the
functional activities of the HBV core protein (HBc), at multiple points in the viral lifecycle.
HBc is involved in
several steps of the HBV lifecycle and is essential for HBV’s continued regeneration and prolonged survival. Modulation
of HBc with Assembly’s CpAMs has demonstrated preclinical proof of principle. In multiple cell-based models, CpAMs have
been observed to selectively reduce viral load, which is the amount of infectious viral particles released from infected cells,
and generation of closed circular covalent DNA (cccDNA), a special DNA moiety that resides in the cell nucleus of HBV-infected
cells and is associated with viral persistence and chronic infection. The goal is to eradicate the infection with an orally-administered
regimen. We believe that Assembly is well positioned to execute on this strategy, with a scientific team that has over 30 years
of combined experience working on treatments for HBV.
Background
Hepatitis B virus (HBV) is a chronic infectious disease of the liver. It is a leading global cause of
chronic liver disease and liver transplants. The World Health Organization estimates that nearly 240 million people worldwide,
or approximately 6% of the world’s population, are infected with HBV. An estimated 680,000 people die annually from HBV-related
liver disease. The Centers for Disease Control and Prevention (CDC) has reported that an estimated two million people in the United
States have been infected with HBV, and the World Health Organization has reported that approximately 90 million people in China
have chronic HBV. HBV is a global epidemic infecting more people than hepatitis C virus and HIV infections combined. A relatively
small proportion of HBV patients currently receive treatment. Further, less than 10% of treated patients exhibit sustained response
off therapy and the clinical cure rate is estimated to be only 3 to 5%. Despite the low rate of treatment and clinical cure, the
current worldwide market for HBV therapies is estimated to be $3.2 billion. If new therapies can improve cure rates, we believe
the market could grow substantially due to an increase in the number of HBV patients expected to seek the new therapies.
Current Treatments
Current therapeutic options for HBV include:
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Direct Acting Antiviral medications (Nucelos(t)ide analogs).
Several antiviral medications - including lamivudine (Epivir
®
),
adefovir (Hepsera
®
), telbivudine (Tyzeka
®
), tenofovir disoproxil fumarate and entecavir (Baraclude
®
) - effectively reduce circulating virus levels by inhibiting reverse transcription. Chronic therapy
with these agents can result in reduced liver inflammation and fibrosis. Unfortunately, these are rarely curative, even after
years of therapy, and viral replication resumes when therapy is stopped.
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Pegylated Interferon alfa (PegIFN-α).
This synthetic version of a substance produced by the body to fight infection is used mainly for young people with hepatitis B who do not want to undergo long-term treatment or who might want to become pregnant within a few years. It is administered by injection. Cure rates are low and side effects may be severe, including flu-like symptoms and depression.
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Our HBV Focus: Leveraging HBV Core
Protein to Achieve a Clinical Cure using Core Protein Allosteric Modulators (CpAMs)
HBV is a DNA-virus that establishes a reservoir of cccDNA in the nucleus of infected cells that sustains
infection in the liver. No current oral therapies target cccDNA activity directly, and thus molecules that can modulate cccDNA
are highly sought in the HBV field. A key focus of our HBV-cure effort is targeting the HBc, a highly conserved viral structural
protein that has no human homologue and is involved in numerous aspects of the HBV lifecycle, including the generation of the viral
cccDNA. Assembly has discovered multiple novel series of CpAMs, which are small molecules that directly target and allosterically
modulate HBc functions. Our HBV pipeline therefore offers the potential for both first in class and best in class opportunities
for developing agents that target at least two of the three critical steps involved in the cccDNA viral lifecycle. We believe that
our approach of targeting viral cccDNA generation through inhibition of HBc functions provides a promising foundation for substantially
improving clinical cure rates for HBV.
A
well accepted benchmark for therapeutic agents aiming to decrease cccDNA levels is the use of several key viral antigens as surrogate
markers in primary human hepatocyte cells and patients. On this basis, our CpAMs have shown preclinical proof of principle. In
a variety of cell culture models, CpAMs have demonstrated the ability to reduce production of viral HBV DNA levels and known surrogate
markers for cccDNA - HBV E antigen (HBeAg) and HBV S antigen (HBsAg)
and pre-genomic RNA (pgRNA).
Sustained decreases in levels of HBsAg is considered a strong predictor of functional cure in patients and is a key marker for
clinical development.
Our clinical
strategy encompasses testing CpAMs as a monotherapy, as required by regulatory agencies, to demonstrate their antiviral
activity. Thereafter, all subsequent clinical trials in patients are anticipated to be in combination with other classes of
HBV therapies. We have completed nonclinical studies on our lead HBV product candidate, ABI-H0731, and initiated a combined
Phase 1a/1b trial in November 2016. In February 2017, we completed the Phase 1a dose ranging portion of the trial, in which
we assessed the safety, tolerability and pharmacokinetics of ABI-H0731 at trial sites in New Zealand in 48 healthy
volunteers. In the clinical trial, single ascending doses between 100-1,000 mg per day were evaluated and both 800 mg once
daily as well as 800 mg twice daily were evaluated in 7 day multiple dose cohorts. ABI-H0731 was reported to be well
tolerated at all doses. No serious adverse events, no clinically significant adverse events, no withdrawals due to adverse
events nor clinically significant changes in vital signs or ECG findings were observed. Treatment emergent laboratory
abnormalities were transient, minor and/or deemed not clinically significant. Treatment related adverse events deemed by the
clinical investigator to be possibly or probably related to the study drug included rash and headache, which were reported to
be mild and transient and only observed at the highest doses. ABI-H0731 was observed to be well absorbed and associated with
plasma concentrations that we believe will be sufficient to suppress viral replication and cccDNA generation. We believe that
pharmacokinetic data from the Phase 1a portion of the trial exhibits dose-dependent increases in plasma exposure levels and a
half-life supporting the potential for once daily dosing. We intend to report the results of the Phase 1a portion of the
trial at a scientific conference later in 2017. We plan to amend the trial protocol in order to characterize the next portion
of the trial as a Phase 1b/2a clinical trial, and initiate that portion of the trial at sites outside the United States in the
second quarter of 2017. We expect that the Phase 1b/2a portion of the trial will assess the safety, tolerability and
pharmacokinetics, as well as preliminary antiviral efficacy, of ABI-H0731 in patients with chronic HBV infection and will
evaluate ABI-H0731 as monotherapy and in combination with other approved therapies during 28 days of dosing. We expect
longer-term Phase 2 clinical trials to initiate in 2018, which will assess the impact of combination regimens with other
classes of therapy on antiviral activity, surrogate markers of cccDNA and potential cure rates.
Our CpAM program
provides opportunities to create a pipeline encompassing multiple generations of antiviral drugs. We plan to select an additional
product candidate for development in the second half of 2017 and to advance additional CpAMs into clinical development in 2018.
We also have research programs assessing other novel targets for HBV that are complementary to our programs focusing on core protein.
Our current intention is to focus our development and, if approved, commercialization efforts for our
HBV program outside of the United States.
License Agreement and Intellectual
Property
On September 3, 2013,
we entered into an exclusive license agreement (the “IURTC License Agreement”) with Indiana University Research and
Technology Corporation (“IURTC”) to acquire the rights to develop and commercialize products associated with multiple
patent applications covering aspects of our HBV program held by IURTC. The licensed intellectual property includes platform patent
applications covering aspects of HBc, our novel mechanisms of action, methods of treatment and the novel drug development assays
our team is creating. As part of this agreement, we are obligated to make milestone payments based upon the successful accomplishment
of clinical and regulatory milestones. The aggregate amount of all performance milestone payments under the IURTC License Agreement,
should all performance milestones through development be met, is $825,000. As of December 31, 2016, no performance milestone payments
have been made. The Company anticipates that the first performance milestone payment will be made to IURTC in 2017. Under the IURTC
License Agreement, we are also obligated to pay IURTC royalty payments based on net sales of the licensed technology ranging from
0.5% to 1.75%.
In addition, the IURTC
License Agreement requires an annual diligence maintenance fee as follows:
2014
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$
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25,000
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2015
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$
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50,000
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2016 through the year in which first commercial sale occurs
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$
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75,000
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Year following first commercial sale and all subsequent years
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$
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100,000
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Milestone payments received by IURTC in
2017 will be fully creditable against the 2017 diligence maintenance fee.
Under the IURTC License Agreement, we also may grant sublicenses to third parties and receive revenues from
these sublicenses, a portion of which will be paid to IURTC. Pursuant to this agreement, we must provide IURTC with a development
plan, update this plan annually and achieve certain commercial goals. We have also agreed to indemnify IURTC against certain actions
and claims in connection with the agreement or the use of any of the licensed patent rights.
The IURTC License
Agreement may be terminated by us, with or without cause, upon 90 days advance written notice, by IURTC upon our material breach
with 60 days advance written notice or by IURTC, in certain cases, upon our insolvency or bankruptcy immediately upon written notice.
We have one pending
U.S. patent application, and related worldwide patent applications, and one pending PCT patent application, directed to ABI-H0731,
all of which are co-owned with Indiana University and licensed to us. We also have a pending provisional application directed to
formulations of ABI-H0731 which is owned by us. In addition, we have two pending PCT applications, co-owned with Indiana University,
and four provisional patent applications, owned by us, directed to compounds related to ABI-H0731.
Microbiome Program Platform
Background
Our Microbiome program is based on the targeted delivery of novel microbiome-based therapies in a patent pending
oral formulation, called Gemicel
®
, which applies our novel coating and encapsulation technology allowing for
targeted delivery of complex agents to select regions of the gastrointestinal, or GI, tract. Using this proprietary delivery platform,
we aim to deliver selected combinations of monoculture strains of beneficial bacteria in novel “synthetic formats”
to the GI tract. Our first indication is recurrent CDI, and we plan to leverage our microbiome program into multiple other
areas of high relevance to gut microbiome disorders including other infectious disease and GI disorders, indications in oncology,
diabetes, obesity, other metabolic disorders, and central nervous system, or CNS, disorders.
Our approach builds upon experience reported in the literature of successfully treating CDI and other
disease indications with fecal material transplants, or FMT, and seeks to provide a potentially curative therapy using a “drug
like” approach that delivers targeted and specific microbiome therapies in an oral capsule.
In recent
years, there has been increasing scientific evidence suggesting the therapeutic potential of the human microbiome - the
billions of microbes living in and on people - to impact health and disease. The first target indication for our microbiome
program is CDI, the most common nosocomial, or hospital acquired, infection, which has become a significant medical problem
in hospitals and long-term care facilities as it becomes increasingly resistant to common antibiotics. CDI is estimated to
afflict more than 450,000 people each year in the United States alone. It is a serious illness resulting from infection of
the inner lining of the colon by
C. difficile
bacteria, which produce toxins that cause inflammation, severe
diarrhea and, in the most serious cases, death. Certain subpopulations, such as older patients, transplant patients, patients
taking concomitant antibiotics and cancer patients, are at a higher risk of contracting CDI. Patients typically develop CDI
from the use of broad-spectrum antibiotics that disrupt normal gastrointestinal (gut) flora, thus allowing
C.
difficile
bacteria to flourish unchecked and produce toxins. Infection is common because
C. difficile
is a spore-forming bacterium. Spores released into the hospital environment by patients with active disease can survive for
months on dry surfaces in hospital rooms such as beds and doors. It also spreads when spores from other patients are
transmitted on the hands and clothing of healthcare workers.
Current Treatments for CDI
Current therapeutic options
for CDI include fidaxomicin, oral vancomycin and the off-label use of metronidazole. However, approximately 20% of patients initially
treated with these drugs either fail to respond or do not achieve a sustained response. About 50% of initially non-responsive patients
fail to achieve a sustained response from second and third line treatment. Because of the difficulties in achieving a sustained
response to treatment, we estimate that, in the U.S. alone, there are more than 400,000 treatments per year for CDI.
Microbiome Therapies May Represent an
Effective New Treatment Option for CDI
There has been considerable experience reported in the literature of successfully treating CDI with FMT from
healthy individuals. FMT is believed to act by restoring a healthy balance of microbes in the gut. Despite its clinical efficacy,
broad acceptance of FMT has been problematic, in part, because of the possibility of unknown and potentially damaging constituents
in human derived materials. Other options to provide the benefits of FMT in a product form, rather than through FMT procedures,
have been sought. Preliminary CDI studies using selected bacterial strains or bacterial spores from processed FMT have been promising.
These reports have demonstrated a significant and growing precedent of successful cures in patients who had failed all prior treatment,
and provide a path to potentially curative therapy using a targeted and specific microbiome therapy-one that can achieve the therapeutic
benefits of FMT but in a form that is more predictable, safe and drug-like.
Proof-of-concept for
this approach was demonstrated using a preparation of fecal material from normal donors that contained only bacterial spores. In
a U.S. Phase 1b study, a single oral dose of spores administered in multiple capsules produced a 90% sustained response in 30 CDI
patients who had experienced three or more laboratory confirmed CDI episodes in the previous 12 months. In another small study,
a selection of 32 specific viral strains achieved a sustained response in two elderly patients with chronic refractory CDI.
The concept has also been validated in animal studies. Recent publications have demonstrated that administering
a few strains of bacteria may be sufficient to have a curative effect in mouse models of CDI, and one study suggested that a single
strain can be effective. In addition, testable mechanisms of how commensal bacteria may inhibit the growth and persistence of C.
difficile
have been reported or postulated.
Our CDI program is
based on the premise that an oral capsule containing a mix of specific spore and non-spore forming vegetative bacteria grown in
monoculture and manufactured under pharmaceutical-like GMP conditions (in effect a ‘synthetic’ live biologic product),
has the potential to provide the therapeutic benefits of FMT therapy in a form that is economically viable and scalable for use
in first line, as well as in second and third line treatment. In contrast, the commercial and clinical provision of whole or processed
feces would require the provision of, or the purification and/or extraction from, human donor material, and as such is unlikely
to be considered feasible except for a relatively small number of refractory CDI patients who have failed antibiotic treatment
at least three times or who have had two or more episodes of severe CDI.
However, the development
of a ‘synthetic’ live biologic product for the treatment of CDI, while promising, presents several basic challenges.
These challenges include, but are not limited to the selection of effective bacterial strains, effective and reliable oral delivery,
and efficient scale up and manufacture of the selected strains.
We have taken various actions and invested in processes to address these challenges. We believe that our
ongoing bacterial discovery program enhances the probability that we will identify strains with the potential to be effective in
humans. This program involves collaboration with leading academic medical centers with relevant expertise, and includes proprietary
methods of identifying commensal bacteria associated with clinical benefit in CDI patients receiving FMT. The approach includes
bioinformatic assessment of relevant data from resolved patients, and the isolation, culture, and screening of promising strains.
To address the challenge of delivery, we in-licensed a delivery technology we call Gemicel
®
.
Gemicel
®
is a novel coating and encapsulation technology that allows controlled delivery of an oral formulation
specifically designated to achieve targeted pulsed release to selected portions of the GI tract by leveraging differences in their
pH environments.
We have observed that our licensed coating technology, which can be applied at body temperature ranges under
aerobic or anaerobic conditions, is not associated with any loss of a wide range of viable microorganisms. We have also observed
in vitro
that, under conditions commonly accepted as representing conditions in each section of the GI tract lumen, the formulation
can deliver its contents to the targeted sites. In a clinical scintigraphy study of Gemicel in healthy volunteers conducted in
2015, which was sponsored by us, it was observed that Gemicel can release a bolus of therapeutic payload at specific locations
in the lower GI tract, including the ileum and ascending colon, two locations especially relevant for the treatment of
C. difficile
pathogens. The data were generated in three clinical cohorts that used radioisotope-based scintigraphy to precisely image the drug
delivery properties of Gemicel.
The Assembly team
has considerable experience in industrial scale production of bacteria under pharmaceutical GMP requirements, and there are several
commercial scale vendors we have identified to facilitate this activity. However certain bacteria can be very difficult to freeze-dry
(lyophilize) for encapsulation, and some can be very difficult to grow at a large scale. We believe that it is feasible to mitigate
clinical, regulatory and manufacturing risk by carefully selecting strains for clinical development that have shown preliminary
signs of efficacy in our nonclinical assessments, that do not carry antibiotic resistance or virulence genes, and that can be lyophilized
and grown at scale under standard anaerobic and/or aerobic conditions as required.
We plan to complete our IND enabling studies of ABI-M101, our lead microbiome product candidate, in 2017
and initiate a Phase 1b clinical trial in the second half of 2017 in CDI patients who have relapsed after two or three standard
antibiotic regimens. We will explore various regimens for further clinical development in these initial studies.
We are actively applying
our microbiome-based therapeutic platform to select new drug candidates targeting GI disorders, namely inflammatory bowel diseases
and irritable bowel syndrome, in partnership with Allergan. We intend to further leverage our discovery program and formulation
technology to pursue other microbiome-related indications such as metabolic diseases, oncology, CNS and liver disease, as new data
becomes available clarifying the relationship of the gut microbiome to these conditions.
Collaboration Agreement, License
Agreement and Intellectual Property
Allergan
On January 6, 2017, we entered into the Collaboration Agreement with Allergan to develop and commercialize
select microbiome gastrointestinal programs. Pursuant to the Collaboration Agreement, we granted Allergan an exclusive worldwide
license for rights to preclinical compounds ABI-M201 and ABI-M301, targeting ulcerative colitis (UC) and Crohn's disease (CD),
respectively, as well as two additional compounds to be identified by us for irritable bowel syndromes (IBS).
Under the Collaboration
Agreement, we and Allergan will collaborate on research and development activities with respect to the licensed compounds in accordance
with a mutually agreed upon research and development plan.
Pursuant to the terms
of the Collaboration Agreement, in connection with the closing of the transaction on February 10, 2017, we received from Allergan
an upfront payment of $50 million. Additionally, we are eligible to receive up to approximately $630 million in development milestone
payments and up to approximately $2.15 billion in commercial milestone payments contingent upon the successful development and
commercialization of licensed compounds for up to six different indications. We are also eligible to receive tiered royalties at
rates ranging from the mid-single digits to the mid-teens based on net sales. We and Allergan have agreed to share development
costs up to an aggregate of $75 million through proof-of-concept (“POC”) studies on a ⅓, ⅔ basis, respectively,
and Allergan has agreed to assume all post-POC development costs. In the event any pre-POC development costs exceed $75 million
in the aggregate, we may elect either (a) to fund ⅓ of such costs in excess of $75 million or (b) to allow Allergan
to deduct from future development milestone payments ⅓ of the development costs funded by Allergan in excess of $75 million
plus a premium of 25%. We have an option to co-promote the licensed programs in the United States and China, subject to certain
conditions set forth in the Collaboration Agreement.
Allergan may
terminate the Collaboration Agreement for convenience at any time upon either 90 days’ (prior to the initiation of the
first POC trial of a licensed product) or 120 days’ (after the initiation of the first POC trial of a licensed
product), as applicable, advance written notice to us. The Collaboration Agreement also contains customary provisions for
termination by either party, including in the event of breach of the Collaboration Agreement, subject to cure.
Therabiome
On November 8, 2013, we entered into a License and Collaboration Agreement with Therabiome, LLC, for all intellectual
property and know-how owned or controlled by Therabiome relating to the oral delivery of pharmaceutical drugs to specific
sites in the intestine, using a pH sensitive release platform technology. Under the agreement, Therabiome granted us the exclusive
worldwide license, with rights to sublicense, to develop the intellectual property for commercialization (a) in the use of bacteria,
viruses, proteins, and small molecules by oral delivery using the licensed intellectual property in (i) gastro-intestinal dysbiosis,
including but not limited to C.
difficile
associated diseases, irritable bowel syndrome-constipation, irritable bowel syndrome-diarrhea,,
inflammatory bowel disease, metabolic syndrome, type 2 diabetes, obesity and hypertension, (ii) auto-immune disorders and autism,
including but not limited to as controlled by bacteria or virus, and (iii) orally delivered vaccines, including viral and bacterial,
and (b) any oral delivery of small molecules using the licensed intellectual property. We will be solely responsible
for all research and development activities with respect to any product we develop under the license.
For the license, we
paid Therabiome an upfront non-refundable license fee of $300,000. In September 2014, we paid Therabiome $100,000 upon the
occurrence of the first proof of principle for a bacteria strain. We will be required to pay an additional $100,000 upon the occurrence
of the proof of principle for a virus. We must pay Therabiome clinical and regulatory milestones for each product or therapy advanced
from the platform, for U.S. regulatory milestones, depending on whether the milestone occurs before the filing of the first new
drug application, or NDA, for a product or after the first, second or third NDA filings, as follows:
Regulatory and Clinical Milestones
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Upon the filing of an IND with the FDA:
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$100,000 - $130,000
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First dose first patient - Phase I Clinical Trial
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$250,000 - $325,000
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First dose first patient - Phase II Clinical Trial
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$500,000 - $650,000
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First dose first patient - Phase III Clinical Trial
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$750,000 - $975,000
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Upon filing of an NDA or BLA with the FDA
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$1,000,000 - $1,300,000
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Upon marketing approval by the FDA
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$3,000,000
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Upon approval of a supplemental NDA (sNDA) for a new Indication, in the U.S
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$1,000,000
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We also must pay Therabiome
lesser amounts for foreign regulatory milestones, which vary by country and region, and which depend on whether the milestone occurs
before the filing of the first NDA filing or after the first, second or third NDA filings. These payments will be: one-third of
the U.S. milestones paid upon a foreign equivalent of an investigational new drug application, or IND and marketing approval for
each product in the European Union or Japan; 10% of the U.S. milestones paid upon a foreign equivalent of an IND and marketing
approval for each product in China; 10% of the U.S. milestone paid upon marketing approval for each product in India and Brazil;
and 1% of the U.S. milestone paid upon marketing approval for each product in all other countries. We also must pay Therabiome
royalties on annual net product sales in the low to mid-single digit percentages plus, once annual net sales exceed two specified
thresholds, a one-time cash payment upon reaching each threshold. Pursuant to this agreement, we and Therabiome have agreed
to indemnify one another against certain claims in connection with the agreement.
This agreement may
be terminated by us, with or without cause, upon 90 days prior written notice, by either party upon the other party’s material
breach with 180 days prior written notice or by either party upon the other party’s challenge of the validity or enforceability
or any issued patent within the licensed intellectual property with 90 days prior written notice. Additionally, either party may
terminate the agreement upon an event of bankruptcy with respect to the other party.
In addition to the
pending U.S. application and related foreign pending patent applications directed to the delivery mechanism licensed to us from
Therabiome, we own two pending provisional patent applications related to our ABI-M101 product candidate. We also own the Gemicel®
trademark covering the delivery mechanism we have licensed from Therabiome.
Government Regulation
Government authorities
in the U.S., at the federal, state and local level, and in other countries extensively regulate, among other things, the research,
development, testing, manufacture, including any manufacturing changes, packaging, storage, recordkeeping, labeling, advertising,
promotion, distribution, marketing, post-approval monitoring and reporting, import and export of pharmaceutical and biological
products, such as those we are developing.
U.S. drug approval process
In the U.S, the FDA
regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations, and biological products
under both the FDCA and the Public Health Service Act, or PHSA, and implementing regulations. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the
expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during
the product development process, approval process or after approval, may subject an applicant to a variety of administrative or
judicial sanctions, such as the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a
clinical hold, issuance of warning letters and untitled letters, product recalls, product seizures, total or partial suspension
of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil
or criminal penalties.
The process required
by the FDA before a drug or biological product may be marketed in the U.S. generally involves the following:
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completion of nonclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good
laboratory practice, or GLP, regulations;
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submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical
trials may begin;
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approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated;
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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish
the safety and efficacy of the proposed drug or biological product for each indication;
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submission to the FDA of a new drug application, or NDA, or a biologics license application, or BLA;
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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, or cGMP, requirements and to assure that the facilities, methods and
controls are adequate to preserve the product’s identity, strength, quality and purity; and
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FDA review and approval of the NDA or BLA.
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Nonclinical Studies and IND
Nonclinical studies
include laboratory evaluation of product chemistry and formulation, as well as
in vitro
and animal studies to
assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of nonclinical
studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor
must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical
data or literature and plans for clinical studies, among other things, to the FDA as part of an Investigational New Drug application
(IND). Some long-term nonclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue
after the IND is submitted. For some products, FDA may waive the need for certain nonclinical tests. An IND automatically becomes
effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more
proposed clinical trials and places the trial on clinical hold. If an IND or clinical study is placed on clinical hold, the IND
sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND
may not result in the FDA allowing clinical trials to commence.
Clinical trials
Clinical trials involve
the administration of the investigational new drug or biological product to human subjects under the supervision of qualified investigators
in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their
informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study
protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness
criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA
as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan
for any clinical trial before it commences at that institution, and the IRB must conduct continuing review. The IRB must review
and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must
operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes
to the National Institutes of Health for public dissemination at www.clinicaltrials.gov.
Human clinical trials
are typically conducted in three sequential phases, which may overlap or be combined:
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Phase 1:
The drug or biological product is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.
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Phase 2:
The drug or biological product is administered to a limited patient population 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.
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Phase 3:
The drug or biological product is administered to an expanded patient population in adequate and well-controlled clinical trials to generate sufficient data to statistically confirm the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product.
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Progress reports detailing
the results of the clinical trials must be submitted at least annually to the FDA. Additionally, IND safety reports must be submitted
for serious and unexpected suspected adverse reactions, findings from animal or
in vitro
testing or other studies that suggest
a significant risk to humans, and any clinically important increase in the rate of a serious suspected adverse reaction over that
listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully
within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time
on various grounds, including a finding that the research subjects 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 or biological product has been associated with unexpected serious harm
to patients.
Marketing approval
Assuming successful
completion of the required clinical testing, the results of the nonclinical studies and clinical trials, together with detailed
information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted
to the FDA as part of an NDA or BLA requesting approval to market the product for one or more indications. Under federal law, the
submission of most NDAs and BLAs is additionally subject to a substantial application user fee, currently approximately $2 million
and the sponsor of an approved NDA or BLA is also subject to annual product and establishment user fees, currently set at $97,750
per product and $512,200 per establishment for fiscal year 2017. These fees are typically adjusted annually.
The FDA conducts a preliminary review of all NDAs and BLAs within the first 60 days after submission before
accepting them for filing to determine whether they are sufficiently complete to permit substantive review. The FDA may request
additional information rather than accept an NDA or BLA for filing. In this event, the application must be resubmitted with the
additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission
is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the
review of NDAs and BLAs. Under these goals, the FDA has committed to review most original applications for non-priority products
within 10 months, and most original applications for priority review products, that is, drugs and biological products that the
FDA determines represent a significant improvement over existing therapy, within six months. For NDAs for novel products and all
BLAs, the 10 and 6-month time periods runs from the filing date; for all other original applications, the 10 and 6-month time periods
run from the submission date. The review process may be extended by the FDA for three additional months to consider certain information
or clarification regarding information already provided in the submission. Despite these review goals, it is not uncommon for FDA
review of an NDA or BLA to extend beyond the goal date. The FDA may also refer applications for novel drugs or products that present
difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts,
for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations
of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an
NDA or BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve
an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and
adequate to assure consistent production of the product within required specifications. In addition, before approving an NDA or
BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and integrity of the clinical data
submitted.
The testing and approval
process requires substantial time, effort and financial resources, and some trials may take many years to complete. Data obtained
from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit
or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated
costs in our efforts to develop our product candidates and secure necessary governmental approvals, which could delay or preclude
us from marketing our products.
After the FDA’s evaluation of the NDA or BLA and inspection of the manufacturing facilities, the FDA
may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug or biological
product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies
in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application.
If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA
will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type
of information included. Even with submission of this additional information, the FDA ultimately may decide that the application
does not satisfy the regulatory criteria for approval and refuse to approve the NDA or BLA. Even if the FDA approves a product,
it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included
in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess
a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization,
or impose other conditions, including distribution and use restrictions or other risk management mechanisms, including Risk Evaluation
and Mitigation Strategies, or REMs, which can materially affect the potential market and profitability of the product or impose
new labeling, testing or distribution and use requirements. The FDA may prevent or limit further marketing of a product based on
the results of post-market studies or surveillance programs. 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 testing requirements and
FDA review and approval.
Fast track designation
The FDA is required
to facilitate and expedite the development and review of drugs and biological products that are intended for the treatment of a
serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential
to address unmet medical needs for the disease or condition. Under the fast track program, the sponsor of a new product candidate
may request the FDA to designate the product for a specific indication as a fast track product concurrent with or after the filing
of the IND for the product candidate. The FDA must determine if the product candidate qualifies for fast track designation within
60 calendar days after receipt of the sponsor’s request.
In addition to other
benefits, such as the ability to use surrogate endpoints and have greater interactions with the FDA, the FDA may initiate review
of sections of a fast track product’s NDA or BLA before the application is complete. This rolling review is available if
the applicant provides and the FDA approves a schedule for the submission of the remaining information and the applicant pays applicable
user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section
of the NDA or BLA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the
designation is no longer supported by data emerging in the clinical trial process.
Priority review
Under FDA policies,
a product candidate may be eligible for priority review, a review generally within a six-month time frame from the time a complete
application is received or filed. Products generally are eligible for priority review if they are intended for treatment of a serious
or life-threatening disease or condition and provide a significant improvement in safety or effectiveness compared to marketed
products in the treatment, diagnosis or prevention of a serious disease or condition. A fast track designated product candidate
would ordinarily meet the FDA’s criteria for priority review.
Accelerated approval
Under the FDA’s
accelerated approval regulations, the FDA may approve a drug or biological product for a serious or life-threatening illness that
provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably
likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality
(IMM). In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that
substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more
easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing
compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would
allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved
under accelerated regulations are subject to prior review by the FDA.
Breakthrough therapy designation
Under the provisions
of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, a sponsor can request designation
of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug or biological product
that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition,
and preliminary clinical evidence indicates that the drug or biological product may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
Drugs and biological products designated as breakthrough therapies also may be eligible for priority review. The FDA must take
certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application
for approval of a breakthrough therapy. Even if a product qualifies for one or more of these programs, the FDA may later decide
that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will
not be shortened.
Qualified Infectious Disease Products
Under the provisions of FDASIA, a sponsor can request designation of a product candidate as a qualified
infectious disease product (QIDP). A QIDP is an antibacterial or antifungal drug for human use intended to treat serious or life
threatening infections, including those caused by (1) an antibacterial or antifungal resistant pathogen, including novel or emerging
infectious pathogens; or (2) qualifying pathogens listed by the FDA. Examples include (A) resistant gram positive pathogens, including
methicillin-resistant Staphylococcus aureus, vancomycin resistant Staphylococcus aureus, and vancomycin-resistant enterococcus;
(B) multi-drug resistant gram negative bacteria, including Acinetobacter, Klebsiella, Pseudomonas, and E. coli species; (C) multi-drug
resistant tuberculosis; and (D) Clostridium difficile. A drug that receives QIDP designation is eligible under the statute for
fast track designation and priority review and an additional 5 years of market exclusivity added to certain existing exclusivity
periods. The FDA must determine if the product candidate qualifies as a QIDP within 60 calendar days after receipt of the sponsor’s
request.
Orphan drugs
Under the Orphan
Drug Act, the FDA may grant orphan drug designation to drugs or biological products intended to treat a rare disease or condition,
which is generally defined as a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan drug designation
must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the product and
its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not shorten the duration of the regulatory
review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular active moiety to treat a
particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that
product and indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the
same drug or biological product for the same orphan indication, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan drug exclusivity. A drug or biological product will be considered clinically superior if
it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent
the FDA from approving a different drug or biological product for the same orphan disease or condition, or the same drug or biological
product 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/BLA application user fee.
Pediatric information
Under the Pediatric Research
Equity Act of 2003, as amended, an NDA, BLA or supplement to an NDA or BLA for drug or biological products with certain novel
features (e.g. new active ingredient new indication) must contain data that are adequate to assess the safety and effectiveness
of the drug or biological product for the claimed indications in all relevant pediatric subpopulations, and to support dosing
and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative
or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product
for use in adults, or full or partial waivers from the pediatric data requirements. A sponsor of a new drug or biological product
subject to the above pediatric testing requirements also is required to submit to the FDA a pediatric study plan generally 60
days after an end-of-Phase 2 meeting with the agency. Unless otherwise required by regulation, the pediatric data requirements
do not apply to products with orphan drug designation.
Combination products
The FDA regulates
combinations of products that cross FDA centers, such as drug, biologic or medical device components that are physically, chemically
or otherwise combined into a single entity, as a combination product. The FDA center with primary jurisdiction for the combination
product will take the lead in the premarket review of the product, with the other center consulting or collaborating with the lead
center.
The FDA’s Office
of Combination Products, or OCP, determines which center will have primary jurisdiction for the combination product based on the
combination product’s “primary mode of action.” A mode of action is the means by which a product achieves an
intended therapeutic effect or action. The primary mode of action is the mode of action that provides the most important therapeutic
action of the combination product, or the mode of action expected to make the greatest contribution to the overall intended therapeutic
effects of the combination product.
Often it is difficult
for the OCP to determine with reasonable certainty the most important therapeutic action of the combination product. In those difficult
cases, the OCP will consider consistency with other combination products raising similar types of safety and effectiveness questions,
or which center has the most expertise to evaluate the most significant safety and effectiveness questions raised by the combination
product.
A sponsor may use
a voluntary formal process, known as a Request for Designation, when the product classification is unclear or in dispute, to obtain
a binding decision as to which center will regulate the combination product. If the sponsor objects to that decision, it may request
that the agency reconsider that decision.
Other regulatory requirements
Any drug or biological
product manufactured or distributed by us pursuant to FDA approvals will be subject to pervasive and continuing regulation by the
FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution,
advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product,
such as adding new indications or other labeling claims, are subject to prior FDA review and approval.
The FDA may impose
a number of post-approval requirements, including REMs, as a condition of approval of an NDA or BLA. For example, the FDA may require
post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety
and effectiveness after commercialization.
In addition, drug manufacturers
and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments
with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must
continue to expend time, money and effort in the areas of production and quality control to maintain cGMP compliance.
Once an approval
is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if
problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including
adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements,
may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical
trials to assess new safety risks or imposition of distribution or other restrictions under a REM program. Other potential consequences
include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
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fines, warning letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals;
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product seizure or detention, or refusal to permit the import or export of products; or
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consent decrees, injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates
marketing, labeling, advertising and promotion of products that are placed on the market. Drugs and biological products generally
may be promoted only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other
agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to
have improperly promoted off label uses may be subject to significant liability.
Additional provisions
In addition to FDA
restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict
certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false
claims statutes. The federal 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 reimbursable under 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
and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil
monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions
and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions
and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations
may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
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 have a false claim paid. Recently, several pharmaceutical and
other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services,
which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product
to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing
practices, including off-label promotion, may also violate false claims laws. The majority of states also have statutes or regulations
similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and
other state programs, or, in several states, apply regardless of the payor.
Physician Drug Samples
As part of the sales
and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. The Prescription Drug
Marketing Act, or the PDMA, imposes requirements and limitations upon the provision of drug samples to physicians, as well as prohibits
states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that
include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth civil and criminal penalties
for violations.
Foreign Regulation
In order to market
any product outside of the U.S., we would need to comply with numerous and varying regulatory requirements of other countries regarding
safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution
of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable
regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries.
The approval process varies from country to country and can involve additional product testing and additional administrative review
periods. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA
approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining
regulatory approval in one country may negatively impact the regulatory process in others.
New Legislation and Regulations
From time to time,
legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the
testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations
and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products.
It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies
or interpretations changed or what the effect of such changes, if any, may be.
Pharmaceutical Coverage, Pricing and
Reimbursement
Significant uncertainty
exists as to the coverage and reimbursement status of any drug products for which we may obtain regulatory approval. Sales of any
of our product candidates, if approved, will depend, in part, on the extent to which the costs of the products will be covered
by third-party payors, including government health programs such as Medicare and Medicaid, commercial health insurers and managed
care organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the
process for setting the price or reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party
payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved
drugs for a particular indication.
In order to secure
coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies
in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the trials required to obtain
FDA or other comparable regulatory approvals. Our product candidates may not be considered medically necessary or cost-effective.
A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved.
Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return
on our investment in product development.
The containment of
healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in
this effort. Third-party payors are increasingly challenging the prices charged for medical products and services and examining
the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these
third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover
our products after approval 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 at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest
in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions
on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls
and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments
for pharmaceuticals such as the drug candidates that we are developing and could adversely affect our net revenue and results.
Pricing and reimbursement
schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement
price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a
particular product candidate to currently available therapies. For example, the European Union provides options for its member
states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control
the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or
may instead adopt a system of direct or indirect controls on the profitability of us placing the drug product on the market. Other
member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward
pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high
barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets
exert competitive pressure that may reduce pricing within a country. There can be no assurance that any country that has price
controls or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of
our products.
The marketability of
any products for which we may receive regulatory approval for commercial sale may suffer if the government and third-party payors
fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the U.S. has increased
and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug
pricing regulation may change at any time. In particular, the Patient Protection and Affordable Care Act was enacted in the U.S.
in March 2010 and contains provisions that may reduce the profitability of drug products, including, for example, increased rebates
for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain
Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs.
Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval,
less favorable coverage policies and reimbursement rates may be implemented in the future.
Competition
The
pharmaceutical and biotechnology industry is very competitive and the development and commercialization of new drugs and
biologics is influenced by rapid technological developments and innovation. We face competition from several companies
developing and commercializing products that will be competitive with our drug candidates, including large pharmaceutical and
smaller biotechnology companies. Additionally, new entrants may potentially enter the market. For our HBV cure program,
potential competitors include Johnson & Johnson, Roche, Bristol Myers Squibb Co., GlaxoSmithKline PLC, Gilead Sciences
Inc., and Arbutus Biopharma Corp., among others. Additionally, we may face competition from currently available
treatments for HBV. For CDI, our microbiome program’s first indication, our competitors include Seres Therapeutics,
Inc. and Merck & Co, Inc. For our microbiome program more generally, our competitors include Johnson & Johnson,
Novartis International AG, Abbvie Inc., Takeda, Merck & Co., Bristol Myers Squibb Co., and Pfizer Inc. Some of the
competitive development programs from these companies may be based on scientific approaches that are similar to our approach,
and others may be based on entirely different approaches. Potential competitors also include academic institutions,
government agencies and other public and private research organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development, manufacturing and commercialization of products similar
to ours or that otherwise target indications that we are pursuing.
Manufacturing
We do not currently
own or operate any manufacturing facilities. We currently rely on third parties for the manufacture of our product candidates for
non-clinical and clinical testing. We currently have no plans to establish any manufacturing facilities for products for our HBV-Cure
program. As we advance our Microbiome programs through clinical development and potential commercialization, however, we expect
to establish our own manufacturing capabilities for drug substance and drug product for our Microbiome program.
Financial Information
We have not derived
any revenue from product sales to date as we currently have no products approved for sale.
Research and Development Expense
Our research and development
expenses, excluding stock-based compensation expense, were approximately $30.1 million for fiscal year 2016, of which $20.0 million
was expended on the HBV program and $10.0 million was expended on our Microbiome Program.
Our research and development
expenses, excluding stock-based compensation expense, were approximately $15.1 million for fiscal year 2015, of which $10.8 million
was expended on the HBV program and $4.3 million was expended on our Microbiome program, offset by $6,621 credit due to termination
of the VEN 307 study in 2014.
Our research and development
expenses, excluding stock-based compensation expense, were approximately $8.0 million for fiscal year 2014, of which $2.5 million
was expended on the HBV program, $1.6 million was expended on our Microbiome program and $3.9 million was expended on a former
product candidate Diltiazem (VEN 307).
Employees
As of February 24,
2017, we had 69 employees, 4 temporary contractors and various consultants and multiple research contract research organizations
with whom we have contracted.
Corporate History
We were incorporated
in Delaware in October 2005 under the name South Island Biosciences, Inc. (which was changed to Ventrus Biosciences, Inc. in April
2007). On July 11, 2014, we merged with Assembly Pharmaceuticals, Inc., a private company (the “Merger”). In connection
with the Merger, we changed our name from Ventrus Biosciences, Inc. to Assembly Biosciences, Inc.
Corporate Information
Our principal executive
office is at 11711 N. Meridian Street, Suite 310, Carmel, Indiana 46032. Our telephone number is (317) 210-9311.
Available Information
Our website address
is
www.assemblybio.com
. We routinely post, or have posted, important information for investors on our website in the “Investor
Relations” section. We use this website as a means of disclosing material information in compliance with our disclosure obligations
under Regulation FD. Accordingly, investors should monitor the “Investor Relations” section of our website, in addition
to following our press releases, SEC filings, presentations and webcasts. We make available free of charge through our website
our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments
to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange
Commission.
The information contained
on our website is not a part of, and should not be construed as being incorporated by reference, into this report.
The reports filed
with the SEC by us and by our officers, directors and significant shareholders are available for review on the SEC’s website
at
www.sec.gov
. You may also read and copy materials that we filed with the SEC at the SEC’s Public Reference Room
at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
Information about Segments and Geographic Areas
In accordance with
The
Financial Accounting Standards Board (FASB) Accounting Standards Codification, or ASC, Topic 280, Segment Reporting,
we have
determined that we operate as one operating segment. Decisions regarding our overall operating performance and allocation of our
resources are assessed on a consolidated basis. Our operations and assets are predominantly located in the United States.
Item 1A. Risk Factors
This report contains
forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed
in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below
and elsewhere in this report and in any documents incorporated in this report by reference.
You should carefully
consider the following risk factors, together with all other information in this report, including our financial statements and
notes thereto, and in our other filings with the Securities and Exchange Commission. If any of the following risks, or other risks
not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial
condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our
common stock could decline, and stockholders may lose all or part of their investment.
Risks Related to
Our Business
We have no approved products and
currently are dependent on the success of our HBV and Microbiome programs.
To date, we have no
approved product on the market and have generated no product revenues. Our prospects are substantially dependent on our ability
to develop and commercialize our HBV and microbiome therapies. Unless and until we receive approval from the FDA or other regulatory
authorities for our product candidates, we cannot sell our product candidates and will not have product revenues. We will have
to fund all of our operations and capital expenditures from cash on hand, any future securities offerings or debt financings and
any fees we may generate from out-licensing, collaborations or other strategic arrangements. If we are unable to develop and commercialize
any product candidates from our HBV-Cure and Microbiome programs, we will be unable to generate any product revenues, and our business,
financial condition and results of operations will be significantly harmed.
In addition, all of our product candidates
are in an early stage of development and their risk of failure is high. The data supporting our drug discovery and pre-clinical
and clinical development programs are derived from either laboratory or pre-clinical studies. We cannot predict when or if any
one of our product candidates will prove effective or safe in humans or will receive regulatory approval. The scientific evidence
to support the feasibility of our product candidates is limited, and many companies, some with more resources than we have, are
and may be developing competitive product candidates. For these and other reasons, our drug discovery and development may not be
successful and we may not generate viable products or revenue.
We depend entirely on the success
of product candidates from our HBV program, which has one product candidate in early clinical development, and our microbiome programs,
which has one product candidate in late pre-clinical development. We cannot be certain that we will be able to obtain regulatory
approval for, or successfully commercialize, product candidates from either of our current programs or any other product candidates
we may subsequently identify.
ABI-H0731 and ABI-M101 are our lead product candidates for our HBV-cure and Microbiome program, respectively.
We have completed the Phase 1a portion of a Phase 1a/1b clinical trial for ABI-H0731, our novel oral agent for the treatment of
chronic HBV. We anticipate initiating the Phase 1b portion of the trial in the second quarter of 2017. Our lead microbiome biotherapeutic
product candidate, ABI-M101, is in late nonclinical development and we plan to initiate a Phase 1b clinical trial of ABI-M101 in
CDI patients who have relapsed after two or three standard antibiotic regimens in the second half of 2017. It may be years before
the larger, pivotal trials necessary to support regulatory approval of our product candidates are initiated, if ever. The clinical
trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive
and rigorous review and regulation by numerous government authorities in the U.S. and in other countries where we intend to test
and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate,
we must successfully meet a number of critical developmental milestones, including:
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developing dosages that will be tolerated, safe and effective;
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reaching agreement with the FDA or comparable foreign regulatory authorities regarding the scope, design and data necessary to support regulatory approval for the product candidate;
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demonstrating through clinical trials that the product candidate is safe and effective in patients for the intended indication;
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determining the appropriate delivery mechanism;
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demonstrating that the product candidate formulation will be stable for commercially reasonable time periods; and
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completing the development and scale-up to permit manufacture of our product candidates in quantities sufficient to execute on our clinical development plans and, eventually, in commercial quantities and at acceptable prices.
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The time necessary
to achieve these developmental milestones for any individual product candidate is long and uncertain, and we may not successfully
complete these milestones for our HBV and microbiome therapies or any other product candidates that we may develop. We have not
yet completed and may never complete the development of any product. If we are unable to complete clinical development of our HBV
or microbiome therapies, or any other product candidates that we may identify, we will be unable to generate revenue or build a
sustainable or profitable business.
Nonclinical studies may not be representative
of disease behavior in clinical trials. The outcomes of nonclinical testing and clinical trials are uncertain and results of earlier
nonclinical studies and clinical trials may not be predictive of future clinical trial results.
The results of nonclinical studies may not be representative of disease behavior in a clinical setting
and thus may not be predictive of the outcomes of our clinical trials. In addition, the results of nonclinical studies and early
clinical trials of product candidates may not be predictive of the results of later-stage clinical trials and the results of any
study or trial for any of our product candidates may not be as positive as the results for any prior studies or trials, if at all.
Nonclinical studies
and clinical testing are expensive, can take many years to complete and their outcome is highly uncertain. Failure can occur at
any time during the nonclinical study and clinical trial processes due to inadequate performance of a drug candidate or inadequate
adherence by patients or investigators to clinical trial protocols. Further, clinical trials might not provide statistically significant
data supporting a product candidate’s safety and effectiveness to meet the requisite regulatory approvals. In addition, there
is a high failure rate for drugs and biologics proceeding through clinical trials. Our failure to replicate earlier positive results
in later-stage clinical trials or otherwise demonstrate the required characteristics to support marketing approval for any of our
product candidates would substantially harm our business, prospects, financial condition and results of operations. Any failure
to achieve favorable results in clinical development would materially harm our business, financial condition and results of operations.
Nonclinical and clinical testing
required for our product candidates is expensive and time-consuming, and may result in delays or may fail to demonstrate safety
and efficacy for desired indications.
In order to obtain FDA
approval to market a new drug product, we must demonstrate safety and effectiveness in humans. To meet these requirements, we must
conduct extensive nonclinical testing and sufficient adequate and well-controlled clinical trials. Conducting clinical trials is
a lengthy, time consuming, and expensive process. The length of time might vary substantially according to the type, complexity,
novelty, and intended use of the product candidate, and often can be several years or more per trial. Delays associated with product
candidates for which we are directly conducting nonclinical studies or clinical trials might cause us to incur additional operating
expenses. The commencement and rate of completion of clinical trials might be delayed by many factors, including, for example:
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delays in reaching agreement with regulatory authorities on final trial design;
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delays in reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites;
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the lack of effectiveness during clinical trials;
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the emergence of unforeseen safety issues;
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inability to manufacture sufficient quantities of qualified materials under cGMP for use in clinical trials;
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slower than expected rates of patient recruitment;
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failure to recruit a sufficient number of patients;
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delays in having patients complete participation in a trial or return for post-treatment follow-up;
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delays caused by patients dropping out of a trial due to product side effects, disease progression or other reasons;
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clinical sites dropping out of a trial to the detriment of enrollment;
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modification of clinical trial protocols;
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delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials;
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occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
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changes in regulatory requirements for clinical trials;
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delays, suspension, or termination of clinical trials by the institutional review board or ethics committee responsible for overseeing the study at a particular study site; and
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government, institutional review board, ethics committee, or other regulatory delays or clinical holds requiring suspension or termination of the trials.
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We have used and intend
to continue to rely on one or more contract research organizations, or CROs, to conduct our nonclinical studies and clinical trials.
We are highly dependent on these CROs to conduct our studies and trials in accordance with the requirements of the FDA and good
clinical and scientific practice. In the event the CROs fail to perform their duties in such a fashion, we may not be able to complete
our clinical trials and may fail to obtain regulatory approval for any of our product candidates.
The failure of nonclinical
studies and clinical trials to demonstrate safety and effectiveness for the desired indications could harm the development of that
product candidate and other product candidates. This failure could cause us to abandon a product candidate and could delay development
of other product candidates. Any delay in, or termination of, our nonclinical studies or clinical trials would delay the filing
of our New Drug Applications, or NDAs, or Biologics License Applications, or BLAs, with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. Any change in, or termination of, our clinical trials could
materially harm our business, financial condition, and results of operation.
Any product candidates that we may
discover and develop may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval,
if any.
Many product candidates
that initially showed promise in early stage testing have later been found to cause side effects that prevented their further development. Undesirable
side effects caused by any product candidates that we may discover or develop, or safety, tolerability or toxicity issues that
may occur in our nonclinical studies, clinical trials or in the future, could cause us or regulatory authorities to interrupt,
restrict, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval
by the FDA or other comparable foreign authorities. Any of these events could prevent us from achieving or maintaining market acceptance
of the particular product candidate, if approved, and could significantly harm our business, prospects, financial condition and
results of operations.
We have a limited operating history
and a history of operating losses, and expect to incur significant additional operating losses.
We were established in October 2005, began active operations in the spring of 2007, terminated programs
related to three prior product candidates, then merged with Assembly Pharmaceuticals, Inc., a private company, in July 2014. We
have only a limited operating history since the merger. Therefore, there is limited historical financial information upon which
to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and
difficulties frequently encountered by companies in their early stages of operations. We, and Assembly Pharmaceuticals prior to
our merger, have generated losses since we began operations and, as of December 31, 2015 and December 31, 2016, the combined company
had an accumulated deficit of approximately $164.0 million and $208.2 million, respectively, and net losses of $23.8 million, $28.5
million and $44.2 million for the years ended December 31, 2014, 2015 and 2016, respectively.
These
net losses have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.
We
expect to incur substantial additional losses over the next several years as we continue to pursue our research, development, nonclinical
studies and clinical trial activities. Further, since our initial public offering, we have incurred and will continue to incur
as a public company significant additional legal, accounting and other expenses to which we were not subject to as a private company,
including expenses related to our efforts in complying with the requirements of Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other public company disclosure and corporate governance
requirements and responding to requests of government regulators. The amount of future losses and when, if ever, we will achieve
profitability are uncertain and will depend, in part, on the rate of increase in our expenses, our ability to generate revenues
and our ability to raise additional capital. We have no products that have generated any commercial revenue, do not expect to generate
revenues from the commercial sale of products unless and until our HBV or microbiome therapies or any other product candidate is
approved by the FDA for sale, and we might never generate revenues from the sale of products.
We are not currently profitable and
might never become profitable.
We have a history
of losses and expect to incur significant operating and capital expenditures and resultant substantial losses and negative operating
cash flow for the next several years, and beyond if we do not successfully launch and commercialize any product candidates from
our HBV or microbiome programs. We might never achieve or maintain profitability. We anticipate that our expenses will continue
to be substantial in the foreseeable future as we:
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advance ABI-H0731 through clinical development for HBV and initiate and conduct clinical trials of our microbiome product candidate;
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continue to undertake research and development to identify potential additional product candidates;
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seek regulatory approvals for our product candidates; and
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pursue our intellectual property strategy.
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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 comparable foreign regulatory authorities 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 any of our product
candidates.
As a result, we will
need to generate significant revenues in order to achieve and maintain profitability. Our ability to generate revenue and achieve
profitability will depend on, among other things:
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successful completion of research, nonclinical studies and clinical trials for our product candidates;
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obtaining necessary regulatory approvals from the FDA and international regulatory agencies for our product candidates;
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establishing manufacturing, sales, and marketing arrangements with third parties for any approved products; and
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raising sufficient funds to finance our activities, if and when needed.
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We might not succeed
at any of these undertakings. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results
of operations might be materially adversely affected.
We are an early stage company and
might not be able to commercialize any product candidates.
We are an early stage
company and have not demonstrated our ability to perform the functions necessary for the successful commercialization of any product
candidates. The successful commercialization of any product candidates will require us to perform a variety of functions, including:
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continuing to undertake research and development and nonclinical studies and clinical trials;
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participating in regulatory approval processes;
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formulating and manufacturing products; and
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conducting sales, marketing and distribution activities.
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Our failure to successfully
commercialize our product candidates would negatively impact the value of our company and could impair our ability to raise capital,
expand our business, diversify our research and development pipeline, market our product candidates, if approved, or continue
our operations.
Our development of product candidates
is subject to risks and delays.
Our development of
our product candidates is subject to the risks of failure and delay inherent in the development of new pharmaceutical products
and products based on new technologies, including:
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delays in product development, nonclinical and clinical testing;
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unplanned expenditures in product development, nonclinical and clinical testing;
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failure of a product candidate to demonstrate acceptable safety and efficacy;
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failure to receive regulatory approvals;
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emergence of superior or equivalent products;
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inability to manufacture and sell on our own, or through any others, product candidates on a commercial scale or at a financially
viable cost; and
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failure to achieve market acceptance.
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Because of these risks,
our research and development efforts might not result in any commercially viable products. If we do not successfully complete a
significant portion of these development efforts, obtain required regulatory approvals, and have commercial success with any approved
products, our business, financial condition and results of operations will be materially harmed.
There are substantial risks inherent
in attempting to commercialize new drugs, and, as a result, we may not be able to successfully develop products for commercial
use.
Our HBV therapy research
and development efforts involve therapeutics based on modulating forms of HBV core proteins with Core Protein Allosteric Modulators,
or CpAMs, which is a clinically unproven mechanism of action. The development of our CpAM technology is in the early stages, and
the commercial feasibility and acceptance of our CpAM technology are unknown. Similarly, the technology for our microbiome therapy
is in nonclinical development and our GEMICEL, dual targeted release drug formulation, is novel and not yet shown to successfully
deliver live bacteria in patients.
Scientific research
and development requires significant amounts of capital and takes a long time to reach commercial viability, if it can be achieved
at all. To date, our research and development projects have not produced commercially viable drugs, and may never do so. During
the research and development process, we may experience technological barriers that we may be unable to overcome. Further, certain
underlying premises in our development programs are not fully proven. More specifically, the theory that CpAMs can selectively
lower cccDNA and viral antigen levels in HBV patients and achieve a functional cure is unproven. Thus, even if CpAM
technology is successful at targeting the HBV core protein and reducing cccDNA levels in HBV patients, it may not result in a commercially
viable drug if there is not a corresponding medical benefit related to the underlying HBV infection. Similarly, with
respect to our microbiome program, the ability to effectively and reliably deliver bacteria to the GI tract is unproven, and, even
if it can be proven, it may be difficult or impossible to provide the treatment economically. Because of these uncertainties, it
is possible that no commercial products will be successfully developed. If we are unable to successfully develop commercial products,
we will be unable to generate revenue or build a sustainable or profitable business.
We will need additional financing
to complete the development of any product candidate and fund our activities in the future.
We anticipate that
we will incur operating losses for the next several years as we continue to develop our HBV therapy and our microbiome platform
as well as initiate any development of any other product candidates and will require substantial funds during that time to support
our operations. We expect that our current resources will provide us with sufficient capital to fund our operations for at least
the next twelve months. However, we might consume our available capital before that time if, for example, we are not efficient
in managing our resources or if we encounter unforeseen costs, delays or other issues or if regulatory requirements change. If
that happens, we may need additional financing to continue the development of our HBV therapy and our microbiome program. Thereafter,
we will need additional capital to fund our operations in the future. However, there is no assurance that we will be successful
in raising any necessary additional capital on terms that are acceptable to us, or at all. If such event or other unforeseen circumstances
occurred and we were unable to raise capital, we could be forced to discontinue product development, sacrifice attractive business
opportunities, cease operations entirely and sell or otherwise transfer all or substantially all of our remaining assets.
Our product candidates face significant
development and regulatory hurdles prior to marketing which could delay or prevent licensing, sales and/or milestone revenue.
Before we or any commercial partners obtain the approvals necessary to sell any of our product candidate,
we must show through pre-clinical studies and human testing in clinical trials that each potential product is safe and effective.
The rates at which we complete our scientific studies and clinical trials depend on many factors, including, but are not limited
to, our ability to obtain adequate supplies of the products to be tested and patient enrollment. Patient enrollment is a function
of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria
for the trial and other potential drug candidates being studied. Delays in patient enrollment for our trials may result in increased
costs and longer development times. In addition, we will need additional financing to develop our product candidates, which we
might seek and receive from third party commercial partners. Further, we currently do not have the infrastructure to manufacture,
market and sell our product candidates. If we partner with one or more third party entities, those commercial partners may demand
and receive rights to control product development and commercialization. As a result, these commercial partners may conduct these
programs and activities more slowly or in a different manner than expected. If any of these events were to occur, the development
of any product candidate could be significantly delayed, more expensive or less lucrative to us than anticipated, any of which
would have a significant adverse effect on our business.
We are substantially dependent on
our collaboration agreement with Allergan, which may be terminated or may not be successful due to a number of factors, which could
have a material adverse effect on our business and operating results.
We have entered
into the Collaboration Agreement with Allergan for the development and commercialization of select microbiome
gastrointestinal programs in ulcerative colitis, Crohn’s disease and irritable bowel syndromes. Our collaboration with
Allergan may be terminated, or may not be successful, due to a number of factors. In particular, Allergan may
terminate the Collaboration Agreement for convenience at any time upon either 90 days’ (prior to the initiation of the
first POC trial of a licensed product) or 120 days’ (after the initiation of the first POC trial of a licensed
product), as applicable, advance written notice to us. The Collaboration Agreement also contains customary provisions for
termination by either party, including in the event of breach of the Collaboration Agreement, subject to cure. In addition,
if we are unable to identify product candidates for the licensed indications or we are unable to protect our products by
obtaining and defending patents, the collaboration could fail. If the collaboration is unsuccessful for these or
other reasons, or is otherwise terminated for any reason, we may not receive all or any of the research program funding,
milestone payments or royalties under the agreement. Any of the foregoing could result in a material adverse effect on our
business, results of operations and prospects and would likely cause our stock price to decline.
We are dependent on a license relationship
for each of our HBV therapy and our microbiome program.
Our license agreement
with Indiana University Research and Technology Corporation, or IURTC, from whom we have licensed our HBV therapy, requires us
to make milestone payments based upon the successful accomplishment of clinical and regulatory milestones related to our HBV therapy.
The aggregate amount of all performance milestone payments under the IURTC License Agreement, should all performance milestones
through development be met, is $825,000. As of December 31, 2016, no performance milestone payments have been made. We also are
obligated to pay IURTC royalty payments based on net sales of the licensed technology. We are also obligated to pay diligence maintenance
fees ($25,000-$100,000) each year to the extent that the royalty, sublicensing, and milestone payments to IURTC are less than the
diligence maintenance fee for that year. Our license with Therabiome, LLC, from whom we have licensed our microbiome program, also
requires us to pay regulatory and clinical milestones as well as royalty payments to Therabiome. If we breach any of these obligations,
we could lose our rights to the targeted delivery mechanism of our microbiome program. If we fail to comply with similar obligations
to any other licensor, it would have the right to terminate the license, in which event we would not be able to commercialize drug
candidates or technologies that were covered by the license. Also, the milestone and other payments associated with licenses will
make it less profitable for us to develop our drug candidates than if we owned the technology ourselves.
Corporate and academic collaborators
might take actions to delay, prevent, or undermine the success of our product candidates.
Our operating and
financial strategy for the development, nonclinical and clinical testing, manufacture, and commercialization of drug candidates
heavily depends on collaborating with corporations, academic institutions, licensors, licensees, and other parties. However, there
can be no assurance that we will successfully establish these collaborations. In addition, should a collaboration be terminated,
replacement collaborators might not be available on attractive terms, or at all. The activities of any collaborator will not be
within our control and might not be within our power to influence. There can be no assurance that any collaborator will perform
its obligations to our satisfaction or at all, that we will derive any revenue or profits from these collaborations, or that any
collaborator will not compete with us. If any collaboration is not successful, we might require substantially greater capital to
undertake development and marketing of our proposed products and might not be able to develop and market these products effectively,
if at all. In addition, a lack of development and marketing collaborations might lead to significant delays in introducing proposed
products into certain markets and/or reduced sales of proposed products in such markets.
We rely on data provided by our collaborators
and others that has not been independently verified and could prove to be false, misleading, or incomplete.
We rely on third-party
vendors, scientists, and collaborators to provide us with significant data and other information related to our projects, nonclinical
studies and clinical trials, and our business. If these third parties provide inaccurate, misleading, or incomplete data, our business,
prospects, and results of operations could be materially adversely affected.
Research, development and commercialization
goals may not be achieved in the time frames that we publicly estimate, which could have an adverse impact on our business and
could cause our stock price to decline.
We set goals, and
make public statements regarding our expectations, regarding the timing of certain accomplishments, developments and milestones
under our research and development programs. The actual timing of these events can vary significantly due to a number of factors,
including, without limitation, the amount of time, effort and resources committed to our programs by us and any collaborators and
the uncertainties inherent in the clinical development and regulatory approval process. As a result, there can be no assurance
that we or any collaborators will initiate or complete clinical development activities, make regulatory submissions or receive
regulatory approvals as planned or that we or any collaborators will be able to adhere to our current schedule for the achievement
of key milestones under any of our programs. If we or any collaborators fail to achieve one or more of the milestones as planned,
our business could be materially adversely affected and the price of our common stock could decline.
Unforeseen safety issues could hinder
the development of our product candidates and their adoption, if approved.
Safety issues could
arise during development of our product candidates, which might delay testing or prevent further development entirely. Unforeseen
safety issues could emerge in any future study or trial of our HBV or microbiome product candidates, which could severely hamper
the likelihood of FDA or other regulatory approval of any such product candidate. If any of these events were to occur, the development
of any product candidate could be significantly delayed and become more expensive than anticipated, and could lead us to abandon
our development efforts entirely, any of which would have a significant adverse effect on our business.
If a product is approved,
any limitation on use that might be necessary due to safety issues, such as labeling warnings or distributions and use restrictions
under a REMS, could hinder its adoption in the marketplace. In addition, if any product is approved, it could be used against any
instructions that we publish that limit its use, which could subject us to litigation.
We lack suitable facilities for certain
nonclinical and clinical testing and expect to rely on third parties to conduct some of our research and nonclinical testing and
our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion
of such research, testing or trials.
We do not have sufficient
facilities to conduct all of our anticipated nonclinical and clinical testing. As a result, we expect to contract with third parties
to conduct most of our nonclinical and clinical testing required for regulatory approval for our product candidates. We will be
reliant on the services of third parties to conduct studies on our behalf. If we are unable to retain or continue with third parties
for these purposes on acceptable terms, we may be unable to successfully develop our product candidates. In addition, any failures
by third parties to adequately perform their responsibilities may delay the submission of our product candidates for regulatory
approval, which would impair our financial condition and business prospects.
Our reliance on these
third parties for research and development activities also reduces our control over these activities but will not relieve us of
our responsibilities. For example, we are responsible for ensuring that each of our studies is conducted in accordance with the
applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve
us of our regulatory responsibilities. Furthermore, these third parties may also have relationships with other entities, some of
which may be our competitors. In addition, these third parties are not our employees, and except for remedies available to us under
our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our clinical
and nonclinical programs. If these third parties do not successfully carry out their contractual duties or obligations or meet
expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due
to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our research, nonclinical studies
or clinical trials may be extended, delayed or terminated and we may not be able to obtain, or may be delayed in obtaining, regulatory
approvals for our product candidates. As a result, our results of operations and business prospects would be harmed, our costs
could increase and our ability to generate revenues could be delayed.
We will need to either establish
our own clinical and commercial manufacturing capabilities or rely on third parties to formulate and manufacture our product candidates.
We currently do not
have our own manufacturing facilities and rely on third-party manufacturers to supply the quantities of ABI-H0731 used in our Phase
1 clinical trials and drug substance and drug product for ABI-M101. Although we intend to establish our own manufacturing capabilities
for our microbiome drug substance and drug products, we currently lack the physical plant to formulate and manufacture our own
product candidates for use in our planned clinical trials. In addition, if any product candidate we might develop or acquire in
the future receives FDA or other regulatory approval, we will need to either manufacture commercial quantities of the product on
our own or rely on one or more third-party contractors to manufacture our products. The establishment of internal manufacturing
capabilities is difficult and costly, and we may not be successful in doing so. If, for any reason, we are unable to establish
our own manufacturing capabilities and we are unable to rely on any third-party sources we have identified to manufacture our product
candidates, either for clinical trials or, at some future date, for commercial quantities, then we would need to identify and contract
with additional or replacement third-party manufacturers to manufacture compounds, drug substance and drug products for nonclinical,
clinical and commercial purposes. We might not be successful in identifying additional or replacement third-party manufacturers,
or in negotiating acceptable terms with any that we do identify. If we are unable to establish and maintain manufacturing capacity
either on our own or through third parties, the development and sales of our products and our financial performance will be materially
and adversely affected.
In addition, before
we or any of our collaborators can begin to commercially manufacture our product candidates, each manufacturing facility and process
is subject to regulatory review. Manufacturing of drugs for clinical and commercial purposes must comply with the FDA’s cGMPs,
and applicable non-U.S. regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures.
Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping,
and quality control to assure that the product meets applicable specifications and other requirements. Any manufacturing facility
must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection might significantly delay
FDA approval of our product candidates. If we or any of our future collaborators fails to comply with these requirements with respect
to the manufacture of any of our product candidates, regulatory action could limit the jurisdictions in which we are permitted
to sell our products, if approved. As a result, our business, financial condition, and results of operations might be materially
harmed.
We are exposed to
the following risks with respect to the manufacture of our product candidates:
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If we are unable to establish our own manufacturing capabilities, we will need to identify manufacturers for commercial supply on acceptable terms, which we may not be able to do because the number of potential manufacturers is limited and the FDA must approve any new or replacement contractor. This approval would generally require compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.
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We or any third-party manufacturers with whom we contract might be unable to formulate and manufacture our product candidates in the volume and of the quality required to meet our clinical and, if approved, commercial needs.
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Any third-party manufacturers with whom we contract might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.
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One or more of any third-party manufacturers with whom we contract could be foreign, which increases the risk of shipping delays and adds the risk of import restrictions.
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Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign requirements. Any internal manufacturing facilities we establish may fail to comply, and we would not have complete control over any third-party manufacturers’ compliance, with these regulations and requirements.
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We may be required to obtain additional intellectual property rights from third parties in order to manufacture our product candidates, and if any third-party manufacturer makes improvements in the manufacturing process for our product candidates, we might not own, or might have to share, the intellectual property rights to the innovation with our licensors.
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We may be required to share our trade secrets and know-how with third parties, thereby risking the misappropriation or disclosure of our intellectual property by or to third parties.
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If we contract with third-party manufacturers, we might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other clients higher priority than us.
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Each of these risks
could delay our development efforts, nonclinical studies and clinical trials or the approval, if any, of our product candidates
by the FDA or the commercialization of our product candidates and could result in higher costs or deprive us of potential product
revenues. As a result, our business, financial condition, and results of operations might be materially harmed.
If we cannot compete successfully
for market share against other drug companies, we might not achieve sufficient product revenues and our business will suffer.
If our product candidates
receive FDA approval, they will compete with a number of existing and future drugs and therapies developed, manufactured and marketed
by others. Existing or future competing drugs might provide greater therapeutic convenience or clinical or other benefits for a
specific indication than our product candidates, or might offer comparable performance at a lower cost. If our product candidates
fail to capture and maintain market share, we might not achieve sufficient product revenues and our business will suffer.
We might compete against
fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research organizations. Many of these competitors, either alone
or together with their collaborative partners, operate larger research and development programs or have substantially greater financial
resources than we do, as well as significantly greater experience in:
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developing drugs;
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undertaking nonclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals of drugs;
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formulating and manufacturing drugs; and
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launching, marketing and selling drugs.
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We may not have or
be able to obtain the same resources and experience as our competitors. If we are unable to perform these tasks effectively and
efficiently, our results of operations might be materially adversely affected.
Developments by competitors might
render our product candidates or technologies obsolete or non-competitive.
The pharmaceutical
and biotechnology industries are intensely competitive. In addition, the clinical and commercial landscape for HBV, CDI, UC, IBS
and IBD is rapidly changing; we expect new data from commercial and clinical-stage products to continue to emerge. We will compete
with organizations that have existing treatments and that are or will be developing treatments for the indications that our product
candidates target. If our competitors develop effective treatments for HBV, CDI, UC, IBS or IBD or any other indication or field
we might pursue, and successfully commercialize those treatments, our business and prospects might be materially harmed, due to
intense competition in these markets.
If we are not able to develop collaborative
marketing relationships with licensees or partners, or create effective internal sales, marketing, and distribution capability,
we might be unable to market our products successfully.
To market our product
candidates, if approved, we will have to establish our own marketing and sales force or out-license our product candidates to,
or collaborate with, larger firms with experience in marketing and selling pharmaceutical products. There can be no assurance that
we will be able to successfully establish our own marketing capabilities or establish marketing, sales, or distribution relationships
with third parties; that such relationships, if established, will be successful; or that we will be successful in gaining market
acceptance for our product candidates. To the extent that we enter into any marketing, sales, or distribution arrangements with
third parties, our product revenues will be lower than if we marketed and sold our products directly, and any revenues we receive
will depend upon the efforts of such third parties. If we are unable to establish such third-party sales and marketing relationships,
or choose not to do so, we will have to establish our own in-house capabilities. We, as a company, have no experience in marketing
or selling pharmaceutical products and currently have no sales, marketing, or distribution infrastructure. To market any of our
products directly, we would need to develop a marketing, sales, and distribution force that both has technical expertise and the
ability to support a distribution capability. To establish our own marketing, sales, and distribution capacity would significantly
increase our costs, and require substantial additional capital. In addition, there is intense competition for proficient sales
and marketing personnel, and we might not be able to attract individuals who have the qualifications necessary to market, sell,
and distribute our products. There can be no assurance that we will be able to establish internal marketing, sales, or distribution
capabilities.
The commercial success of our product
candidates will depend upon the degree of market acceptance by physicians, patients, third-party payers and others in the medical
community.
The commercial success
of our products, if approved for marketing, will depend in part on the medical community, patients and third-party payers accepting
our product candidates as effective and safe. If these products do not achieve an adequate level of acceptance, we may not generate
significant product revenue and may not become profitable. The degree of market acceptance of our products, if approved for marketing,
will depend on a number of factors, including:
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the actual or perceived safety and efficacy of the products, and advantages over alternative treatments;
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the pricing and cost-effectiveness of our products relative to competing products or therapies;
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the labeling of any approved product;
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the prevalence and severity of any side effects, including any limitations or warnings contained in a product's approved labeling;
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the emergence, and timing of market introduction, of competitive products;
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the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and
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the availability of third-party insurance coverage or governmental reimbursement.
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Even if a potential
product displays a favorable efficacy and safety profile in nonclinical studies and clinical trials, market acceptance of the product
will not be known until after it is launched. Any failure to achieve market acceptance for our product candidates will harm our
business, results and financial condition.
If we lose key management or scientific
personnel, cannot recruit qualified employees, directors, officers, or other significant personnel or experience increases in our
compensation costs, our business might materially suffer.
We are highly dependent
on the services of our Chief Executive Officer and President, Derek Small, our Chief Scientific Officer, Dr. Richard Colonno, our
Chief Scientific Officer - Microbiome, Miguel S. Barbosa, Ph.D, our Chief Medical Officer and Vice President of Research and Development,
Dr. Uri Lopatin, our Chief Development Officer, Thomas E. Rollins, and our Chief Financial Officer and Chief Operating Officer,
David J. Barrett. Our employment agreements with Mr. Small, Dr. Lopatin, Dr. Colonno, Dr. Barbosa, Mr. Rollins and Mr. Barrett
do not ensure their retention. This is also true for our other management team members, both present and future.
Furthermore, our future
success also depends, in part, on our ability to identify, hire, and retain additional management team members as our operations
grow. We expect to experience intense competition for qualified personnel and might be unable to attract and retain the personnel
necessary for the development of our business. Finally, we do not currently maintain, nor do we intend to obtain in the future,
“key man” life insurance that would compensate us in the event of the death or disability of any of the members of
our management team.
The failure by us
to retain, attract and motivate executives and other key employees could have a material adverse impact on our business, financial
condition and results of operations.
If we are unable to hire additional
qualified personnel, our ability to grow our business might be harmed.
As of February 24,
2017, we had 69 employees, 4 temporary contractors and various consultants and multiple contract research organizations with whom
we have contracted. We will need to hire or contract with additional qualified personnel with expertise in clinical research and
testing, formulation and manufacturing and sales and marketing to commercialize our HBV drug candidates and our microbiome biotherapeutics
or any other product candidate we may seek to develop. We compete for qualified individuals with numerous biopharmaceutical companies,
universities and other research institutions. Competition for these individuals is intense, and we cannot be certain that our
search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success.
We might not successfully manage
our growth.
Our success will depend
upon the expansion of our operations and the effective management of our growth, which will place a significant strain on our current
and future management and other administrative and operational resources. To manage this growth, we may need to expand our facilities,
augment our operational, financial and management systems and hire and train additional qualified personnel. If we are unable to
manage our growth effectively, our business would be harmed.
We might seek to develop our business
through acquisitions of or investment in new or complementary businesses, products or technologies, and the failure to manage these
acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect
on us.
We might consider
opportunities to acquire or invest in other technologies, products and businesses that might enhance our capabilities or complement
our current product candidates. Potential and completed acquisitions and strategic investments involve numerous risks, including
potential problems or issues associated with the following:
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assimilating the purchased technologies, products or business operations;
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maintaining uniform standards, procedures, controls and policies;
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unanticipated costs associated with the acquisition or investment;
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diversion of our management’s attention from our preexisting business;
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maintaining or obtaining the necessary regulatory approvals or complying with regulatory requirements; and
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adverse effects on existing business operations.
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We have no current
commitments with respect to any acquisition or investment in other technologies or businesses. We do not know if we will identify
suitable acquisitions, whether we will be able to successfully complete any acquisitions, or whether we will be able to successfully
integrate any acquired product, technology or business into our business or retain key personnel, suppliers or collaborators.
Our ability to successfully
develop our business through acquisitions would depend on our ability to identify, negotiate, complete and integrate suitable target
businesses or technologies and obtain any necessary financing. These efforts could be expensive and time consuming and might disrupt
our ongoing operations. If we are unable to efficiently integrate any acquired business, technology or product into our business,
our business and financial condition might be adversely affected.
Risks Related to Our Regulatory and
Legal Environment
We are subject to extensive and costly
government regulation.
Product candidates
employing our technology are subject to extensive and rigorous domestic government regulation including regulation by the FDA,
the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department
of Justice, state and local governments, and their respective foreign equivalents. The FDA regulates the research, development,
nonclinical and clinical testing, manufacture, safety, effectiveness, record-keeping, reporting, labeling, storage, approval, advertising,
promotion, sale, distribution, import, and export of pharmaceutical and biological products. If products employing our technologies
are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained
FDA approval for a given product and its uses. Such foreign regulation might be equally or more demanding than corresponding U.S.
regulation.
Government regulation
substantially increases the cost and risk of researching, developing, manufacturing, and selling our product candidates. The regulatory
review and approval process, which includes nonclinical testing and clinical trials of each product candidate, is lengthy, expensive,
and uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct clinical trials and approval
for each product we intend to market, and the manufacturing facilities used for the products must be inspected and meet legal requirements.
Securing regulatory approval requires submitting extensive nonclinical and clinical data and other supporting information for each
proposed therapeutic indication in order to establish the product’s safety and efficacy for each intended use. The development
and approval process might take many years, requires substantial resources, and might never lead to the approval of a product.
Even if we are able
to obtain regulatory approval for a particular product, the approval might limit the intended medical uses for the product, limit
our ability to promote, sell, and distribute the product, require that we conduct costly post-marketing surveillance, and/or require
that we conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes
or revised labeling, might require further regulatory review and approval. Once obtained, any approvals might be withdrawn, including,
for example, if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety
issue.
If we, our collaborators,
or our contract manufacturers fail to comply with applicable regulatory requirements at any stage during the regulatory process,
such noncompliance could result in, among other things, delays in the approval of applications or supplements to approved applications;
refusal by a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved
applications; untitled letters or warning letters; fines; import and export restrictions; product recalls or seizures; injunctions;
total or partial suspension of production; civil penalties; withdrawals of previously approved marketing applications; recommendations
by the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
We might not obtain the necessary
U.S. or worldwide regulatory approvals to commercialize any product candidate.
We cannot assure you
that we will receive the approvals necessary to commercialize for sale any of our product candidates, or any product candidate
we acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the U.S. and approvals
from the FDA-equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions.
In order to obtain FDA approval of any product candidate, we must submit to the FDA an NDA or BLA demonstrating that the product
candidate is safe for humans and effective for its intended use (for biological products, this standard is referred to as safe,
pure and potent). This demonstration requires significant research, nonclinical studies, and clinical trials. Satisfaction of the
FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches
will result in drugs or biological products that the FDA considers safe for humans and effective for their indicated uses. The
FDA has substantial discretion in the approval process and might require us to conduct additional nonclinical and clinical testing,
perform post-marketing studies or otherwise limit or impose conditions on any approval we obtain.
The approval process
might also be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy
that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals might:
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delay commercialization of, and our ability to derive product revenues from, our product candidates;
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impose costly procedures on us; and
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diminish any competitive advantages that we might otherwise enjoy.
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Even if we comply
with all FDA requests, the FDA might ultimately reject one or more of our NDAs or BLAs. We cannot be sure that we will ever obtain
regulatory approval for our product candidates. Failure to obtain FDA approval of our product candidates will severely undermine
our business by leaving us without a saleable product, and therefore without any source of revenues, until another product candidate
could be developed or obtained. There is no guarantee that we will ever be able to develop an existing, or acquire another, product
candidate.
In foreign jurisdictions,
we must receive approval from the appropriate regulatory authorities before we can commercialize any product candidates. The risks
associated with foreign regulatory approval processes are similar to the risks associated with the FDA approval procedures described
above. We cannot assure you that we will receive the approvals necessary to commercialize our product candidates for sale outside
the U.S.
Even if approved, our product candidates
will be subject to extensive post-approval regulation.
Once a product candidate
is approved, numerous post-approval requirements apply. Among other things, the holder of an approved NDA is subject to ongoing
FDA oversight monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of
the failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications
and obtain FDA approval for changes to the approved product, product labeling, or manufacturing process, depending on the nature
of the change. Application holders also must submit advertising and other promotional material to the FDA and report on ongoing
clinical trials. The FDA also has the authority to require changes in the labeling of approved drug products and to require post-marketing
studies. The FDA can also impose distribution and use restrictions under a Risk Evaluation and Mitigation Strategy, or REMS.
Advertising and promotional
materials must comply with FDA rules in addition to other applicable federal and state laws. The distribution of product samples
to physicians must comply with the requirements of the Prescription Drug Marketing Act. Manufacturing facilities remain subject
to FDA inspection and must continue to adhere to the FDA’s cGMP requirements. Sales, marketing, and scientific/educational
grant programs, among other activities, must comply with the anti-fraud and abuse provisions of the Social Security Act, the False
Claims Act, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements
of the Omnibus Budget Reconciliation Act of 1990 and the Veteran’s Health Care Act of 1992, each as amended. If products
are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and
requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition
laws.
Depending on the circumstances,
failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products,
total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter
into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information
regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
Even if we are able to commercialize
any product candidates, those products may become subject to unfavorable pricing regulations, third party reimbursement practices
or healthcare reform initiatives, which would harm our business.
The regulations that
govern marketing approvals, pricing and reimbursement for new medicines vary widely from country to country. In the U.S., recently
enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays
in obtaining approvals. Some countries require approval of the sale price of a medicine before it can be marketed. In many countries,
the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription
pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result,
we might obtain marketing approval for a medicine in a particular country, but then be subject to price regulations that delay
our commercial launch of the medicine, possibly for lengthy time periods, and negatively impact the revenues we are able to generate
from the sale of the medicine in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one
or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize
any medicines successfully also will depend in part on the extent to which reimbursement for these medicines and related treatments
will be available from government health administration authorities, private health insurers and other organizations. Government
authorities and third party payors, such as private health insurers and health maintenance organizations, decide which medications
they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment.
Government authorities and third party payors have attempted to control costs by limiting coverage and the amount of reimbursement
for particular medications. Increasingly, third party payors are requiring that drug companies provide them with predetermined
discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will
be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement
may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not
available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which
we obtain marketing approval.
There may be significant
delays in obtaining reimbursement for newly approved medicines, and coverage may be more limited than the purposes for which the
medicine is approved by the FDA or similar regulatory authorities outside the U.S. Moreover, eligibility for reimbursement does
not imply that any medicine will be paid for in all cases or at a rate that covers our costs, including research, development,
manufacture, sale and distribution. Interim reimbursement levels for new medicines, if applicable, may also not be sufficient to
cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the medicine and the clinical
setting in which it is used, may be based on reimbursement levels already set for lower cost medicines and may be incorporated
into existing payments for other services. Net prices for medicines may be reduced by mandatory discounts or rebates required by
government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of medicines
from countries where they may be sold at lower prices than in the U.S. Third party payors often rely upon Medicare coverage policy
and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment
rates from both government-funded and private payors for any approved product candidates that we develop could have a material
adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates and our overall
financial condition.
In the U.S. and in
other countries, there have been and we expect there will continue to be a number of legislative and regulatory proposals to change
the healthcare system in ways that could significantly affect our business. International, federal and state lawmakers regularly
propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended
to contain or reduce the costs of medical products and services. The U.S. government and other governments have shown significant
interest in pursuing healthcare reform, as evidenced by the Patient Protection and Affordable Care Act and its amendment, the Health
Care and Education Reconciliation Act, or the ACA. Such government-adopted reform measures may adversely impact the pricing of
healthcare products and services in the U.S. or internationally and the amount of reimbursement available from governmental agencies
or other third-party payors. The current administration supports a repeal of the ACA and an Executive Order has been signed commanding
federal agencies to try to waive or delay requirements of the ACA that impose economic or regulatory burdens on states, families,
the health-care industry and others. The Executive Order also declares that the administration will seek the “prompt repeal”
of the law and that the government should prepare to “afford the States more flexibility and control to create a more free
and open healthcare market.” At this time, the immediate impact of the Executive Order is not clear. In addition, other legislative
changes have been proposed and adopted since the ACA was enacted. These new laws may result in additional reductions in Medicare
and other healthcare funding. In addition, in some foreign jurisdictions, there have been a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. The continuing
efforts of U.S. and other governments, insurance companies, managed care organizations and other payors of healthcare services
to contain or reduce healthcare costs may adversely affect our ability to set satisfactory prices for our products, to generate
revenues, and to achieve and maintain profitability.
If we fail to maintain an effective
system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial
statements or comply with applicable regulations could be impaired.
As a public company,
we are subject to the reporting requirements of the Securities Exchange, the Sarbanes-Oxley Act and the listing standards of NASDAQ,
the exchange on which our common stock is listed. We expect that the requirements of these rules and regulations will continue
to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly
and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley
Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial
reporting. We are continuing to refine our disclosure controls and other procedures that are designed to ensure that the information
that we are required to disclose in the reports that we will file with the SEC is properly recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms. We are also continuing to improve our internal control over
financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain
and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
Our current controls
and any new controls that we develop in the future may become inadequate because of changes in conditions in our business. Further,
weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure
to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our
operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements
for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely
affect the results of management reports and independent registered public accounting firm audits of our internal control over
financial reporting that we will be required to include in our periodic reports that will be filed with the SEC. If we were to
have ineffective disclosure controls and procedures or internal control over financial reporting, our investors could lose confidence
in our reported financial and other information, which would likely have a negative effect on the market price of our common stock.
We face the risk of product liability
claims and might not be able to obtain insurance.
Our business exposes
us to the risk of product liability claims that are inherent in the development of drugs and biotherapeutics. If the use of one
or more of our or our collaborators’ product candidates or approved drugs, if any, harms people, we might be subject to costly
and damaging product liability claims brought against us by clinical trial participants, consumers, health care providers, pharmaceutical
companies or others selling our products. Our inability to obtain sufficient product liability insurance at an acceptable cost
to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products
we develop. We expect to obtain clinical trial insurance for our product candidates prior to beginning clinical trials. We cannot
predict all of the possible harms or side effects that might result and, therefore, the amount of insurance coverage we obtain,
if any, in the future might not be adequate to cover all liabilities we might incur. We intend to expand our insurance coverage
to include product liability insurance covering the sale of commercial products if we obtain marketing approval for our drug candidates
in development, but we might be unable to obtain commercially reasonable product liability insurance for any products approved
for marketing. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability
claims, we will be exposed to significant liabilities, which might materially and adversely affect our business and financial position.
If we are sued for any injury allegedly caused by our or our collaborators’ products, our liability could exceed our total
assets and our ability to pay the liability. Any successful product liability claims or series of claims brought against us would
decrease our cash and could cause the value of our common stock to decrease.
We might be exposed to liability
claims associated with the use of hazardous materials and chemicals.
Our research, development
and manufacturing activities and/or those of our third-party contractors might involve the controlled use of hazardous materials
and chemicals. Although we will strive to have our safety procedures, and those of our contractors, for using, storing, handling
and disposing of these materials comply with federal, state and local laws and regulations, we cannot completely eliminate the
risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable for
any resulting damages, and any liability could materially adversely affect our business, financial condition and results of operations.
In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of
hazardous or radioactive materials and waste products might require us to incur substantial compliance costs that could materially
adversely affect our business, financial condition and results of operations. We currently do not carry hazardous materials liability
insurance. We intend to obtain such insurance in the future if necessary, but cannot give assurance that we could obtain such coverage.
Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements, which could result in significant
liability for us and harm our reputation.
We are exposed
to the risk of employee fraud or other misconduct, including intentional failure to:
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comply with FDA regulations or similar regulations of comparable foreign regulatory authorities;
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provide accurate information to the FDA or comparable foreign regulatory authorities;
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comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities;
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comply with United States Foreign Corrupt Practices Act, or FCPA, the U.K. anti-bribery laws and other anti-bribery laws;
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report financial information or data accurately; or
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disclose unauthorized activities to us.
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Employee misconduct could also involve the improper use of information obtained in the course of clinical
trials, which could result in regulatory sanctions, delays in clinical trials, or serious harm to our reputation. We have adopted
a code of conduct for our directors, officers and employees (the “Code of Conduct”), but it is not always possible
to identify and deter employee misconduct. 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 be in compliance with such 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 harm our business, results of operations,
financial condition and cash flows, including through the imposition of significant fines or other sanctions.
We are subject to certain U.S. and
foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations (collectively,
“Trade Laws”). We can face serious consequences for violations.
Among other matters, Trade Laws prohibit
companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and
other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper
payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in
substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach
of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials
and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect
our non-U.S. activities to increase in time. We engage third parties for clinical trials and/or to obtain necessary permits, licenses,
patent registrations, and other regulatory approvals. We can be held liable for the corrupt or other illegal activities of our
personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.
We are establishing international
operations and conducting clinical trials outside of the U.S. and a number of risks associated with international operations could
materially and adversely affect our business.
We expect to be subject
to a number of risks related with our international operations, many of which may be beyond our control. These risks include:
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different regulatory requirements for drug approvals in foreign countries;
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different standards of care in various countries that could complicate the evaluation of our product candidates;
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different U.S. and foreign drug import and export rules;
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different reimbursement systems and different competitive drugs indicated to treat the indication for which our product candidates are being developed;
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reduced protection for intellectual property rights in certain countries;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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compliance with the FCPA, and other anti-corruption and anti-bribery laws;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.
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Risks Related to Our Intellectual
Property
Our business depends on protecting
our intellectual property.
If we and our licensors
IURTC and Therabiome do not obtain protection for our respective intellectual property rights, our competitors might be able to
take advantage of our research and development efforts to develop competing drugs. Our success, competitive position and future
revenues, if any, depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for
our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing
on our proprietary rights and to operate without infringing the proprietary rights of third parties.
We seek to protect
our proprietary position by filing patent applications in the U.S. and abroad related to our novel technologies and chemical and
biological compositions that are important to our business. To date, although our licensors have filed patent applications, we
do not own or have any rights to any issued patents that cover any of our product candidates, and we cannot be certain that we
will secure any rights to any issued patents with claims that cover any of our proprietary product candidates and technologies.
The patent prosecution process is expensive and time-consuming and we may not be able to file and prosecute all necessary or desirable
patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects
of our research and development output before it is too late to obtain patent protection.
The patent process
also is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our
products by obtaining and defending patents. These risks and uncertainties include the following:
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Any patent rights, if obtained, might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;
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Our competitors, many of which have substantially greater resources than we do and many of which might make significant investments in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products either in the U.S. or in international markets;
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As a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for disease treatments that prove successful; and
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Countries other than the U.S. might have patent laws that provide less protection than those governing U.S. courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products.
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In addition, the U.S.
Patent and Trademark Office and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical
and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified
in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents might be substantially narrower than anticipated.
Patent and other intellectual
property protection is crucial to the success of our business and prospects, and there is a substantial risk that such protections,
if obtained, will prove inadequate. Our business and prospects will be harmed if we fail to obtain these protections or they prove
insufficient.
If we fail to comply with our obligations
under our license agreements, we could lose rights to our product candidates or key technologies.
We have obtained rights to develop, market
and sell some of our product candidates through intellectual property license agreements with third parties, including IURTC and
Therabiome. These license agreements impose various diligence, milestone payment, royalty and other obligations on us. If we fail
to comply with our obligations under our license agreements, we could lose some or all of our rights to develop, market and sell
products covered by these licenses, and our ability to form collaborations or partnerships may be impaired. In addition, disputes
may arise under our license agreements with third parties, which could prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms and to develop and commercialize the affected product candidates.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights.
If we choose to go
to court to stop another party from using the inventions claimed in any patents we obtain, that individual or company has the right
to ask the court to rule that such patents are invalid or should not be enforced against that third party. These lawsuits are expensive
and would consume time and resources and divert the attention of managerial and scientific personnel even if we were successful
in stopping the infringement of such patents. There is a risk that the court will decide that such patents are not valid and that
we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of
such patents is upheld, the court will refuse to stop the other party on the ground that such other party's activities do not infringe
our rights to such patents. If we were not successful in defending our intellectual property, our competitors could develop and
market products based on our discoveries, which may reduce demand for our products.
We rely on trade secret protections
through confidentiality agreements with our employees, customers and other parties, and the breach of these agreements could adversely
affect our business and prospects.
We rely on trade secrets
and proprietary know-how, which we seek to protect, in part, through confidentiality, invention, and non-disclosure agreements
with our employees, scientific advisors, consultants, collaborators, suppliers, and other parties. There can be no assurance that
these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will
not otherwise become known to or independently developed by our competitors. If any of these events occurs, or we otherwise lose
protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced.
If our employees,
or consultants breach their confidentiality obligations, to be able to enforce these confidentiality provisions, we would need
to know of the breach and have sufficient funds to enforce the provisions. We cannot assure you that we would know of or be able
to afford enforcement of any breach. In addition, such provisions are subject to state law and interpretation by courts, which
could limit the scope and duration of these provisions. Any limitation on or non-enforcement of these confidentiality provisions
could have an adverse effect on our business.
We may infringe the intellectual
property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase
the costs of commercializing our product candidates.
Our success will depend
in part on our ability to operate without infringing the proprietary rights of third parties. Our competitors may have filed, and
may in the future file, patent applications covering products and technologies similar to ours. Any such patent application may
have priority over our patent applications, which could further require us to obtain rights from third parties to issued patents
covering such products and technologies. We cannot guarantee that the manufacture, use or marketing of any product candidates that
we develop will not infringe third-party patents.
A third party may
claim that we are using inventions covered by the third party's patent rights and may go to court to stop us from engaging in our
normal operations and activities, including making or selling our product candidates. Patent litigation is costly and time consuming.
We may not have sufficient resources to address these actions, and such actions could affect our results of operations and divert
the attention of managerial and scientific personnel.
If a patent infringement
suit were brought against us, we may be forced to stop or delay developing, manufacturing, or selling potential products that are
claimed to infringe a third party's intellectual property, unless that third party grants us rights to use its intellectual property.
In such cases, we may be required to obtain licenses to patents or proprietary rights of others in order to continue development,
manufacture or sale of our products. If we are unable to obtain a license or develop or obtain non-infringing technology, or if
we fail to defend an infringement action successfully, or if we are found to have infringed a valid patent, we may incur substantial
monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing
or selling our product candidates, any of which could harm our business significantly.
If our efforts to protect our proprietary
technologies are not adequate, we may not be able to compete effectively in our market.
We rely upon a combination
of patents, trade secret protection and contractual arrangements to protect the intellectual property related to our technologies.
We will only be able to protect our products and proprietary information and technology by preventing unauthorized use by third
parties to the extent that our patents, trade secrets, and contractual position allow us to do so. Any disclosure to or misappropriation
by third parties of our trade secrets or confidential information could compromise our competitive position. Moreover, we may in
the future be involved in legal or administrative proceedings involving our intellectual property initiated by third parties, and
which proceedings can result in significant costs and commitment of management time and attention. As our product candidates continue
in development, third parties may attempt to challenge the validity and enforceability of our patents and proprietary information
and technologies.
We may in the future
be involved in initiating legal or administrative proceedings involving the product candidates and intellectual property of our
competitors. These proceedings can result in significant costs and commitment of management time and attention, and there can be
no assurance that our efforts would be successful in preventing or limiting the ability of our competitors to market competing
products.
Composition-of-matter
patents relating to the API are generally considered to be the strongest form of intellectual property protection for pharmaceutical
products, as such patents provide protection not limited to any one method of use. Method-of-use patents protect the use of a product
for the specified method(s), and do not prevent a competitor from making and marketing a product that is identical to our product
for an indication that is outside the scope of the patented method. We rely on a combination of these and other types of patents
to protect our product candidates, and there can be no assurance that our intellectual property will create and sustain the competitive
position of our product candidates.
Biotechnology and
pharmaceutical product patents involve highly complex legal and scientific questions and can be uncertain. Any patent applications
that we own or license may fail to result in issued patents. Even if patents do successfully issue from our applications, third
parties may challenge their validity or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable.
Even if our patents and patent applications are not challenged by third parties, those patents and patent applications may not
prevent others from designing around our claims and may not otherwise adequately protect our product candidates. If the breadth
or strength of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened,
competitors with significantly greater resources could threaten our ability to commercialize our product candidates. Discoveries
are generally published in the scientific literature well after their actual development, and patent applications in the U.S. and
other countries are typically not published until 18 months after filing, and in some cases are never published. Therefore, we
cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or patent
applications, or that we or our licensors were the first to file for patent protection covering such inventions. Subject to meeting
other requirements for patentability, for U.S. patent applications filed prior to March 16, 2013, the first to invent the claimed
invention is entitled to receive patent protection for that invention while, outside the U.S., the first to file a patent application
encompassing the invention is entitled to patent protection for the invention. The U.S. moved to a “first to file”
system under the Leahy-Smith America Invents Act (“AIA”), effective March 16, 2013. The effects of this change and
other elements of the AIA are currently unclear, as the U.S. Patent and Trademark Office (“USPTO”), is still implementing
associated regulations, and the applicability of the AIA and associated regulations to our patents and patent applications have
not been fully determined. This new system also includes new procedures for challenging issued patents and pending patent applications,
which creates additional uncertainty. We may become involved in opposition or interference proceedings challenging our patents
and patent applications or the patents and patent applications of others, and the outcome of any such proceedings are highly uncertain.
An unfavorable outcome in any such proceedings could reduce the scope of, or invalidate, our patent rights, allow third parties
to commercialize our technology and compete directly with us, or result in our inability to manufacture, develop or commercialize
our product candidates without infringing the patent rights of others.
In addition to the protection
afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how,
information, or technology that is not covered by our patents. Although our agreements require all of our employees to assign their
inventions to us, and we require all of our employees, consultants, advisors and any third parties who have access to our trade
secrets, proprietary know-how and other confidential information and technology to enter into appropriate confidentiality agreements,
we cannot be certain that our trade secrets, proprietary know-how and other confidential information and technology will not be
subject to unauthorized disclosure or that our competitors will not otherwise gain access to or independently develop substantially
equivalent trade secrets, proprietary know-how and other information and technology. Furthermore, the laws of some foreign countries,
in particular, China, where we anticipate increasing our activity and commercializing our product candidates, do not protect proprietary
rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting
and defending our intellectual property globally. If we are unable to prevent unauthorized disclosure of our intellectual property
related to our product candidates and technology to third parties, we may not be able to establish or maintain a competitive advantage
in our market, which could materially adversely affect our business and operations.
Our reliance on third parties and
agreements with collaboration partners requires us to share our trade secrets, which increases the possibility that a competitor
may discover them or that our trade secrets will be misappropriated or disclosed.
Our reliance on third party contractors
to develop and manufacture our product candidates is based upon agreements that limit the rights of the third parties to use or
disclose our confidential information, including our trade secrets and know-how. Despite the contractual provisions, the need to
share trade secrets and other confidential information increases the risk that such trade secrets and information are disclosed
or used, even if unintentionally, in violation of these agreements. In the highly competitive markets in which our product candidates
are expected to compete, protecting our trade secrets, including our strategies for addressing competing products, is imperative,
and any unauthorized use or disclosure could impair our competitive position and may have a material adverse effect on our business
and operations.
In addition, our collaboration partners
is larger, more complex organizations than ours, and the risk of inadvertent disclosure of our proprietary information may be increased
despite their internal procedures and contractual obligations in place with our collaboration partner. Despite our efforts to protect
our trade secrets and other confidential information, a competitor’s discovery of such trade secrets and information could
impair our competitive position and have an adverse impact on our business.
We are developing an extensive worldwide
patent portfolio. The cost of maintaining our patent protection is high and maintaining our patent protection requires continuous
review and compliance in order to maintain worldwide patent protection. We may not be able to effectively maintain our intellectual
property position throughout the major markets of the world.
The USPTO and foreign patent authorities
require maintenance fees and payments as well as continued compliance with a number of procedural and documentary requirements.
Noncompliance may result in abandonment or lapse of the subject patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. Non-compliance may result in reduced royalty payments for lack of patent coverage
in a particular jurisdiction from our collaboration partners or may result in competition, either of which could have a material
adverse effect on our business.
We have made, and will continue to make,
certain strategic decisions in balancing costs and the potential protection afforded by the patent laws of certain countries. As
a result, we may not be able to prevent third parties from practicing our inventions in all countries throughout the world, or
from selling or importing products made using our inventions in and into the U.S. or other countries. Third parties may use our
technologies in territories in which we have not obtained patent protection to develop their own products and, further, may infringe
our patents in territories which provide inadequate enforcement mechanisms, even if we have patent protection. Such third party
products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or
sufficient to prevent them from competing.
The laws of some foreign countries
do not protect proprietary rights to the same extent as do the laws of the U.S., and we may encounter significant problems in securing
and defending our intellectual property rights outside the U.S.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries,
particularly certain developing countries such as China, do not always favor the enforcement of patents, trade secrets, and other
intellectual property rights, particularly those relating to pharmaceutical and biotechnology products, which could make it difficult
for us to stop infringement of our patents, misappropriation of our trade secrets, or marketing of competing products in violation
of our proprietary rights. In China, our intended establishment of significant operations will depend in substantial part on our
ability to effectively enforce our intellectual property rights in that country. Proceedings to enforce our intellectual property
rights in foreign countries could result in substantial costs and divert our efforts and attention from other aspects of our business,
and could put our patents in these territories at risk of being invalidated or interpreted narrowly, or our patent applications
at risk of not being granted, and could provoke third parties to assert claims against us. We may not prevail in all legal or other
proceedings that we may initiate and, if we were to prevail, the damages or other remedies awarded, if any, may not be commercially
meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a
significant commercial advantage from the intellectual property that we develop or license.
Intellectual property rights do not
address all potential threats to any competitive advantage we may have.
The degree of future protection afforded
by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property
rights may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are the same as or similar to our current or future product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
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We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
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We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
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The prosecution of our pending patent applications may not result in granted patents.
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Granted patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
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Patent protection on our product candidates may expire before we are able to develop and commercialize the product, or before we are able to recover our investment in the product.
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Our competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for such activities, as well as in countries in which we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in markets where we intend to market our product candidates.
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The existence of counterfeit pharmaceutical
products in pharmaceutical markets may damage our brand and reputation and have a material adverse effect on our business, operations
and prospects.
Counterfeit products, including counterfeit
pharmaceutical products, are a significant problem, particularly in China. Counterfeit pharmaceuticals are products sold or used
for research under the same or similar names, or similar mechanism of action or product class, but which are sold without proper
licenses or approvals. Such products may be used for indications or purposes that are not recommended or approved or for which
there is no data or inadequate data with regard to safety or efficacy. Such products divert sales from genuine products, often
are of lower cost, often are of lower quality (having different ingredients or formulations, for example), and have the potential
to damage the reputation for quality and effectiveness of the genuine product. If counterfeit pharmaceuticals illegally sold or
used for research result in adverse events or side effects to consumers, we may be associated with any negative publicity resulting
from such incidents. Consumers may buy counterfeit pharmaceuticals that are in direct competition with our pharmaceuticals, which
could have an adverse impact on our revenues, business and results of operations. In addition, the use of counterfeit products
could be used in non-clinical or clinical studies, or could otherwise produce undesirable side effects or adverse events that may
be attributed to our products as well, which could cause us or regulatory authorities to interrupt, delay or halt clinical trials
and could result in the delay or denial of regulatory approval by the FDA or other regulatory authorities and potential product
liability claims. With respect to China, although the government has recently been increasingly active in policing counterfeit
pharmaceuticals, there is not yet an effective counterfeit pharmaceutical regulation control and enforcement system in China. As
a result, we may not be able to prevent third parties from selling or purporting to sell our products in China. The proliferation
of counterfeit pharmaceuticals has grown in recent years and may continue to grow in the future. The existence of and any increase
in the sales and production of counterfeit pharmaceuticals, or the technological capabilities of counterfeiters, could negatively
impact our revenues, brand reputation, business and results of operations.
Risks Related to Our Common Stock
We might not be able to maintain
the listing of our common stock on The NASDAQ Capital Market.
Our common stock is
listed on The NASDAQ Capital Market under the symbol “ASMB.” We might not be able to maintain the listing standards
of that exchange. If we fail to maintain the listing requirements, our common stock might trade on the OTC Bulletin Board or in
the “pink sheets” maintained by Pink OTC Markets, Inc. These alternative markets are generally considered to be markets
that are less efficient and less broad than The NASDAQ Capital Market. A delisting of our common stock from The NASDAQ Capital
Market and our inability to list the stock on another national securities exchange could negatively impact us by: (i) reducing
the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common
stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement
to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets and (iv) impairing
our ability to provide equity incentives to our employees.
The price of our common stock might
fluctuate significantly, and you could lose all or part of your investment.
Since we went public
on December 22, 2010 and through February 24, 2017, the closing price of our common stock has fluctuated between $4.30 and $105.30
(after giving effect to the 1-for-5 reverse stock split effected on July 11, 2014). Continued volatility in the market price of
our common stock might prevent a stockholder from being able to sell shares of our common stock at or above the price paid for
such shares. The trading price of our common stock might be volatile and subject to wide price fluctuations in response to various
factors, including:
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the progress, results and timing of our clinical trials and nonclinical studies and other studies involving our product candidates;
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success or failure of our product candidates;
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the receipt or loss of required regulatory approvals for our product candidates;
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availability of capital;
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future issuances by us of our common stock or securities exercisable for or convertible into common stock;
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sale of shares of our common stock by our significant stockholders or members of our management;
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additions or departures of key personnel;
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investor perceptions of us and the pharmaceutical industry;
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issuance of new or changed securities analysts’ reports or recommendations, or the announcement of any changes to our credit rating;
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introduction of new products or announcements of significant contracts, acquisitions or capital commitments by us or our competitors;
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threatened or actual litigation and government investigations;
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legislative, political or regulatory developments;
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the overall performance of the equity markets;
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actual or anticipated fluctuations in our quarterly financial and operating results;
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general economic conditions;
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changes in interest rates; and
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changes in accounting standards, policies, guidance, interpretations or principles.
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These and other factors
might cause the market price of our common stock to fluctuate substantially, which might limit or prevent investors from readily
selling their shares of our common stock and might otherwise negatively affect the liquidity of our common stock. In addition,
in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many companies across many industries. The changes frequently appear to occur
without regard to the operating performance of the affected companies. Accordingly, the price of our common stock could fluctuate
based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our share
price.
Our principal stockholders and management own a significant
percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
At February 24, 2017,
our executive officers, directors and one of our founders beneficially owned approximately 17.1% of our outstanding voting common
stock, and this group together with other stockholders holding beneficially 5% of more of our outstanding voting common stock,
owned approximately 60.0% of our outstanding voting common stock Therefore, these stockholders, if acting together, have the ability
to influence us through their ownership position. These stockholders may be able to determine the outcome of certain significant
matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments
of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent
or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as
one of our stockholders.
Our ability to use our net operating
loss and credit carryforwards to offset future taxable income may be subject to certain limitations.
At December 31, 2016,
the Company had potentially utilizable gross Federal net operating loss carryforwards of approximately $146.5 million, State net
operating loss carry-forwards of approximately $174.0 million and research and development credit carry forward of approximately
$4.0 million, all of which expire between 2027 and 2036. Our ability to utilize our net operating loss and credit carryforwards
is dependent upon our ability to generate taxable income in future periods and may be limited due to restrictions imposed on utilization
of net operating loss and credit carryforwards under federal and state laws upon a change in ownership.
Under Sections 382 and
383 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change,” is subject
to limitations on its ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes
(such as research tax credits) to offset its post-change income or taxes. For these purposes, an ownership change generally occurs
where the equity ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s
stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a three year period
(calculate on a rolling basis). We may have experienced such ownership changes in the past, and we may experience ownership changes
in the future, some of which are outside the Company’s control. These ownership changes may subject our existing net operating
losses or credits to substantial limitations under Sections 382 and 383. Accordingly, we may not be able to utilize a material
portion of our net operating losses or credits. Limitations on our ability to utilize our net operating losses to offset U.S. federal
taxable income could potentially result in increased future tax liability to us. In addition, at the state level, there may be
periods during which the use of net operating lossess is suspended or otherwise limited, which could accelerate or permanently
increase state taxes owed.
Because U.S. federal net operating losses generally
may be carried forward for up to 20 years, the annual limitation may effectively provide a cap on the cumulative amount of pre-ownership
change losses, including certain recognized built-in losses that may be utilized. Such pre-ownership change losses in excess of
the cap may be lost. In addition, if an ownership change were to occur, it is possible that the limitations imposed on our ability
to use pre-ownership change losses and certain recognized built-in losses could cause a net increase in our U.S. federal income
tax liability and require U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not
in effect. Further, if for financial reporting purposes the amount or value of these deferred tax assets is reduced, such reduction
would have a negative impact on the book value of our common stock.
We do not intend to pay dividends
for the foreseeable future and our stock may not appreciate in value.
We currently intend
to retain our future earnings, if any, to finance the operation and growth of our business and do not expect to pay any cash dividends
in the foreseeable future. As a result, the success of an investment in shares of our common stock will depend upon any future
appreciation in its value. There is no guarantee that shares of our common stock will appreciate in value or that the price at
which our stockholders have purchased their shares will be able to be maintained.
The requirements of being a public
company add to our operating costs and might strain our resources and distract our management.
As a public company,
we face increased legal, accounting, administrative and other costs and expenses not faced by private companies. We are subject
to the reporting requirements of the Securities Exchange Act of 1934, which requires that we file annual, quarterly and current
reports with respect to our business and financial condition, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley
Act, and The NASDAQ Capital Market, each of which imposes additional reporting and other obligations on public companies. These
rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly,
although we are currently unable to estimate these costs with any degree of certainty. Complying with these requirements might
divert management’s attention from other business concerns, which could have a material adverse effect on our prospects,
business, and financial condition.
Additionally, the
expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. These increased
costs will require us to divert a significant amount of money that we could otherwise use to develop our product candidates or
otherwise expand our business. If we are unable to satisfy our obligations as a public company, we could be subject to delisting
of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Several provisions of the Delaware
General Corporation Law and our Amended and Restated Certificate of Incorporation and Bylaws could discourage, delay or prevent
a merger or acquisition, which could adversely affect the market price of our securities.
Several provisions
of the Delaware General Corporation Law and our Amended and Restated Certificate of Incorporation and Bylaws could discourage,
delay or prevent a merger or acquisition that stockholders may consider favorable, and the market price of our securities could
be reduced as a result. These provisions may include:
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prohibiting us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless certain provisions are met;
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prohibiting cumulative voting in the election of directors;
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limiting the persons who may call special meetings of stockholders; and
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establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
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If securities analysts downgrade
our stock or cease coverage of us, the price of our stock could decline.
The trading market
for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business.
Currently, two financial analysts publish reports about us and our business. We do not control these or any other analysts. Furthermore,
there are many large, well-established, publicly traded companies active in our industry and market, which may mean that it is
less likely that we will receive widespread analyst coverage. If any of the analysts who cover us downgrade our stock, our stock
price would likely decline rapidly. If these analysts cease coverage of our company, we could lose visibility in the market, which
in turn could cause our stock price to decline.