This prospectus relates to shares of
our common stock issuable upon the exercise of our outstanding July 2016 warrants. The July 2016 warrants were offered and sold
by us pursuant to a prospectus supplement dated July 15, 2016, as supplemented by a prospectus supplement amendment dated
December 14, 2016, and a related base prospectus dated June 8, 2016. The prospectus supplement, as supplemented by a
prospectus supplement amendment dated December 14, 2016, and base prospectus also covered the offer and sale by us of the
shares of our common stock underlying the July 2016 warrants, but those prospectuses can no longer be used for this purpose. The
ongoing offer for sale by us of the shares of our common stock issuable upon exercise of the July 2016 warrants is being made
pursuant to this prospectus.
July 2016 warrants to purchase a total
of 19,397,884 shares of our common stock are exercisable until July 20, 2018 at a current exercise price of $0.5055 per share
of our common stock and July 2016 warrants to purchase a total of 9,117,187 shares of our common stock are exercisable until July17,
2017 at a current exercise price of $0.70 per share of our common stock. The exercise prices of the July 2016 warrants are subject
to adjustment in the events specified in the July 2016 warrants.
Our common stock is traded on The NASDAQ
Capital Market under the symbol “CYTR.” On March 17, 2017, the last reported sale price of our common stock was $0.40
per share.
RISK FACTORS
Investing in our common stock involves
significant risks. Prior to making a decision about investing in our common stock, you should carefully consider the risk factors
discussed below. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect
many other companies, such as employment relations, general economic conditions and geopolitical events. Further, additional risks
not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business,
operations, liquidity and stock price.
Risks Associated With Our Business
We have operated at a loss and will likely continue
to operate at a loss for the foreseeable future.
We have operated at a loss due to our
ongoing expenditures for research and development of our product candidates and for general and administrative purposes, and lack
of significant recurring revenues. We incurred a net loss of $50.8 million for the year ended December 31, 2016 and $58.6 million
for the year ended December 31, 2015 and had an accumulated deficit as of December 31, 2016 of $415.9 million. We are likely to
continue to incur losses unless and until we are able to commercialize aldoxorubicin or one or more of our other existing or possible
future product candidates. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’
equity and working capital. Because of the numerous risks and uncertainties associated with our product development efforts, we
are unable to predict when we may become profitable, if at all. If we do not become profitable or are unable to maintain future
profitability, the market value of our common stock will be adversely affected.
Because we have no source of significant recurring
revenue, we must depend on capital raising to sustain our operations, and our ability to raise capital may be severely limited.
Developing products and conducting clinical
trials require substantial amounts of capital. To date, we have relied primarily upon proceeds from sales of our equity securities
under our “shelf” registration statements on Form S-3 filed with the SEC and proceeds from the exercise of options
and warrants to generate funds needed to finance our business and operations. We will need to raise additional capital to, among
other things:
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fund our clinical
trials and pursue regulatory approval of aldoxorubicin and fund development of product
candidates based on our LADR™ technology;
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finance our
general and administrative expenses;
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acquire or
license new technologies;
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prepare, file,
prosecute, maintain, enforce and defend our patent and other proprietary rights; and
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develop and
implement sales, marketing and distribution capabilities to successfully commercialize
any product for which we obtain marketing approval and choose to market ourselves.
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The depressed market price of our common
stock may severely limit our ability to continue to raise capital, because the aggregate or market value of our common stock held
by non-affiliates, referred to as our “public float,” as of the file date of this Annual Report is less than $75 million.
As a result, under Instruction I.B.6 to Form S-3 the aggregate amount of securities that we can offer and sell under our “shelf”
registration statements in any 12-month period cannot exceed one-third of our public float, or approximately $17.5 million as
of March 15, 2017. If our public float increases to $75 million or more, we will no longer be subject to this limitation.
At December 31, 2016, we had cash and
cash equivalents of approximately $57.0 million, but we are required under the terms of our outstanding loan-term debt to maintain
cash on hand of not less than three months’ projected cash burn or $10 million, whichever is greater. Management believes that
our current resources, will be sufficient to fund our operations for the foreseeable future. The belief is based, in part, upon
our currently projected expenditures for 2017 of approximately $39.8 million
,
which
includes approximately $16.4
million for our clinical programs for aldoxorubicin, approximately $3.7 million for pre-clinical development of high potency cytotoxic
albumin-binding cancer drugs, approximately $3.2 million for general operation of our clinical programs, approximately $8.0 million
for other general and administrative expenses, and $8.5 million for interest and payments on our outstanding term loan. These
projected expenditures and payments assume that we will not suffer a “material adverse event” which could trigger
the lenders’ acceleration of our outstanding term loan, and are based upon numerous other assumptions and subject to many
uncertainties, and our actual expenditures may be significantly different from these projections.
If we receive a negative response from
the FDA in our planned pre-NDA meeting, we may reduce our headcount and discontinue certain development programs and drug discovery
activities. For these reasons and others, our operating results may fluctuate from period to period, and the results of prior
periods should not be relied upon as predictive of the results in future periods. Furthermore, if we obtain marketing approval
and successfully commercialize aldoxorubicin, or another product candidate, we anticipate it will take a minimum of two years,
and likely longer, for us to generate significant recurring revenue, and we will be dependent on future financing until such time,
if ever, as we can generate significant recurring revenue. We have no commitments from third parties to provide us with any additional
financing, and we may not be able to obtain future financing on favorable terms, or at all. Failure to obtain adequate financing
would adversely affect our ability to operate as a going concern. If we raise additional funds by issuing equity securities, dilution
to stockholders may result and new investors could have rights superior to holders of the shares issued in this offering. In addition,
debt financing, if available, may include restrictive covenants. If adequate funds are not available to us, we may have to liquidate
some or all of our assets or to delay or reduce the scope of or eliminate some portion or all of our development programs or clinical
trials. We also may have to license to other companies our product candidates or technologies that we would prefer to develop
and commercialize ourselves.
If we do not achieve our projected development
goals in the time frames we estimate, the commercialization of our products may be delayed and our business prospects may suffer.
Our financial projections also may prove to be materially inaccurate.
From time to time, we estimate the timing
of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer
to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the
submission of regulatory filings such as the discussions in this Annual Report of the expected timing of the pre-NDA meeting with
the FDA and of certain other milestones relating to our aldoxorubicin clinical development programs.
We also may disclose projected expenditures
or other forecasts for future periods. These and other financial projections are based on management’s current expectations
and do not contain any margin of error or cushion for any specific uncertainties, or for the uncertainties inherent in all financial
forecasting.
The actual timing of milestones and
actual expenditures or other financial results can vary dramatically compared to our estimates, in some cases for reasons beyond
our control. If we do not meet milestones or financial projections as announced from time to time, the development and commercialization
of our products may be delayed and our business prospects may suffer. The assumptions management has used to produce these projections
may significantly change or prove to be inaccurate. Accordingly, you should not unduly rely on any of these financial projections.
The regulatory approval process is lengthy,
time consuming and inherently unpredictable, and if our products are not successfully developed and approved by the FDA or foreign
regulatory authorities, we may be forced to reduce or curtail our operations.
All of our product candidates in development
must be approved by the FDA or corresponding foreign governmental agencies before they can be marketed. The process for obtaining
FDA and foreign government approvals is both time-consuming and costly, with no certainty of a successful outcome. This process
typically includes the conduct of extensive pre-clinical and clinical testing, including post-approval testing, which may take
longer or cost more than we or our licensees, if any, anticipate, and may prove unsuccessful due to numerous factors, including
the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount
of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and
may vary among jurisdictions. We have not obtained regulatory approval for any product candidate.
Numerous factors could affect the timing,
cost or outcome of our product development efforts, including the following:
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difficulty
in enrolling patients in conformity with required protocols or projected timelines;
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requirements
for clinical trial design imposed by the FDA;
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unexpected
adverse reactions by patients in trials;
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difficulty
in obtaining clinical supplies of the product;
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changes
in or our inability to comply with FDA or foreign governmental product testing, manufacturing
or marketing requirements;
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regulatory
inspections of clinical trials or manufacturing facilities, which may, among other things,
require us or our manufacturers or licensees to undertake corrective action or suspend
or terminate the affected clinical trials if investigators find them not to be in compliance
with applicable regulatory requirements;
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inability
to generate statistically significant data confirming the safety and efficacy of the
product being tested;
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modification
of the product during testing; and
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reallocation
of our limited financial and other resources to other clinical programs.
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It is possible that none of the product
candidates we develop will obtain the regulatory approvals necessary for us to begin selling them. The time required to obtain
FDA and foreign governmental approvals is unpredictable, but often can take years following the commencement of clinical trials,
depending upon the complexity of the product candidate. Any analysis we perform on data from clinical activities is subject to
confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. In addition,
even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited
indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on
the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include
the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing
scenarios could materially harm the commercial prospects for our product candidates.
Furthermore, even if we obtain regulatory
approvals, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising,
promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance
with current good manufacturing practices, or cGMPs, and good clinical practices, or cGCPs, for any clinical trials that we conduct
post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity
or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements,
may result in, among other things:
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restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the
market, or voluntary or mandatory product recalls;
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fines, warning
letters or holds on clinical trials;
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refusal
by the FDA to approve pending applications or supplements to approved applications filed
by us or our strategic partners, or suspension or revocation of product license approvals;
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product
seizure or detention, or refusal to permit the import or export of products; and
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injunctions
or the imposition of civil or criminal penalties.
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The FDA’s policies may change
and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that
we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business. We will also
be subject to periodic inspections and the potential for mandatory post- approval clinical trials required by the FDA and other
U.S. and foreign regulatory authorities. Any delay or failure in obtaining required approvals or to comply with post-approval
regulatory requirements could have a material adverse effect on our ability to generate revenue from the particular product candidate.
The failure to comply with any post-approval regulatory requirements also could result in the rescission of the related regulatory
approvals or the suspension of sales of the offending product.
Clinical drug development involves a lengthy
and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial
results. Our current and planned clinical trials of our lead product candidate may fail to show that it is clinically safe and
effective, or that it is better than alternative treatments.
Clinical testing is expensive and can
take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial
process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results
of later-stage clinical trials. Product candidates in later stages of clinical development may fail to show the desired safety
and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in
the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or safety
profiles, notwithstanding promising results in earlier trials. For example, aldoxorubicin has shown encouraging preliminary clinical
results in our Phase 2b clinical trial as a treatment for STS; however, these conclusions may not be reproduced in future clinical
trial results; for instance, the Phase 3 pivotal clinical trial testing aldoxorubicin as a treatment for STS narrowly missed statistical
significance although it demonstrated a statistically significant improvement in PFS over investigator's choice in 312 patients
treated in North America plus Australia . Accordingly, we, or any development partners, may ultimately be unable to provide the
FDA with satisfactory data on clinical safety and efficacy sufficient to obtain FDA approval of aldoxorubicin for any indication.
Further, we may experience delays in
clinical trials of our product candidates. We do not know whether ongoing clinical trials will be completed on schedule or at
all, or whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on
schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
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obtaining
regulatory approval to commence a trial;
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reaching
agreement on acceptable terms with prospective contract research organizations, or CROs,
and clinical trial sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs and clinical trial sites;
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obtaining
institutional review board approval at each clinical trial site;
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recruiting
suitable patients to participate in a trial;
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having patients
complete a trial or return for post-treatment follow-up;
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clinical
trial sites deviating from trial protocol or dropping out of a trial;
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adding new
clinical trial sites; or
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manufacturing
sufficient quantities of product candidate for use in clinical trials.
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Patient enrollment, a significant factor
in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials
and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to
other available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore,
we rely on third parties, such as CROs and clinical trial sites, to ensure the proper and timely conduct of our clinical trials
and while we have agreements governing their committed activities, we have limited influence over their actual performance.
We could encounter delays if prescribing
physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates
in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be
suspended or terminated by us, our collaborators, the institutional review boards, or IRBs, if the institutions in which such
trials are being conducted, the Data Safety Monitoring Board, or DSMB, for such trial, or by the FDA or other regulatory authorities
due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our
clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting
in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from
using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial. For example, the FDA placed a partial clinical hold on our on-going clinical trials of aldoxorubicin in November 2014 following
the death of an individual who was not enrolled in any of our clinical trials but who received aldoxorubicin pursuant to our compassionate
use policy under a single-patient IND held by one of the clinical sites participating in our Phase 3 trial of aldoxorubicin in
STS. The clinical hold resulted in our inability to enroll new patients in our aldoxorubicin studies until the hold was removed
in February 2015. Although we have resumed enrollment in our studies, enrollment in our clinical trials and our projected development
timelines may be adversely affected by residual effects of the former clinical hold or possible future clinical holds.
If we experience delays in the completion
of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be
harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays
in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize
our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition
and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion
of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Our SPA with the FDA for our pivotal study of
aldoxorubicin does not guarantee marketing approval in the U.S.
We have an SPA with the FDA for the
pivotal trial of aldoxorubicin for the treatment of STS. The SPA means that the FDA agrees that the design and analyses proposed
in a protocol are acceptable to support regulatory approval of the product candidate with respect to effectiveness of the indication
studied. However, an SPA agreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design,
execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain
circumstances. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized
at the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor fails
to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a
request for the SPA change or are found to be false or omit relevant facts. In addition, even after an SPA agreement is finalized,
the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances
described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve
the study. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and
results from any study that is the subject of the SPA agreement. Moreover, a final determination that the agreed-upon protocol
satisfies a specific objective, such as the demonstration of efficacy and safety (positive benefit-risk ratio), or supports an
approval decision, will be based on a complete review of all the data submitted to the FDA.
Adverse side effects or other safety risks associated
with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials, limit the commercial
profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our
product candidates could result in the delay, suspension or termination of our clinical trials by us, our collaborators, IRBs,
the FDA or other regulatory authorities. If we elect or are required to delay, suspend or terminate any clinical trial of any
product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate
product revenues from any of these product candidates will be delayed or eliminated. Any of these occurrences may harm our business,
financial condition and prospects significantly.
To date, patients treated with aldoxorubicin
have experienced some of the same drug-related side effects associated with doxorubicin, including myelosuppression (decreased
production of blood cells by bone marrow), gastrointestinal disorders (nausea and vomiting), mucositis (inflammation of the mucous
membranes lining the digestive tract, including the mouth), stomatitis (inflammation of the mouth’s soft tissue), fatigue,
fever and other signs of infection associated with neutropenia (an abnormally low count of a type of white blood cells) and alopecia
(hair loss). Results of our trials could reveal an unacceptable incidence of these or other side effects. In such an event, our
trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further
development of or deny approval of our product candidates for any or all targeted indications. In addition, the drug-related side
effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product
liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Furthermore, if we or others later identify
undesirable side effects caused by the product, a number of potentially significant negative consequences could result, including:
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If our product
candidates receive marketing approval, the FDA could require us to adopt a Risk Evaluation
and Mitigation Strategy to ensure that the benefits of any approved product candidate
outweigh its risks;
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regulatory
authorities may withdraw approvals of such product;
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regulatory
authorities may require additional warnings on the label;
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we may be
required to create a medication guide outlining the risks of such side effects for distribution
to patients;
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we could
be sued and held liable for harm caused to patients; and
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our reputation
may suffer.
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Any of these events could prevent us
from achieving or maintaining market acceptance of aldoxorubicin or the particular product candidate at issue, if approved, and
could significantly harm our business, results of operations and prospects.
We rely on third parties to conduct our preclinical
and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines,
we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates and our business
could be substantially harmed.
We have agreements with third-party
CROs to monitor and manage data for our preclinical and clinical programs. We rely heavily on these parties for execution of our
preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring
that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards,
and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with cGCPs,
which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical
development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators
and trial sites. If we or any of these CROs fails to comply with applicable cGCP regulations, the clinical data generated in our
clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities
will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted
with product produced under cGMP regulations, and will require a large number of test subjects. Our or our CROs’ failure
to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our relationships with these
third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable
terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs,
we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If
CROs 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 clinical trials may be extended, delayed or terminated and we may not be able
to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and
the commercial prospects for aldoxorubicin would be harmed, our costs could increase and our ability to generate revenues could
be delayed.
Switching or adding additional CROs
involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period
when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical
development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not
encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact
on our business, financial condition and prospects.
We rely upon third parties for the manufacture
of our clinical product supplies, and we intend to rely on third parties to produce commercial supplies of any approved product
candidate, and our commercialization of any product candidates, including aldoxorubicin, could be stopped, delayed or made less
profitable if those third parties fail to obtain approval of the FDA, fail to provide us with sufficient quantities of drug product
or fail to do so at acceptable quality levels or prices.
We do not have the facilities or expertise
to manufacture supplies of aldoxorubicin or any of our other product candidates, and we lack the resources and capability to manufacture
any of our product candidates on a clinical or commercial scale. Accordingly, we are dependent upon third-party manufacturers,
or potential future strategic alliance partners, to manufacture these supplies. We have manufacturing supply arrangements in place
with respect to a portion of the clinical supplies needed for the clinical development programs for aldoxorubicin. In September
2015, we entered into an agreement with a supplier to purchase doxorubicin hydrochloride both for clinical and commercial use.
However, we have no other supply arrangements for the commercial manufacture of this product candidate or any manufacturing supply
arrangements for any other potential product candidates, and we may not be able to secure needed supply arrangements on attractive
terms, or at all. Our failure to secure these arrangements as needed could have a materially adverse effect on our ability to
complete the development of our products or to commercialize them.
The facilities used by our contract
manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be completed
after we submit our NDA to the FDA. We do not control the manufacturing process of aldoxorubicin and are completely dependent
on our contract manufacturing partners for compliance with the FDA’s requirements for manufacture of aldoxorubicin. If our
contract manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s strict
regulatory requirements, they will not be able to secure and/or maintain FDA approval for the manufacturing facilities. In addition,
we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and
qualified personnel. If the FDA does not approve these facilities for the manufacture of our product candidates or if it withdraws
any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our
ability to develop, obtain regulatory approval for or market our product candidates.
If aldoxorubicin, our lead product candidate,
or our other product candidates cannot be manufactured in suitable quantities and in accordance with regulatory standards, our
clinical trials, regulatory approvals and marketing efforts for such products may be delayed. Such delays could adversely affect
our competitive position and our chances of generating significant recurring revenues. If any of our products that are approved
for marketing cannot be manufactured at an acceptable cost, the commercial success of such product candidates may be adversely
affected.
We may rely upon third parties in connection
with the commercialization of our products.
The marketing and commercialization
of aldoxorubicin may require us to enter into strategic alliances or other collaborative arrangements with other pharmaceutical
companies under which those companies will be responsible for one or more aspects of the eventual marketing and commercialization
of aldoxorubicin, if it is approved for marketing.
Any future product candidate, if approved
for marketing, may not have sufficient potential commercial value to enable us to secure strategic arrangements with suitable
companies on attractive terms, or at all. If we are unable to enter into such arrangements, we may not have the financial or other
resources to commercialize our products and may have to sell our rights in them to a third party or abandon their commercialization
altogether.
To the extent we enter into collaborative
arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual
partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in
complying with applicable FDA and other regulatory requirements, we may not obtain regulatory approvals as planned, if at all,
and the timing of receipt or the amount of revenue from these arrangements may be materially and adversely affected. By entering
into these arrangements rather than completing the development and then marketing these products on our own, the profitability
to us of these products may decline.
We may be unable to protect our intellectual
property rights, which could adversely affect our ability to compete effectively.
We will be able to protect our technologies
from unauthorized use by third parties only to the extent that we have rights to valid and enforceable patents or other proprietary
rights that cover them. Although we have rights to patents and patent applications directed to aldoxorubicin and other product
candidates, these patents and applications may not prevent third parties from developing or commercializing similar or identical
technologies. In addition, our patents may be held to be invalid if challenged by third parties, and our patent applications may
not result in the issuance of patents.
The patent positions of pharmaceutical
and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal
principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged
to date in the United States and in many foreign countries. The application and enforcement of patent laws and regulations in
foreign countries is even more uncertain. Accordingly, we may not be able to effectively file, protect or defend our proprietary
rights on a consistent basis. Many of the patents and patent applications on which we rely were issued or filed by third parties
prior to the time we acquired rights to them. The validity, enforceability and ownership of those patents and patent applications
may be challenged, and if a court decides that our patents are not valid, we will not have the right to stop others from using
our inventions. There is also the risk that, even if the validity of our patents is upheld, a court may refuse to stop others
on the ground that their activities do not infringe our patents.
Any litigation brought by us to protect
our intellectual property rights could be costly and have a material adverse effect on our operating results or financial condition,
make it more difficult for us to enter into strategic alliances with third parties to develop our products, or discourage our
existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to
prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely
to be materially and adversely affected.
We also rely on certain proprietary
trade secrets and know-how, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets
and know-how are difficult to protect. Although we have taken measures to protect our unpatented trade secrets and know-how, including
the use of confidentiality and invention assignment agreements with our employees, consultants and some of our contractors, it
is possible that these persons may disclose our trade secrets or know-how or that our competitors may independently develop or
otherwise discover our trade secrets and know-how.
If our product candidates infringe the rights
of others, we could be subject to expensive litigation or be required to obtain licenses from others to develop or market them.
Our competitors or others may have patent
rights that they choose to assert against us or our licensees, suppliers, customers or potential collaborators. Moreover, we may
not know about patents or patent applications that our products would infringe. For example, because patent applications do not
publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown
to us that may later result in issued patents that our product candidates would infringe. In addition, if third parties file patent
applications or obtain patents claiming technology also claimed by us or our licensors in issued patents or pending applications,
we may have to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention.
If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals
to defend the patentability of our foreign patent applications.
If a third-party claims that we are
infringing on its proprietary rights, any of the following may occur:
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we may become
involved in time-consuming and expensive litigation, even if the claim is without merit;
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we may become
liable for substantial damages for past infringement if a court decides that our technology
infringes a competitor’s patent;
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a court may
prohibit us from selling or licensing our product without a license from the patent holder,
which may not be available on commercially acceptable terms, if at all, or which may
require us to pay substantial royalties or grant cross licenses to our patents; and
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we may have
to redesign our product candidates or technology so that it does not infringe patent
rights of others, which may not be possible or commercially feasible.
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If any of these events occurs, our business
and prospects will suffer and the market price of our common stock will likely decline substantially.
Any products we develop may become subject to
unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect
on our business.
We intend to sell our products that
may be approved for marketing primarily to hospitals, which generally receive reimbursement for the health care services they
provide to their patients from third-party payors, such as Medicare, Medicaid and other domestic and international government
programs, private insurance plans and managed care programs.
We currently expect that any drugs we
develop may need to be administered under the supervision of a physician. Under currently applicable law, drugs that are not usually
self-administered may be eligible for coverage by the Medicare program if:
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they are “incidental”
to a physician’s services;
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they are “reasonable
and necessary” for the diagnosis or treatment of the illness or injury for which
they are administered according to accepted standard of medical practice;
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they are not
excluded as immunizations; and
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they have
been approved by the FDA.
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There is significant uncertainty related
to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private
and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which
new drugs and biologics will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older, disabled
or suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers certain individuals
and families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private
payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. It is difficult
to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Most third-party payors may deny coverage
or reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as
determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to cover and
reimburse for experimental procedures and devices. Furthermore, because our programs are in the early stages of development, we
are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. 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. If the price we are able to charge for any products we develop is inadequate in light of our development
and other costs, our profitability could be adversely affected.
Healthcare legislative reform measures could
hinder or prevent the commercial success of our products and product candidates.
In the United States, there have been,
and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect
our future revenues and profitability. Federal and state lawmakers regularly propose and, at times, enact legislation that results
in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products
and services. For example, in March 2010, President Obama signed one of the most significant healthcare reform measures in decades,
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively,
the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs,
reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will
result in the development of new programs. The Affordable Care Act, among other things, (i) increases the minimum Medicaid rebates
owed by manufacturers under the Medicaid Drug Rebate Program, extends the rebate program to individuals enrolled in Medicaid managed
care organizations, and addresses new methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program
are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line extension products;
(ii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and (iii) enacts a new Medicare
Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices
of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D.
In addition, other legislative changes
have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control
Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction,
tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to
reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes
aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013. On January
2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments
to several providers, including hospitals, imaging centers and cancer treatment centers. We expect that additional state and federal
healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional
pricing pressures.
We may also be subject to healthcare laws, regulation
and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.
If we obtain FDA approval for any of
our product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly
through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback
Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things,
our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the
federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal
Anti-Kickback Statute, which prohibits, among other things, any person from knowingly
and willfully offering, soliciting, receiving or providing remuneration, directly or
indirectly, to induce either the referral of an individual, for an item or service or
the purchasing or ordering of a good or service, for which payment may be made under
federal healthcare programs such as the Medicare and Medicaid programs;
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the federal
False Claims Act, which prohibits, among other things, individuals or entities from knowingly
presenting, or causing to be presented, false claims, or knowingly using false statements,
to obtain payment from the federal government, and which may apply to entities that provide
coding and billing advice to customers;
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federal criminal
laws that prohibit executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters;
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the federal
physician sunshine requirements under the Affordable Care Act, which requires manufacturers
of drugs, devices, biologics, and medical supplies to report annually to the Centers
for Medicare & Medicaid Services information related to payments and other transfers
of value to physicians, other healthcare providers, and teaching hospitals, and ownership
and investment interests held by physicians and other healthcare providers and their
immediate family members;
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the federal
Health Insurance Portability and Accountability Act of 1996, as amended by the Health
Information Technology for Economic and Clinical Health Act, which governs the conduct
of certain electronic healthcare transactions and protects the security and privacy of
protected health information; and
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state law
equivalents of each of the above federal laws, such as anti-kickback and false claims
laws which may apply to items or services reimbursed by any third-party payor, including
commercial insurers; state laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the applicable
compliance guidance promulgated by the federal government, or otherwise restrict payments
that may be made to healthcare providers and other potential referral sources; state
laws that require drug manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or marketing expenditures;
and state laws governing the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and may not have the same effect,
thus complicating compliance efforts.
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Because of the breadth of these laws
and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities
could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened
these laws. For example, the recently enacted Affordable Care Act, among other things, amends the intent requirement of the Federal
Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the
statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a
claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the False Claims Act.
Achieving and sustaining compliance
with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend
against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation
of our business. If our operations are found to be in violation of any of the laws described above or any other governmental regulations
that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from participation
in federal and state healthcare programs, imprisonment, or the curtailment or restructuring of our operations, any of which could
adversely affect our ability to operate our business and our financial results.
We are subject to intense competition, and we
may not compete successfully.
Aldoxorubicin is a conjugate of doxorubicin,
a widely used anti-cancer drug. Doxorubicin is part of the anthracycline class of chemotherapy agents. Anthracyclines, many of
which, including doxorubicin are generic, have been used throughout the world to treat various cancers for several decades. Due
to their track record of broad anti-cancer activity, new types of anthracyclines and modified or reformulated versions continue
to be developed to overcome toxicities which limit the use of these drugs.
Aldoxorubicin is a chemically modified
version of doxorubicin that incorporates an acid sensitive linker technology to improve concentration in the tumor. We believe
that the albumin-binding ability of aldoxorubicin will allow the compound to overcome many of the side effect issues typically
associated with anthracyclines. We also believe that using albumin as a targeted carrier will allow for higher dosing, greater
concentration of the drug in tumors and greater efficacy.
STS patients are typically treated with
surgery followed by radiation therapy. For patients ineligible for surgery, radiation or both, chemotherapy is the only option.
Doxorubicin is the only approved first-line drug for treating STS patients who are ineligible for surgery and is often used in
combination with radiation. The National Comprehensive Cancer Network also includes the use of ifosfamide, epirubicin, gemcitabine,
gemcitabine with docetaxel, dacarbazine and liposomal doxorubicin marketed in the United States as Doxil® by Johnson &
Johnson. Pazopanib (Votrient®), developed by GlaxoSmithKline and now marketed by Novartis, was approved in the United States
and Europe in 2012 for the treatment of certain types of advanced STS following prior chemotherapy. In October 2015, the Janssen
unit of Johnson & Johnson received approval for trabectedin (Yondelis®) for the treatment of patients with leiomyosarcoma
and liposarcoma,that have previously received an anthracycline-containing regimen. In January 2016, the FDA approved Eisai’s
eribulin (Halaven®) as a treatment for patients with unresectable or metastatic liposarcoma who have received a prior anthracycline.
Eli Lilly is conducting a Phase 3 clinical trial with olaratumab in combination with doxorubicin in first-line STS. Eli Lilly
stated in October 2015 that they plan to submit a rolling new drug application based on the Phase 2 clinical trial results in
STS. There are other approaches to treating STS in clinical development, including Morphotek’s ontuxizumab in combination
with chemotherapy, and Tracon Pharmaceuticals’ TRC-105 in combination with pazopanib.
Patients with glioblastoma multiforme,
or GBM, generally undergo invasive brain surgery, although disease progression following surgery is nearly 100%. The front-line
therapy for GBM following surgery is radiation in combination with temozolomide (Temodar®). Bevacizumab (Avastin®) has
been approved for the treatment of GBM in patients progressing after prior therapy. Drugs in development to treat GBM include
nivolumab by Bristol-Myers Squibb, DCVax by Northwest Biotherapeutics, TRC-105 from Tracon Pharmaceuticals, veliparib by AstraZeneca
and buparlisib by Novartis.
Treatment for newly diagnosed SCLC typically
consists of cisplatin or carboplatin in combination with etoposide. Radiation may also be given for extensive-stage disease. While
first-line treatment can yield overall response rates of 50-80%, the duration of response is often less than 90 days. For recurrent
SCLC, topotecan (Hycamtin®) is standard therapy. SCLC patients who are sensitive to first-line treatment may receive topotecan
or the generic chemotherapeutic drugs irinotecan, taxanes, gemcitabine or vinorelbine. Drugs in development for second-line SCLC
include Bristol-Myers Squibb’s ipilumimab (Yervoy®) and SC16LD6.5 by Stem CentRx, Inc.
Kaposi’s sarcoma is generally
treated with radiation, surgery and/or liposomal doxorubicin. Liposomal daunorubicin (DaunoXome®, Galen US), with or without
paclitaxel, is also recommended as treatment for advanced disease. Other drugs in development for Kaposi’s sarcoma include
selumetinib by AstraZeneca and pomalidamide by Celgene.
Many companies, including large pharmaceutical
and biotechnology firms with financial resources, research and development staffs, and facilities that may be substantially greater
than those of ours or our strategic partners or licensees, are engaged in the research and development of pharmaceutical products
that could compete with our potential products. To the extent that we seek to acquire, through license or otherwise, existing
or potential new products, we will be competing with numerous other companies, many of which will have substantially greater financial
resources, large acquisition and research and development staffs that may give those companies a competitive advantage over us
in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products
marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized
by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective
than those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive
products for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional
competitive products are under development and may also include products currently under development that we are not aware of
or products that may be developed in the future.
As a result, these competitors may:
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succeed in
developing competitive products sooner than us or our strategic partners or licensees;
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obtain FDA
or foreign governmental approvals for their products before we can obtain approval of
any of our products;
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obtain patents
that block or otherwise inhibit the development and commercialization of our product
candidate candidates;
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develop products
that are safer or more effective than our products;
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devote greater
resources than us to marketing or selling products;
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introduce
or adapt more quickly than us to new technologies and other scientific advances;
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introduce
products that render our products obsolete;
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withstand
price competition more successfully than us or our strategic partners or licensees;
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negotiate
third-party strategic alliances or licensing arrangements more effectively than us; and
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take better
advantage than us of other opportunities.
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We will be required to pay substantial milestone
and other payments relating to the commercialization of our products.
The agreement relating to our worldwide
rights to aldoxorubicin provides for our payment of up to an aggregate of $7.5 million upon meeting specified clinical and regulatory
milestones up to and including the product’s second, final marketing approval. We also will be obliged to pay:
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commercially
reasonable royalties based on a percentage of net sales (as defined in the agreement);
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a percentage
of any non-royalty sub-licensing income (as defined in the agreement); and
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milestones
of $1,000,000 for each additional final marketing approval that we might obtain.
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Under the merger agreement by which
we acquired Innovive, we agreed to pay the former Innovive stockholders a total of up to approximately $18.3 million of future
earnout merger consideration, subject to our achievement of specified net sales under the Innovive license agreements. The earnout
merger consideration, if any, will be payable in shares of our common stock, subject to specified conditions, or, at our election,
in cash or by a combination of shares of our common stock and cash. Our common stock will be valued for purposes of any future
earnout merger consideration based upon the trading price of our common stock at the time the earnout merger consideration is
paid.
We rely significantly on information technology and
any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm
our ability to operate our business effectively.
We rely significantly on information
technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents,
could harm our ability to operate our business effectively. We maintain sensitive data pertaining to our company on our computer
networks, including information about our development activities, our intellectual property and other proprietary business information.
Our internal computer systems and those of third parties with which we contract may be vulnerable to damage from cyber-attacks,
computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures, despite
the implementation of security measures. System failures, accidents or security breaches could cause interruptions to our operations,
including material disruption of our development activities, result in significant data losses or theft of our intellectual property
or proprietary business information, and could require substantial expenditures to remedy. To the extent that any disruption or
security breach were to result in a loss of, or damage to, our data or applications or inappropriate disclosure of confidential
or proprietary information, we could incur liability and our development programs could be delayed, any of which would harm our
business and operations.
We are subject to potential liabilities from
clinical testing and future product liability claims.
If any of our products are alleged to
be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or, if we obtain
marketing approval and commercialize our products, by patients using our commercially marketed products. Even if one or more of
our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We maintain clinical
trial insurance for our ongoing clinical trials, and we plan to seek to obtain similar insurance for any other clinical trials
that we conduct. We also would seek to obtain product liability insurance covering the commercial marketing of our product candidates.
We may not be able to obtain additional insurance, however, and any insurance obtained by us may prove inadequate in the event
of a claim against us. Any claims asserted against us also may divert management’s attention from our operations, and we
may have to incur substantial costs to defend such claims even if they are unsuccessful.
We may be unable to successfully acquire additional
technologies or products. If we require additional technologies or products, our product development plans may change and the
ownership interests of our shareholders could be diluted.
We may seek to acquire additional technologies
by licensing or purchasing such technologies, or through a merger or acquisition of one or more companies that own such technologies.
We have no current understanding or agreement to acquire any technologies, however, and we may not be able to identify or successfully
acquire any additional technologies. We also may seek to acquire products from third parties that already are being marketed or
have been approved for marketing, although we have not currently identified any of these products. We do not have any prior experience
in acquiring or marketing products approved for marketing and may need to find third parties to market any products that we might
acquire.
We have focused our product development
efforts on our oncology drug candidates, which we believe have the greatest revenue potential. If we acquire additional technologies
or product candidates, we may determine to make further changes to our product development plans and business strategy to capitalize
on opportunities presented by the new technologies and product candidates.
We may determine to issue shares of
our common stock to acquire additional technologies or products or in connection with a merger or acquisition of another company.
To the extent we do so, the ownership interest of our stockholders will be diluted accordingly.
We are conducting certain of our clinical trials
in foreign countries, which exposes us to additional risks.
We are conducting international clinical
development of aldoxorubicin. The conduct of clinical trials outside the United States could have a significant impact on us.
Risks inherent in conducting international clinical trials include:
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foreign regulatory
requirements that could restrict or limit our ability to conduct our clinical trials;
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administrative
burdens of conducting clinical trials under multiple foreign regulatory schema;
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foreign exchange
fluctuations;
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diminished
protection of intellectual property in some countries; and
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possible nationalization
and expropriation.
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In addition,
there may be changes to our business and political position if there is instability,
disruption or destruction in a significant geographic region, regardless of cause, including
war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters,
including famine, flood, fire, earthquake, storm or disease, which could seriously harm
the development of our current operating strategy.
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In the event of a dispute regarding our international
clinical trials, it may be necessary for us to resolve the dispute in the foreign country of dispute, where we would be faced
with unfamiliar laws and procedures.
The resolution of disputes in foreign
countries can be costly and time consuming, similar to the situation in the United States. However, in a foreign country, we face
the additional burden of understanding unfamiliar laws and procedures. We may not be entitled to a jury trial, as we might be
in the United States. Further, to litigate in any foreign country, we would be faced with the necessity of hiring lawyers and
other professionals who are familiar with the foreign laws. For these reasons, we may incur unforeseen expenses if we are forced
to resolve a dispute in a foreign country.
Drug discovery is a complex, time-consuming
and expensive process, and we may not succeed in creating new product candidates.
Conducting drug discovery and pre-clinical
development of our albumin-binding technology is a complex and expensive process that will take many years. Accordingly, we cannot
be sure whether or when our drug discovery and pre-clinical development activities will succeed in developing any new product
candidates. In addition, any product candidates that we develop in pre-clinical testing may not demonstrate success in clinical
trials required for marketing approval.
Any deficiency in the design, implementation
or oversight of our drug discovery and pre-clinical testing programs could cause us to incur significant additional costs, experience
significant delays, prevent us from obtaining marketing approval for any product candidate that may result from these programs
or abandon development of certain product candidates. If any of these risks materializes, it could harm our business and cause
our stock price to decline.
We have a limited operating history in drug
discovery, which is inherently risky, and we may not succeed in addressing these risks.
We have operated our drug discovery
laboratory and LADR™ development program since October 2014. Accordingly, we have a limited operating history in conducting
our own drug discovery programs. Consequently, there is limited information for investors to use as basis for assessing the viability
of our drug discovery efforts. Investors must consider the risks and difficulties inherent in drug discovery and pre-clinical
activities, including the following:
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difficulties,
complications, delays and other unanticipated factors in connection with the development
of new drugs;
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competition
from companies that have substantially greater assets and financial resources than we
have;
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our ability
to anticipate and adapt to a competitive market and rapid technological developments;
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our need to
rely on multiple levels of complex financing agreements with outside funding due to the
length of drug development cycles and governmental approved protocols associated with
the pharmaceutical industry; and
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our dependence
upon key scientific personnel, including Felix Kratz, Ph.D., our Vice President of Drug
Discovery.
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We cannot be certain that we will successfully
address these risks or that our drug discovery efforts will be successful. In the event that we do not successfully address these
risks, our business, prospects, financial condition and results of operations could be materially and adversely affected. We also
may be required to reduce or discontinue altogether our drug discovery and pre-clinical programs.
Our ability to use our net operating loss carryforwards
and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue
Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use
its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research and development tax credits)
to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a
cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year
period. Similar rules may apply under state tax laws. As a result of a previous ownership change, our annual utilization of approximately
$62.3 million in federal net operating loss carryforwards will be substantially limited. If we experience ownership changes as
a result of future transactions in our stock, we may be further limited in our ability to use our net operating loss carryforwards
and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our
net operating loss carryforwards and other tax assets could potentially result in increased future tax liability to us on any
net income that we may earn in the future.
Risks Associated With Our Common Stock
You may experience future dilution as a result of
future equity offerings or other equity issuances.
To raise additional capital, we may in the
future offer additional shares of our common stock, preferred stock or other securities convertible into or exchangeable for our
common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per
share that is equal to or greater than the price per share that you may pay for the shares of our common stock offered hereby.
The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable
for our common stock in future transactions may be higher or lower than the price per share that you may pay for the shares of
our common stock offered hereby.
Our common stock may be delisted from The NASDAQ
Capital Market
On August 24, 2016, we received notice from
The NASDAQ Capital Market (“Nasdaq”) that the closing bid price for our common stock had been below $1.00 for the previous
30 consecutive business days, and that we are therefore not in compliance with the minimum bid price requirement for continued
inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notice indicates that we will have 180 calendar
days, or until February 21, 2017, to regain compliance with this requirement. On February 22, 2017, Nasdaq notified us that we
are eligible for an extension to comply with the minimum $1.00 bid price requirement through August 21, 2017, by which date we
must evidence compliance for at least ten consecutive business days. If compliance cannot be demonstrated by August 21, 2017, Nasdaq
will provide written notification that our common stock will be delisted. In the event of such a notification, we may appeal Nasdaq’s
determination, but there can be no assurance Nasdaq would grant any such request for continued listing
If it appears to Nasdaq that we will not
be able to cure the deficiency, or if we are otherwise not eligible, we expect that Nasdaq will notify us that our common stock
will be subject to delisting.
We may experience volatility in our stock price,
which may adversely affect the trading price of our common stock.
The market price of our common stock
in 2016 ranged from $0.36 to $3.66 per share, and it may continue to experience significant volatility from time to time. Factors
that may affect the market price of our common stock include the following:
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announcements
of interim or final results of our clinical trials or our drug discovery activities;
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announcements
of regulatory developments or technological innovations by us or our competitors;
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changes in
our relationship with our licensors and other strategic partners;
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our quarterly
operating results;
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litigation
involving or affecting us;
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shortfalls
in our actual financial results compared to our guidance or the forecasts of stock market
analysts;
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developments
in patent or other technology ownership rights;
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acquisitions
or strategic alliances by us or our competitors;
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public concern
regarding the safety of our products; and
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government
regulation of drug pricing.
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Our outstanding options and warrants and the availability
for resale of the underlying shares may adversely affect the trading price of our common stock.
As of December 31, 2016, we had outstanding
stock options to purchase 17,479,770 shares of our common stock at a weighted-average exercise price of $2.37 per share and outstanding
warrants to purchase 32,502,790 shares of common stock at a weighted-average exercise price of $0.68 per share. Our outstanding
options and warrants could adversely affect our ability to obtain future financing or engage in certain mergers or other transactions,
since the holders of options and warrants can be expected to exercise them at a time when we may be able to obtain additional
capital through a new offering of securities on terms more favorable to us than the terms of outstanding options and warrants.
For the life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common
stock without assuming the risk of ownership. The issuance of shares upon the exercise of outstanding options and warrants will
also dilute the ownership interests of our existing stockholders. Many of our outstanding warrants contain anti-dilution provisions
pertaining to dividends with respect to our common stock. In the event that these anti-dilution provisions are triggered by us
in the future, we would likewise be required to reduce the exercise price, and increase the number of shares underlying, those
warrants, which would have a dilutive effect on our stockholders.
We have registered with the SEC the
resale by the holders of all or substantially all shares of our common stock issuable upon exercise of our outstanding options
and warrants. The availability of these shares for public resale, as well as actual resales of these shares, could adversely affect
the trading price of our common stock.
We cannot assure investors that our internal controls
will prevent future material weaknesses.
As of December 31, 2015, we
identified a control deficiency in our financial reporting process concerning a non-routine and unusual item that constituted
a material weakness in our internal controls. Since then, we have performed a comprehensive review of significant and unusual
transactions, and during the quarter ended September 30, 2016, we implemented new controls and strengthened existing controls
over the identification and accounting for significant and unusual transactions. As of December 31, 2016, our management
concluded that the controls were operating effectively and that the material weakness as of December 31, 2015 had been fully
remediated. There can be no assurance, however, that the new controls will prevent the weakness from re-occurring in the
future.
There also can be no assurance that we will
not suffer from other material weaknesses in the future. If we fail to remediate these material weaknesses or fail to otherwise
maintain effective internal controls over financial reporting in the future, such failure could result in a material misstatement
of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause
investors and other users to lose confidence in our financial statements, limit our ability to raise capital and have a negative
effect on the trading price of our common stock. Additionally, failure to remediate the material weaknesses or otherwise failing
to maintain effective internal controls over financial reporting may also negatively impact our operating results and financial
condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and
regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial
measures.
We are subject to legal actions that could adversely
affect our financial condition.
We announced in December 2015 and January
2016 that we agreed to settle federal securities class actions and stockholder derivative lawsuits filed in 2014 against us and
certain of our officers and directors. In July 2016, Securities-related class action lawsuits and derivative litigation have often
been brought against companies, including many biotechnology companies, which experience volatility in the market price of their
securities. This risk is especially relevant for biotechnology and biopharmaceutical companies such as ours, which often experience
significant stock price volatility in connection with their product development programs.
As described further in Item 3 of Part
I of our most recent Annual Report on Form 10-K incorporated herein by reference, our directors and certain of our officers
are subject to stockholder derivative claims pending in the Delaware Court of Chancery and we and certain of our officers are
subject to class-action complaints filed in the U.S. District Court for the Central District of California. Although we carry
director’s and officer’s and other liability insurance, we must pay the first legal fees and other litigation expenses
incurred up to the application retention, or deductible, amounts under our insurance policies, and the insurance may not be sufficient
to cover all of the liabilities that we may incur in connection with the pending or possible future legal actions. As a result,
the pending legal proceedings and any future legal actions may adversely affect out financial condition.
Our anti-takeover measures may make it more difficult
to change our management, or may discourage others from acquiring us, and thereby adversely affect stockholder value.
We have a stockholder rights plan and
provisions in our restated by-laws, as amended, that are intended to protect our stockholders’ interests by encouraging
anyone seeking control of our company to negotiate with our board of directors. These provisions may discourage or prevent a person
or group from acquiring us without the approval of our board of directors, even if the acquisition would be beneficial to our
stockholders.
We have a classified board of directors,
which means that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control
of our board of directors. This applies to every election of directors, not just an election occurring after a change in control.
The classification of our board increases the amount of time it takes to change majority control of our board of directors and
may cause potential acquirers to lose interest in a potential purchase of us, regardless of whether our purchase would be beneficial
to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes it
more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change
the strategic direction or operational performance of our company.
Our by-laws provide that directors may
only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital
stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director
without cause. Our by-laws also provide that a stockholder must give us at least 120 days’ notice of a proposal or director
nomination that such stockholder desires to present at any annual meeting or special meeting of stockholders. Such provision prevents
a stockholder from making a proposal or director nomination at a stockholder meeting without us having advance notice of that
proposal or director nomination. This could make a change in control more difficult by providing our directors with more time
to prepare an opposition to a proposed change in control. By making it more difficult to remove or install new directors, these
bylaw provisions may also make our existing management less responsive to the views of our stockholders with respect to our operations
and other issues such as management selection and management compensation.
We are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which may also prevent or delay a takeover of us that may be
beneficial to our stockholders.
Our restated by-laws, as amended, designate
the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that
may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or other employees.
Our by-laws provide that, unless we
consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum
for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary
duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant
to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim that is governed by the internal
affairs doctrine. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed
to have notice of and to have consented to this provision of our by-laws. This choice-of-forum provision may limit our stockholders’
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated
by-laws inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and
financial condition.
We may issue preferred stock in the future, and
the terms of the preferred stock may reduce the value of our common stock.
We are authorized to issue shares of
preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without
further action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding
common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences
as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to
merge with or sell our assets to a third party.
We do not expect to pay any cash dividends on
our common stock.
We have not declared or paid any cash
dividends on our common stock or other securities, and we currently do not anticipate paying any cash dividends in the foreseeable
future. Because we do not anticipate paying cash dividends for the foreseeable future, our stockholders will not realize a return
on their investment in our common stock except to the extent of any appreciation in the value of our common stock. Our common
stock may not appreciate in value, or may decline in value.
Risks Associated With This Offering
You will experience immediate and substantial dilution
in the net tangible book value per share of the stock you purchase.
If the exercise price per share of the July
2016 warrants is higher than the net tangible book value per share of our common stock when you exercise your July 2016 warrants,
you will suffer immediate dilution in the net tangible book value of the common stock you acquire on exercise. See “Dilution”
in this prospectus for a more detailed discussion of the dilution you may incur if you exercise your July 2016 warrants.
Our management will have broad discretion as to
the use of the proceeds of this offering.
We have not designated the amount of net
proceeds from this offering to be used for any particular purpose. Accordingly, our management will have broad discretion as to
the application of the net proceeds and could use them for purposes other than those contemplated at the time of this offering.
Our stockholders may not benefit from the manner in which our management chooses to allocate and spend the net proceeds.
You may not be able to resell your warrants.
There is no established trading market for
the July 2016 warrants, and we do not expect such a market to develop. In addition, we do not intend to apply for listing of the
July 2016 warrants on any securities exchange or other nationally recognized trading system, and you may not be able to resell
your July 2016 warrants. If your July 2016 warrants cannot be resold, you will have to depend upon any appreciation in the value
of our common stock over the exercise price of the warrants in order to realize a return on your investment in the July 2016 warrants.
Investors will have no rights as a common stockholder
with respect to their warrants until they exercise their warrants and acquire our common stock.
Until you acquire shares of our common stock
upon exercise of your July 2016 warrants, you will have no rights with respect to the shares of our common stock underlying your
July 2016 warrants except as set forth in the July 2016 warrants. Upon exercise of your July 2016 warrants, you will be entitled
to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
You may experience future dilution as a result of
future equity offerings or other equity issuances.
To raise additional capital, we may in the
future offer additional shares of our common stock, preferred stock or other securities convertible into or exchangeable for our
common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per
share that is equal to or greater than the exercise price per share paid in connection with any exercise of your July 2016 warrants.
The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable
for our common stock in future transactions may be higher or lower than the exercise price per share of the July 2016 warrants.