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1A. RISK FACTORS.
Investing
in our securities involves a high degree of risk. You should carefully consider each of the following risks and all of the other
information contained in this report and the other documents we file with the SEC before making any investment decision with respect
to our securities. If any of the risks described below materialize, our business, financial condition, results of operations,
prospects or stock price could be materially and adversely affected. The risks described below are not the only risks we face.
Additional risks and uncertainties not currently known to us may also materially and adversely affect our business operations
and financial condition or the price of our common stock.
Risks
Related to Our Business
We
are an early-stage, pre-commercial company with a limited operating history and no commercially available or approved products,
which makes assessment of our future viability difficult and which may hinder our ability to generate revenue and meet our other
objectives.
We
are an early-stage, pre-commercial company with only a limited operating history upon which to base an evaluation of our current
business and future prospects and how we will respond to competitive, financial or technological challenges. Although we are pursuing
several oncology product candidates, our primary product candidate, ImmunoPulse® IL-12, is in two Phase II combination clinical
trials. As a result, none of our product candidates are near commercial availability. Additionally, although we are investigating
licensing and partnering opportunities, no such opportunities have been finalized and, even if completed, we do not expect that
these potential opportunities would generate any significant near-term revenue. Our operations to date have been limited to organizing,
staffing and financing, applying for patent rights, undertaking clinical trials of ImmunoPulse® IL-12 and engaging in other
research and development activities, including pre-clinical and other studies of our other product candidates. We have not demonstrated
an ability to obtain regulatory approval of a product candidate, manufacture commercial-scale products, or conduct the sales and
marketing activities necessary for successful product commercialization. Consequently, the revenue-generating potential of our
business is unproven and uncertain.
In
addition, because of our short operating history, we have limited insight into trends that may emerge and affect our business
or our industry. We will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies
in evolving markets, and we may not be able to successfully address any or all of these risks and uncertainties. Further, errors
may be made in predicting and reacting to relevant business or industry trends. The occurrence of any of these risks could cause
our business, results of operations, and financial condition to suffer or fail.
We
are significantly dependent on the success of our ImmunoPulse® technology platform and our product candidates based on this
platform, including our lead product candidate ImmunoPulse® IL-12.
We
have invested, and we expect to continue to invest, significant efforts and financial resources in the development of product
candidates based on our ImmunoPulse® technology, including primarily our lead primary product candidate ImmunoPulse® IL-12.
Our ability to generate revenue, which may not occur for the foreseeable future, if ever, will depend heavily on the successful
development, regulatory approval and commercialization of one or more of these product candidates.
The
success of ImmunoPulse® IL-12 or any other product candidates based on our ImmunoPulse® technology will depend on a number
of factors, including, among others:
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our
ability to conduct and complete pre-clinical and clinical studies and trials, including the time, costs and uncertainties
associated with all aspects of these trials;
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the
data we obtain from pre-clinical and clinical testing of the product candidates, including data demonstrating the required
level of safety and efficacy of the product candidates (for example, a key factor in determining whether we are able to successfully
develop and commercialize our ImmunoPulse® IL-2 platform in melanoma will be the data we obtain from our PISCES/KEYNOTE-695
study, which is out planned registration-directed study of ImmunoPulse® IL-12 in combination with Merck & Co., Inc.’s,
or Merck’s, approved therapy for melanoma in patients who have shown resistance to or relapse from certain other cancer
therapies);
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the
regulatory approval pathway we choose to pursue for our product candidates in the United States or any other jurisdiction;
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our
ability to obtain required regulatory approvals for one or more of our product candidates in the United States and in other
jurisdictions, and the time required to obtain these approvals;
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the
manufacturing arrangements we are able to establish with third-party manufacturers, both for the manufacture of the product
candidates for clinical trial use and for the manufacture of products, if and when approved, on a commercial basis;
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our
ability to build an infrastructure capable of supporting product sales, marketing and distribution of any approved products
in territories where we pursue commercialization directly;
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our
ability to establish commercial distribution agreements with third-party distributors for any approved products in territories
where we do not pursue commercialization directly;
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the
labeling requirements for any product candidates that are approved, including obtaining sufficiently broad labels that would
not unduly restrict patient access;
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acceptance
of our products, if and when approved, by patients and the medical community;
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the
ability of our products, if and when approved, to effectively compete with other cancer treatments;
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a
continued acceptable safety profile of any product candidates that are approved following such approval;
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our
level of success in obtaining and maintaining patent and trade secret protection and otherwise protecting our rights in our
intellectual property portfolio;
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the
levels of coverage and reimbursement we are able to secure for any product candidates that receive regulatory approval;
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our
ability to establish a commercially viable price for our products, if and when approved; and
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delays
or unanticipated costs, including those related to any of the foregoing.
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If
one or more of these factors is unfavorable, we could experience significant delays or we may not be able to successfully commercialize
ImmunoPulse® IL-12 or any of our other product candidates, which would materially harm our business.
It
may be difficult to identify and enroll metastatic melanoma patients due to clinical trial inclusion-exclusion criteria or other
factors, which has in the past, and may in the future, lead to delays in enrollment and in generating clinical data for our trials.
Our
PISCES/KEYNOTE-695 study, along with our other clinical trials, has strict inclusion criteria for patient enrollment. These criteria
could present significant obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into
our trials. For example, we experienced slower than expected patient enrollment in our triple negative breast cancer clinical
trial, and we may experience similar delays in any of our other existing or future clinical trials. Any inability to successfully
enroll the number of patients meeting the criteria for any of our clinical trials could cause significant delays in the trial
and increase the costs associated with the trial, which could materially harm our business and prospects.
Patient
enrollment in a clinical trial may be affected by many factors, including:
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the
severity of the disease under investigation;
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the
design of the study protocol;
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the
eligibility criteria for the study;
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the
perceived risks, benefits and convenience of administration of the product candidate being studied;
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the
competitive disease space with many trials for patients to select from;
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the
patient referral practices of physicians; and
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the
proximity and availability of clinical trial sites to prospective patients.
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Certain
characteristics of our ImmunoPulse® platform may negatively impact market acceptance of the platform.
Physicians,
patients, and third-party payors may be less accepting of product candidates based on our ImmunoPulse® technology platform
due to certain characteristics of this platform. For example, these parties may have concerns about the complexity inherent in
a combination therapy approach or the clinical application of electroporation technology, which is less prevalent in the United
States than in certain foreign markets. Moreover, our efforts to educate the medical community and third-party payors about the
benefits of any of our technologies and product candidates may require significant resources and may never be successful. As a
result, even if any of our product candidates achieve regulatory approval, a lack of acceptance by physicians, third-party payors
and patients of the products or underlying technologies could prevent their successful commercialization and could materially
limit our revenue potential.
If
the commencement or completion of clinical testing for our product candidates is delayed or prevented, we could experience significantly
increased costs and our ability to pursue regulatory approval or generate revenue could be delayed or limited.
Clinical
trials are very expensive, time-consuming, unpredictable and difficult to design and implement. Even if we are able to complete
our ongoing and currently proposed clinical trials and assuming the results are favorable, clinical trials for product candidates
based on our technology will continue for several years and may take significantly longer than expected to complete. Even with
the Fast Track designation we received from the FDA for ImmunoPulse® IL-12 in February 2017, Phase II and Phase III clinical
trials, which can take many years to complete, are still required.
Delays
in the commencement or completion of clinical testing could significantly affect our product development costs and business plan.
Our PISCES/KEYNOTE-695 study opened to enrollment in October 2017 and is expected to complete enrollment in the 2018 calendar
year, but we do not know and cannot predict whether this study, or any of our other ongoing trials or studies, will be completed
on schedule or at all. We also do not know and cannot predict whether any other pre-clinical or clinical trials, including Phase
III clinical trials to follow completion of the PISCES/KEYNOTE-695 study or our ongoing or any other Phase II clinical trials,
will be planned or will begin, and in many cases such future trials would be dependent on obtaining favorable results from preceding
studies.
The
commencement and completion of clinical trials can be delayed or prevented for many reasons, including due to delays or issues
related to:
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obtaining
clearance from the FDA or comparable international regulatory body and other applicable agencies, including the U.S. National
Institutes of Health, to commence a clinical trial;
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reaching
agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators and trial
sites;
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obtaining
institutional review board, or IRB, and institutional biological committee, or IBC, approval to initiate and conduct a clinical
trial at a prospective site;
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identifying,
recruiting and training suitable clinical investigators;
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identifying,
recruiting and enrolling subjects to participate in clinical trials, which can pose challenges for a variety of reasons, including
competition from other clinical trial programs for similar indications, requirements for larger than anticipated patient populations,
slower than expected enrollment, or higher than predicted rates of patient drop-out or withdrawal;
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retaining
patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy,
personal issues, death or for any other reason they choose, or who are lost to further follow-up; and
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identifying
and maintaining a sufficient supply of necessary products or product candidates, including those produced by third parties,
on commercially reasonable terms.
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With
respect to any clinical trial we plan, the FDA could determine it is not satisfied with our plan or the details of our clinical
trial protocols and designs and could put a clinical hold on the proposed trials. Any such determination could delay the commencement
of the trials and would be a setback for the commercialization strategy for the product candidate that is the subject of the trial.
Additionally, changes in applicable regulatory requirements and guidance may occur, in which case clinical trial protocols may
need to be amended to reflect these changes. Any such amendments could require us to resubmit our clinical trial protocols to
IRBs or IBCs for reexamination, which could impact the costs, timing and successful completion of a clinical trial. If we experience
delays in completion of, or if we terminate, any of our ongoing, planned or future clinical trials, the commercial prospects for
our product candidates could be harmed, which could have a material adverse effect on our business, results of operations, financial
condition and prospects.
To
the extent we conduct clinical trials of our product candidates in combination with third parties’ products, we will face
additional risks relating to these products.
To
the extent our commercialization strategy includes the combination of our product candidates with third parties’ products
or product candidates, we may decide to conduct clinical studies to evaluate the combinations. This is true of our melanoma combination
investigator-sponsored Phase II clinical trial to assess the combination of ImmunoPulse® IL-12 and Merck’s anti-PD-1
antibody KEYTRUDA®, as well as our PISCES/KEYNOTE-695 study. Although Merck has agreed to provide KEYTRUDA® in connection
with the PISCES/KEYNOTE-695 study, these combination studies involve additional risks due to their reliance on circumstances outside
our control, such as those relating to the availability and marketability of the third-party product involved in the study. If
the marketability of third-party products such as KEYTRUDA® is impacted, or if we are unable to secure and maintain a sufficient
supply of such third-party products when needed on commercially reasonable terms, our clinical studies could be delayed or we
could be forced to terminate these studies. Such a delay or termination could have a material negative impact on our development
strategy, business, results of operations, financial condition, and prospects.
We
rely on third parties to conduct our clinical trials and other studies, and if these third parties do not successfully carry out
their duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates
and our business could be substantially harmed.
We
have entered into, and expect to continue to enter into, agreements with third-party CROs to help us manage critical aspects of
the clinical trials we sponsor. We rely on these third parties for the execution of certain of our clinical and pre-clinical studies,
and we only control certain aspects of their activities. We and our CROs are required to comply with the FDA’s regulations
for conducting clinical trials and good clinical practice, as well as the guidelines of the International Conference on Harmonization
of Technical Requirements for Registration of Pharmaceuticals for Human Use. We are also required to harmonize standard operating
procedures between companies and conduct periodic internal and vendor audits to ensure compliance. Additionally, the FDA and comparable
foreign regulators enforce these good clinical practice regulations through periodic inspections of trial sponsors, principal
investigators, CRO trial sites, laboratories and any other entity involved in the completion of the study protocol and processing
of data.
If
we or our CROs fail to comply with applicable good clinical practice or other regulations, the data generated in our clinical
trials may be deemed unreliable and the FDA or comparable foreign regulators may require us to perform additional or repeat clinical
trials, which could significantly increase costs and delay the regulatory approval process. Additionally, repeated compliance
failures could case the FDA or other regulatory authority to suspend or terminate a clinical trial, which could cause significant
approval delays and increased costs. Further, if CROs do not otherwise successfully carry out their contractual duties or obligations
or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised for any reason, our clinical
trials may need to be extended, delayed or terminated or we may not be able to rely on the data produced by the trials. Moreover,
if any of our relationships with third-party CROs terminate before completion of a clinical trial, we may not be able to establish
arrangements with alternative CROs on commercially reasonable terms, on a timely basis or at all, which could materially delay
or jeopardize the trial. Any such occurrence could delay or prevent us from obtaining regulatory approval for or successfully
commercializing our product candidates, which could increase our costs, delay our prospects for generating revenue, and otherwise
materially harm our results of operations, financial condition and prospects.
We
have participated in, and continue to participate in, clinical trials conducted under an approved investigator-sponsored investigational
new drug application, and we have little or no control over the conduct or timing of, or FDA communications regarding, these trials.
We
have participated in, and continue to participate in, clinical trials conducted under an approved investigator-sponsored investigational
new drug, or IND, application, including our melanoma combination investigator-sponsored Phase II clinical trial led by the University
of California, San Francisco. In investigator-initiated trials, the investigator typically designs and implements the study and
the investigator or its institution acts as the sponsor of the trial. This trial sponsor has control over the design, conduct
and timing of the trial, and as a result, we have limited or no control over the commencement, conduct and completion of these
investigator-initiated trials. In addition, regulations and guidelines imposed by the FDA with respect to IND applications include
a requirement that the sponsor of a clinical trial provide ongoing communication with the FDA as it pertains to the safety of
the treatment being tested. It is the responsibility of the investigator, as the sponsor of the trial, to be the sole point of
contact with the FDA for these communications and to exercise all decision-making authority regarding these or other submissions
to the FDA about the trial. Consequently, we have little or no control over the content or timing of these communications, including
whether they are timely, accurate or complete. Any failures by the investigator sponsoring these trials could result in reviews,
audits, delays or clinical holds by the FDA that could negatively affect the timelines for these trials or jeopardize their completion.
As a result, our lack of control over the conduct and timing of, and communications with the FDA regarding, these investigator-sponsored
trials exposes us to additional risks, many of which our outside our control and the occurrence of which could severely harm our
performance and the commercial prospects for our product candidates.
Regulatory
authorities may not approve our product candidates, or any approvals we achieve may be too limited or too late for us to earn
meaningful, or any, revenue.
The
research, testing, manufacturing, labeling, approval, selling, marketing and distribution of our product candidates are subject
to extensive regulation by the FDA and other regulatory authorities in the United States, as well as comparable regulatory bodies
in other countries. These regulatory agencies have the authority to delay approval of or refuse to approve our product candidates
for a variety of reasons, including, among others, a failure to meet safety and efficacy endpoints in our clinical trials or otherwise
to the satisfaction of the regulator, disapproval of our or our partners’ trial design, or disagreement with our interpretation
of data from pre-clinical studies or clinical trials. As a result, even if our product candidates achieve their endpoints in clinical
trials, they still may not be approved by any of these regulatory agencies. Moreover, the requirements to obtain product approvals
vary widely from country to country, and the FDA’s approval requirements, review procedures and timelines may not be the
same as or even similar to the requirements or a comparable foreign regulator. As a result, even if we obtain regulatory approval
for a product candidate in one country, we may be required to undertake additional clinical trials or studies, submit additional
information, wait for longer review periods or make other efforts in order to obtain regulatory approvals in other desirable geographic
markets.
Although
we have seen no systemic drug-related adverse events in our trials and studies to date, if we cannot adequately demonstrate through
the clinical trial process that a product candidate we are developing is safe and effective, regulatory approval of that product
candidate could be delayed or may never be achieved, which could impair our reputation, increase our costs and delay or prevent
us from generating revenue. Importantly, success in pre-clinical testing and early clinical studies does not ensure that later
clinical trials will generate adequate data to demonstrate the required level of efficacy and safety of an investigational drug.
A number of companies in the pharmaceutical and biotechnology industries, including many with greater resources and experience
than we have, have suffered significant setbacks in clinical trials, even after obtaining promising results in earlier studies.
Further, even if a product candidate is approved, it may be approved for fewer or more limited indications than requested or the
approval may be subject to the performance of significant post-marketing studies. In addition, regulatory agencies may not approve
the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any limitation,
condition or denial of approval could have an adverse effect on our business, reputation and results of operations.
Furthermore,
because of the substantial competition we face, even if we are ultimately able to achieve regulatory approval for one or more
of our product candidates, delays in such regulatory approval could delay, limit or prevent our ability to successfully commercialize
our product candidates if competing products obtain approvals before ours and gain market traction that we are not able to disrupt.
Moreover, we may be forced to reevaluate our development strategies and plans in the face of setbacks or other delays that could
jeopardize the value of any regulatory approval that is obtained, which could include abandoning clinical trial efforts for a
product candidate that we no longer believe has promising value as a commercial product. If we are not able to obtain or maintain
required regulatory approvals for our product candidates or if we decide or are forced to abandon our efforts to obtain or maintain
these approvals, we would have expended significant costs on assets that may never generate any return. Such an outcome would
have a material adverse effect on our business, results of operations and financial condition, as well as on our continued viability
as a company.
Our
in-licensed intellectual property may not provide us with sufficient rights and may not prevent competitors from pursuing similar
technology.
In
addition to our owned proprietary rights, we have also exclusively licensed certain patents that cover our ImmunoPulse® clinical
methods. These patents will expire between 2025 and 2027. These method patents protect the use of a product for a specified method
under certain defined parameters. This type of patent does not prevent a competitor from making and marketing a product that is
identical or similar to the protected product under parameters that are outside the scope of the patented method claims. Moreover,
even if competitors do not actively promote such a product for the indications protected by the method patent, physicians could
prescribe the products for these methods on an off-label basis. Although such off-label prescriptions may infringe or contribute
to the infringement of method-of-use patents, the practice is common and such infringement is difficult to detect, prevent or
prosecute.
We
entered into a cross-license agreement in 2011 for certain electroporation technology with Inovio, which includes some of our
patents protecting our ImmunoPulse® clinical device (and some of which have recently expired or will expire in 2018). Under
the terms of the agreement, Inovio has granted us a non-exclusive, worldwide license under certain of its electroporation patents,
and in exchange, we have granted to Inovio an exclusive license to certain of our technology in a limited field of use. Although
we do not currently rely on the intellectual property we have licensed from Inovio, our product candidates could in the future
utilize this intellectual property. This license is non-exclusive and Inovio could use the technology to compete with us or could
license the technology to others, including our competitors. Additionally, the license we have granted to Inovio could enable
it to develop products that compete against ours, directly or indirectly, in the specific field of use subject to the license.
If
we are not able to maintain our existing in-licenses or if we are not able to establish new in-licenses for any other third-party
rights we need, we could become subject to significant costs or royalty or other fees to establish alternative license arrangements,
if such licenses are available when needed, on acceptable terms or at all, or we could be forced to develop modifications to the
affected product candidates or technologies to avoid reliance on the third-party rights, if such modifications are possible. Any
inability to secure and maintain adequate rights to any third-party technologies necessary for the development of our product
candidates could severely limit our continued research and development activities, our efforts to obtain product approvals and,
if such approvals are obtained, our ability to commercialize the approved products, any of which would materially adversely impact
our business and prospects.
We
may become involved in litigation or other proceedings in our efforts to protect our patent and other intellectual property rights,
which could require significant time and costs and would be subject to unpredictable outcomes.
We
may become aware of activities by third parties, including our competitors, that infringe our issued patents or other intellectual
property rights. If we choose to file a lawsuit against a potentially infringing third party to try to enforce our patents or
other intellectual property rights, the third party may seek a ruling that the patents are invalid and/or should not be enforced.
Such a ruling could severely limit our ability to protect our rights from use by third parties. The U.S. Supreme Court has recently
revised certain tests regarding assessing the validity of patents, which could result in the invalidation of issued patents and/or
their claims based on the application of the new patent validity standards. As a result, in the event of any patent infringement
litigation or other proceedings involving our patents, our patents could be subject to challenge and subsequent invalidation or
significant narrowing of claim scope under the revised standards. Moreover, even if the validity of our patents is upheld in a
patent infringement lawsuit, a court could refuse to stop a third party’s activities on the grounds that the activities
do not infringe the specific claims of our patents. Further, even if we were successful in stopping the infringing activity, patent
infringement lawsuits are expensive and could consume significant time, management attention, capital and other resources.
These
risks of third parties’ infringement of our intellectual property rights may increase if we engage in discussions, collaborations
or other strategic arrangements with third parties. Also, new challenges could arise if and to the extent we pursue engagements
with third parties located outside the United States. These factors could increase the risks and costs associated with building
and protecting our intellectual property portfolio and could adversely affect our performance and our business prospects.
Third
parties may claim that we infringe their proprietary rights, which could prevent us from pursuing our clinical and other studies
and other research and development activities.
The
validity and infringement of patents or proprietary rights of third parties has been the subject of substantial litigation in
the biotechnology industry. In the course of our research and development activities, we could become subject to legal claims
that we, our activities or our product candidates or technologies infringe the rights of others. This type of patent infringement
litigation is costly and time-consuming and diverts the attention of management and technical personnel. In addition, if we or
our product candidates or technologies are found to infringe the rights of others, we could lose our ability to continue our development
programs or could be forced to pay monetary damages. Although the parties to patent and intellectual property disputes in the
biotechnology industry have often settled their disputes by establishing licenses or similar arrangements, the costs associated
with these arrangements may be substantial and could include ongoing royalties. Furthermore, any such licenses may not be available
when needed, on commercially reasonable terms or at all. These risks may be amplified due to our small size and limited experience
and resources relative to many of our competitors. As a result, any claims of infringement against us, adverse determination in
a judicial or administrative proceeding or failure to obtain necessary licenses could materially delay, hinder or restrict our
development efforts or prevent us from continuing to pursue our operational and strategic plans, which could have a material adverse
effect on our business, prospects and results of operations.
The
biotechnology industry is highly competitive, and many of our competitors are significantly larger and more experienced than we
are.
The
biotechnology industry is intensely competitive. This competitive environment stimulates an ongoing and extensive search for technological
innovation and necessitates effective and targeted marketing strategies to communicate the effectiveness, safety and value of
products to healthcare professionals in private practice and group practices and payors in managed care organizations, group purchasing
organizations, and Medicare and Medicaid services.
We
face competition from a number of sources, including large pharmaceutical companies, biotechnology companies, academic institutions,
government agencies and private and public research institutions. We compete against all other developers of cancer treatments,
including other immunotherapy treatments as well as other types of treatments for the cancer indications on which we are focused.
In particular, a number of companies, some of which are large, well-established pharmaceutical companies, have recently announced
development strategies similar to our current focus on our PISCES/KEYNOTE-695 study, namely the combination of a DNA-encoded interleukin-12,
or IL-12, and a checkpoint inhibitor to improve response rates in patients who are refractory or who have relapsed on anti-PD-1
therapies either alone or in combination with other therapies, and we view these companies as our most relevant current competitors.
These companies include, among others, Bristol Myers-Squibb, Iovance Therapeutics, Syndax, Dynavax Technologies and Idera Pharmaceuticals.
In addition, we also compete with other early-stage biotechnology companies for funding and support from healthcare and other
investors and potential collaboration relationships with larger pharmaceutical or other companies, as well as for personnel with
expertise in our industry. We are smaller, less experienced and less well-funded than many of our competitors, and we have a shorter
and less proven operating history and a less recognizable and established brand name than many of our competitors. In addition,
some of our competitors have commercially available products, which provide them with operating revenue and other competitive
advantages. Furthermore, recent trends in the biotechnology industry are for large drug companies to acquire smaller outfits and
consolidate into a smaller number of very large entities, which further concentrates financial, technical, and market strength
and increases competitive pressure in the industry.
Our
competitors may obtain regulatory approval of their product candidates more rapidly than we can or may obtain more robust patent
protection or other intellectual property rights to protect their product candidates and technologies, which could limit or prevent
us from developing or commercializing our product candidates. If we are able to obtain regulatory approval of one or more of our
product candidates, we will face competition from approved products or products under development by larger companies that may
address our targeted indications. If we directly compete with these very large entities for the same markets and/or customers,
their greater resources, brand recognition, sales and marketing experience and financial strength could prevent us from capturing
a share of these markets or customers. Our competitors may also develop products that are more effective, more useful, better
tolerated, subject to fewer or less severe side effects, more widely prescribed, less costly or more widely accepted for other
reasons than any of our products that obtain regulatory approvals, and our competitors may also be more successful than us in
manufacturing, distributing and otherwise marketing their products.
We
expect our product candidates, if approved and commercialized, to compete on the basis of, among other things, product efficacy
and safety, time to market, price, coverage and reimbursement by third-party payors, extent of adverse side effects and convenience
of treatment procedures. We may not be able to effectively compete in any of these areas. Presently, we compete with other biotechnology
companies for funding and support on the basis of our technology platforms and the potential value of our product candidates based
on the factors described above.
If
we are unable to compete effectively, our business, results of operations, financial condition, and prospects may be materially
adversely affected.
We
may incur liability if our promotions of product candidates are determined, or are perceived, to be inconsistent with regulatory
guidelines.
The
FDA provides guidelines regarding appropriate product promotion and continuing medical and health education activities. Even though
we do not have any FDA approved products, these guidelines apply to our current activities with respect to disclosures, presentations
or other communications about our product candidates and technologies at healthcare conferences or in other forums. Although we
endeavor to follow these guidelines, the FDA or the Office of the Inspector General of the U.S. Department of Health and Human
Services could disagree, in which case we could be subject to significant liability, including civil and administrative remedies
as well as criminal sanctions. In addition, management’s attention could be diverted and our reputation could be damaged,
any of which could materially harm our business and prospects.
If
we and our contract manufacturers fail to produce our systems and product candidates in the volumes and within the timelines we
require, or if they fail to comply with applicable regulations, we could face delays in the development and commercialization
of our equipment and product candidates.
Currently,
we assemble certain components of our electroporation system, which is our proprietary delivery mechanism for our ImmunoPulse
IL-12® product candidate, and we utilize the services of contract manufacturers to manufacture the remaining components of
these systems and for the manufacture, testing and storage of all of our supply of our plasmid product candidate for clinical
trials or other studies. We do not own and have no plans to build our own clinical or commercial manufacturing capabilities, and
we expect to increase our reliance on third-party manufacturers if and when we commercialize any of our product candidates and
systems.
The
manufacture of our systems and product supplies requires significant expertise and capital investment, including the use of advanced
manufacturing techniques and process controls. Manufacturers often encounter difficulties in production, particularly in scaling
up for commercial production if regulatory approvals are obtained. These difficulties include, among others: problems with production
costs and yields; quality control issues, including stability of the equipment and product candidates and quality assurance testing;
shortages of qualified personnel; and compliance with strictly enforced federal, state and foreign regulations. If we or our manufacturers
were to encounter any of these difficulties or our manufacturers otherwise fail to comply with their contractual obligations to
us, our ability to provide our electroporation equipment to our partners and product candidates to patients enrolled in our clinical
trials, or to commercially launch a product if regulatory approvals are obtained, would be jeopardized. Any delay or interruption
in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with
maintaining our clinical trial programs, and, depending upon the period of delay, require us to commence new trials at significant
additional expense or terminate the trials completely.
In
addition, all manufacturers of our products must comply with current good manufacturing practices, which are enforced by the FDA
through its facilities inspection programs. These practices include requirements regarding, among other things, quality control,
quality assurance and the generation and maintenance of records and documentation. We have little or no control over our manufacturers’
compliance with these regulations and standards. Any failure by our manufacturers to comply with these requirements could result
in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall or
withdrawal of product approval. Additionally, if the safety of any product candidate or approved product is compromised due to
our or our manufacturers’ failure to adhere to applicable regulatory requirements or for other reasons, we may not be able
to obtain or maintain regulatory approval for or successfully commercialize the products, and we may be held liable for any injuries
sustained as a result of the failure. Any of these factors could cause delays in clinical trials, regulatory submissions or approvals,
entail significant costs or hinder our ability to effectively commercialize our product candidates. Furthermore, assuming we are
successful in commercializing one or more of our product candidates, if our manufacturers fail to deliver the required commercial
quantities on a timely basis, pursuant to provided specifications and at commercially reasonable prices, we may be unable to meet
demand for our products and we could lose potential revenue.
We
have never generated, and may never generate, revenue from our operations.
During
the quarter ended January 31, 2018, we incurred a net loss of $10.7 million, and from inception through January 31, 2018, we have
incurred an aggregate net loss of $111.6 million. We will need additional funding to continue our operations and pursue our strategic
plans, including continued development of ImmunoPulse® IL-12. Although we have been and expect to continue to tightly manage
our operating expenses, we expect our cumulative operating expenses will continue to increase as we further our development activities
and pursue approval by the U.S. Food and Drug Administration, or FDA, for one or more of our product candidates.
Because
of the numerous risks and uncertainties associated with our product development and commercialization efforts, many of which are
discussed in these risk factors, we are unable to predict the extent of our future losses or when or if we will generate meaningful
revenue or become profitable, and it is possible we will never achieve these goals. Our failure to develop our investments in
our proprietary technologies and product candidates into revenue-generating operations would have a material adverse effect on
our business, results of operations, financial condition, and prospects and could result in our inability to continue operations.
We
will need to raise additional capital to continue operating our business, and additional funds may not be available when needed,
on acceptable terms or at all.
As
of January 31, 2018, we had cash and cash equivalents of approximately $17.9 million and, subsequent to January 31, 2018, we received
additional net proceeds of approximately $20.8 million from a confidentially marketed public offering of our common stock. As
of February 28, 2018, we had cash and cash equivalents of $36.7 million. We currently estimate our operating expenses and working
capital requirements for our current fiscal year ending July 31, 2018 to be approximately $21.0 million. As a result, we believe,
based on our current cash levels, rate of cash consumption and expectations regarding future expenses, that our cash resources
are more than sufficient to meet our anticipated needs for the 12 months following the issuance of this report. We will continue
to assess our cash resources and anticipated needs on a quarterly basis.
However,
we have sustained losses in all reporting periods since inception, with an inception-to date-loss of $111.6 million as of January
31, 2018. Further, we have never generated any cash from our operations, we do not expect to generate such cash in the near term,
and we do not presently have any firm commitments for future capital. Consequently, we will need additional capital to continue
operating our business and fund our planned operations.
Historically,
we have raised the majority of the funding for our business through offerings of our common stock and warrants to purchase our
common stock, including our October 2017 offerings, November 2017 warrant exercise inducement offering and February 2018 offering.
Although we are exploring other ways of funding our operations that involve less dilution to our existing stockholders, including,
among others, technology licensing or other collaboration arrangements, debt financings or grants, we have not successfully established
or raised any funds through any of these types of arrangements, and we may need to continue to seek funding for our operations
through additional dilutive public or private equity financings.
If
we issue equity or convertible debt securities to raise additional funds, our existing stockholders would experience further dilution,
and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.
If we incur debt, our fixed payment obligations, liabilities and leverage relative to our equity capitalization would increase,
which could increase the cost of future capital. Further, the terms of any debt securities we issue or borrowings we incur, if
available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt
or issue additional equity or other operating restrictions that could adversely affect our ability to conduct our business, and
any such debt could be secured by any or all of our assets pledged as collateral. Additionally, we may incur substantial costs
in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other
costs.
Moreover,
equity or debt financings or any other source of capital may not be available to us when needed or at all, or, if available, may
not be available on commercially reasonable terms. Weak economic and capital market conditions generally or uncertain conditions
in our industry could increase the challenges we face in raising capital for our operations. In recent periods, the capital and
financial markets for early and development-stage biotechnology and life science company stocks have been volatile and uncertain.
If we cannot raise the funds that we need, we could be forced to delay or scale down some or all of our development activities
or cease all operations, and our stockholders could lose all of their investment in our Company.
Our
business and operations could suffer in the event of cyber-attacks or system failures.
Despite
the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors
and consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism,
war and telecommunication and electrical failures. System failures, accidents or security breaches could cause material disruptions
to our commercialization activities, clinical and other development programs, financial and disclosure controls and other reporting
functions and the administrative aspects of our business, in addition to possibly requiring substantial expenditures of capital
and other resources to remedy. Further, any loss of clinical trial data from completed or future clinical trials as a result of
such a disruption could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the lost data. Moreover, to the extent any such disruption results in the loss of or damage to our data or applications
or inappropriate disclosure of confidential or proprietary information, we could incur significant liabilities. The occurrence
of any of these circumstances could cause our operations and our performance to suffer.
We
may be unable to acquire or develop new product candidates or technologies, or we may never be able to commercialize any product
candidates or technologies we do successfully acquire or develop.
As
part of our business strategy, we plan to expand our clinical pipeline and build our portfolio of product candidates through the
development, acquisition or licensing of assets or businesses, product candidates or approved products. The process of identifying,
planning, negotiating, implementing and integrating an acquisition or license of a new business, product candidate or approved
product can be lengthy and complex and can involve numerous difficulties, including difficulties related to:
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identifying
new potential product candidates or promising technologies;
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competing
with other companies for the acquisition or license, including many of our competitors with substantially greater financial,
marketing and sales resources;
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negotiating
the terms of the acquisition or license, at which we have relatively little experience;
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accurately
judging the value or worth of a potential acquisition or in-license candidate;
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paying
for an acquisition or license, including the consideration to acquire or license a business, technology or asset (which could
include cash and/or issuance of equity or debt securities);
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acquisition
and integration efforts could disrupt our business and divert the time and attention of management and other internal personnel
from existing operations;
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any
integration failures could result in the loss or impairment of relationships with employees, consultants, suppliers and other
vendors and partners;
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exposure
to unknown or contingent liabilities based on an acquired company’s operations or assets;
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acquisition
and integration efforts and costs could reduce available liquidity and other resources to pursue other acquisitions or strategic
transactions;
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challenges
establishing appropriate controls and procedures for any acquisition by us of a private company;
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failing
to recoup our investment of time, capital and other resources into a proposed acquisition or license, as a result of failing
to complete the transaction or, for transactions that are completed, failing to realize the anticipated benefits of acquired
or licensed business or asset;
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challenges
developing and commercializing any product candidates or technologies that we are successful in acquiring or licensing, which
is subject to all of the risks described throughout these risk factors regarding the development of our current product candidates.
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As
a result of these and other difficulties, any efforts to acquire or develop new product candidates, technologies or businesses
may not produce commercially successful products or otherwise result in meaningful revenue or profitability for our business.
As a result, the pursuit of these activities could have a material adverse effect on our business, results of operations, financial
condition and prospects.
Any
collaboration arrangements we may establish may not be successful, which could adversely affect our ability to develop and commercialize
our product candidates.
We
may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of
our current and any future product candidates. To the extent we pursue collaboration arrangements, we would face significant risks
in connection with establishing and maintaining the arrangements, including, among others:
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we
could be subject to intense competition in seeking appropriate collaborators;
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collaboration
arrangements are complex, costly and time-consuming to negotiate, document and implement, and they could require our payment
to the collaborator of cash or other consideration, including issuances of equity or debt securities, in order to establish
the relationship;
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we
may be unsuccessful in establishing and implementing any collaboration we desire to pursue, or the terms of the arrangement
may not be favorable to us;
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collaborations
often would require that we relinquish some or all of the control over the future success of the product candidate to the
third-party collaborator;
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the
success of any collaboration arrangements we may establish would depend heavily on the efforts and activities of our collaborators,
who would likely have significant discretion in determining the efforts and resources they would apply to these collaborations;
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disagreements
between collaborators regarding clinical development and commercialization matters can be difficult to resolve and can lead
to delays in the development process or commercialization of the applicable product candidate and, in some cases, termination
of the arrangement; and
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any
termination of a collaboration arrangement that we are able to establish could adversely affect our performance, particularly
to the extent we become reliant upon the collaboration for revenue or important commercialization processes or efforts.
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In
addition, collaboration arrangements may also include our pursuit of combination trials to develop and commercialize our product
candidates as combination products, such as our PISCES/KEYNOTE-695 study with Merck’s KEYTRUDA®. To the extent we continue
to pursue this or any other similar collaborative arrangement, we will face certain additional risks and uncertainties in development,
as drug/device combination products are particularly complex, expensive and time-consuming to develop due to the number of variables
involved in the final product design, including ease of patient and doctor use, maintenance of clinical efficacy, reliability
and cost of manufacturing, regulatory approval requirements and standards and other important factors. Additionally, combination
products face continued risk and uncertainty post-development in connection with manufacturing and supply until a commercial supply
chain is validated and proven.
The
occurrence of any of these risks with respect to any collaboration arrangements we pursue or establish could materially adversely
affect our performance, financial condition and reputation.
We
may not be successful in executing our sales and marketing strategy for the commercialization of any of our product candidates,
in which case we may not be able to generate significant, or any, revenue.
Our
commercialization strategy may include the establishment of our own sales, marketing and distribution capabilities to market products
to our target markets. Developing these capabilities would require significant expenditures on personnel and infrastructure. Moreover,
we have no experience with these activities. While we currently expect that any approved products would be marketed to a relatively
small patient population, we might not be able to create an effective sales force to address even a niche market. In addition,
some of our product candidates could require, if approved, a large sales force to call on, educate and support physicians and
patients. We could decide in the future to pursue collaborations with one or more pharmaceutical companies to sell, market and
distribute any approved products, but we may not be able to establish any such arrangement when desired, on acceptable terms or
at all. Further, any such collaboration we do establish may not be effective in generating meaningful revenue to us.
We
may be unsuccessful in implementing the commercialization strategies we have planned. Further, we have not proven our ability
to succeed in the biotechnology industry and are not certain that our commercialization strategies, even if implemented as we
envision, would lead to significant revenue. If we are unable to successfully implement our commercialization plans and drive
adoption by patients and physicians of any product candidates that obtain regulatory approval, then we will not generate meaningful,
or any, revenue, which would have a material adverse effect on our business, results of operations, financial condition and prospects.
If
any product candidate that receives regulatory approval does not achieve broad market acceptance, our revenue potential may be
limited.
The
commercial success of any product candidate that obtains marketing approval from the FDA or comparable foreign regulatory authorities
will depend on the acceptance of these products by physicians, patients, third-party payors and the medical community. The degree
of market acceptance of any product candidate that receives regulatory approval will depend on a number of factors, including:
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our
ability to provide acceptable evidence of safety and efficacy;
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acceptance
by physicians and patients of the product as a safe and effective treatment;
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the
prevalence and severity of adverse side effects;
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limitations
or warnings contained in a product’s FDA-approved or other regulator-approved labeling;
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the
clinical indications for which the product is approved;
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the
availability and perceived advantages of alternative treatments;
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any
negative publicity related to the product or any competing product;
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the
effectiveness of our or any current or future collaborators’ sales, marketing and distribution strategies;
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pricing
and cost effectiveness;
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our
ability to obtain adequate third-party payor coverage or reimbursement; and
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the
willingness of patients to pay out-of-pocket in the absence of adequate third-party payor coverage and reimbursement.
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Failures
with respect to any one of these factors could severely limit the commercial potential of any product candidate that obtains regulatory
approval, which could materially adversely affect our performance and prospects.
We
may not be able to establish adequate coverage and reimbursement by third-party payors for any product candidate that achieves
regulatory approvals, which could severely limit our market potential, performance and prospects.
Cost
containment has become a significant trend in the U.S. healthcare industry. Third-party payors have attempted to control costs
by limiting coverage and the amount of reimbursement for certain products and procedures. Increasingly, third-party payors are
requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for
medical products and treatments. In addition, recent trends in U.S. politics suggest that the U.S. healthcare insurance framework
may experience significant changes in the near term. For all of these and other reasons, coverage and reimbursement at adequate
or any levels may not be available for any product candidate that achieves regulatory approval. If coverage and reimbursement
is not available or is not available at an adequate level for any approved product, the demand for or price of the product could
be materially negatively affected, which could severely limit our revenue potential and prospects.
In
addition, the regulations that govern marketing approvals, pricing, coverage and reimbursement for new therapeutic products vary
widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many
countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets,
prescription pharmaceutical pricing remains subject to continuing government control even after initial approval is granted. As
a result, even if we obtain regulatory approval for a product candidate in a particular country, we could be subject to continuing
pricing regulations that could delay our commercial launch of the product or negatively impact the revenue potential for the product
in that country.
Future
growth, including growth in international operations, could strain our resources, and if we are unable to manage any growth we
may experience, we may not be able to successfully implement our business plans.
In
late 2016, we established a subsidiary corporation in Australia in preparation for planned clinical trials in that country. In
addition, our business plan includes continued growth of our operations, including, among other things, growth in our workforce,
expansion of our clinical trial efforts within and outside of the United States, and expansion of our portfolio of product candidates.
This growth could place an additional strain on our management, administrative, operational and financial infrastructure, and
will require that we incur significant additional costs and hire and train additional personnel to support our expanding operations.
Further, we must maintain and continue to improve our operational, financial and management controls and reporting systems and
procedures, which can be more challenging during periods of expansion. As a result, our future success will depend in part on
the ability of management to effectively manage any of this growth we may experience. If we fail to successfully manage any growth
we may experience, we may be unable to execute on our business plan.
In
connection with any geographic expansion we may pursue, international operations would involve substantial additional risks, including,
among others:
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difficulties
complying with the U.S. Foreign Corrupt Practices Act and other applicable anti-bribery laws;
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difficulties
maintaining compliance with the varied laws and regulations of multiple jurisdictions that may be applicable to our business,
many of which may be unfamiliar to us;
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more
complexity in our regulatory and accounting compliance;
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differing
or changing obligations regarding taxes, duties or other fees;
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limited
intellectual property protection in some jurisdictions;
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risks
associated with currency exchange and convertibility, including vulnerability to appreciation and depreciation of foreign
currencies against the U.S. dollar;
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uncertainty
related to developing legal and regulatory systems and standards for economic and business activities in some jurisdictions;
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trade
restrictions or barriers, including tariffs or other charges and import-export regulations, which are subject to increased
uncertainty following the results of the 2016 U.S. presidential election and the trade policies of the current administration
regarding existing and proposed trade agreements and the ability to import goods into the United States;
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changes
in applicable laws or policies;
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the
impact of and response to natural disasters; and
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potential
for war, civil or political unrest and economic and financial instability.
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The
occurrence of any of these risks could limit our ability to pursue international expansion, increase our costs or expose us to
fines or other legal sanctions, any of which could negatively impact our business, reputation and financial condition.
If
we are unable to successfully recruit and retain qualified personnel, we may not be able to maintain or grow our business.
In
order to successfully implement and manage our business plans, we depend on, among other things, successfully recruiting and retaining
qualified executives, managers, scientists and other employees with relevant experience in life sciences and the biotechnology
industry. Competition for qualified individuals is intense, particularly in our industry, due to the many larger and more established
life science and biotechnology companies that compete with us for talent. We also experience competition for the hiring of scientific
and clinical personnel from universities and research institutions. In addition, we heavily rely on consultants and advisors,
including scientific, clinical and regulatory advisors, to assist us in formulating our research and development and commercialization
strategies. Our consultants and advisors may be employed by others or may have commitments under consulting or advisory contracts
with other entities that may limit their availability to support us. If we are not able to retain existing personnel, consultants
and/or advisors, and find, attract and retain new qualified personnel, consultants and/or advisors on acceptable terms and in
a timely manner to coincide with our needs, we may not be able to successfully maintain or grow our operations and our business
and prospects could suffer.
Additionally,
although we have employment agreements with each of our executive officers, these agreements are terminable by them at will. The
loss of the services of any one or more members of our current senior management team could, among other things, disrupt or divert
our focus from pursuing our business plans while we seek to recruit other executives, impact the perceptions of our existing and
prospective employees, partners and investors regarding our business and prospects, cause us to incur substantial costs in connection
with managing transitions and recruiting suitable replacements and, if the departing personnel are crucial to any of our clinical
or other development programs, delay or prevent the development and commercialization of the affected product candidates. These
risks would be amplified if we are not able to recruit suitable replacements for any departing personnel on acceptable terms and
in a timely manner. The occurrence of any of these or other potential consequences could cause significant harm to our business.
Extensive
industry regulation has had, and will continue to have, a significant impact on our business, especially our product development,
manufacturing and distribution capabilities.
Biotechnology
companies are subject to extensive, complex, costly and evolving government regulation relating to the ability to market and sell
any therapeutic or medical device. In the United States, these regulations are principally administered and enforced by the FDA
and, to a lesser extent, by the U.S. Drug Enforcement Agency, or DEA, and comparable state government agencies, and outside the
United States, these regulations are typically administered by various regulatory agencies comparable to the FDA in foreign countries
where products or product candidates are researched, tested, manufactured and/or marketed.
The
U.S. federal Food, Drug and Cosmetic Act, or FDCA, Controlled Substances Act and other federal statutes and regulations, as well
as similar state and foreign statutes and regulations, govern or influence, among other things, the research, development, testing,
manufacture, storage, record-keeping, approval, labeling, promotion, marketing, distribution, post-approval monitoring and reporting,
sampling, import and export of product candidates such as ours. Under these regulations, we and our contract manufacturers may
become subject to periodic inspection of our facilities, quality control and other procedures, and operations and/or the testing
of our product candidates by the FDA, DEA and other authorities during and after the approval process for a product candidate,
to confirm compliance with all applicable regulations, including current good manufacturing practices and other applicable requirements.
Further, even if regulatory approval of a product candidate is obtained, such approval would usually impose limitations on the
indicated uses for which the product may be marketed, which limitations could materially limit a product’s market and revenue
potential. Additionally, we would be subject to pervasive and continuing regulation by the FDA and/or comparable foreign regulators
with respect to any approved product. Moreover, we could be required to conduct potentially costly post-approval studies or surveillance
programs to monitor the effect of any approved products, and the FDA and comparable foreign regulators have the authority to stop
or limit further marketing of a product or impose more stringent labeling restrictions based on the results of these post-approval
tests and programs or in the event of any unexpected or serious health or safety concern regarding any approved product.
Possible
penalties or other consequences for failure to comply with these regulatory requirements include, among others, observations,
notices, citations and/or warning letters that could force us to modify our clinical programs or other activities; clinical holds
on our ongoing clinical programs; adverse publicity from the FDA or others; the FDA’s suspension of its review of pending
applications; fines; product recalls or seizures; total or partial suspension of production and/or distribution; labeling changes;
withdrawal of previously granted product approvals; enforcement actions; injunctions and civil or criminal prosecution. Any such
sanctions, if imposed, could have a material adverse effect on our business, operating results and financial condition. Any such
sanctions, if imposed, could have a material adverse effect on our business, operating results and financial condition.
Moreover,
the regulations, policies and guidance of the FDA or other regulatory agencies could change and new or additional statutes or
regulations could be enacted. If changes or new laws are more stringent or impose additional or more challenging requirements,
our costs of compliance could increase, regulatory approval of our product candidates could be delayed or jeopardized, or post-approval
activities for any product candidates that obtain regulatory approval could be further restricted or regulated. If we are not
able to achieve and maintain regulatory compliance, we may not be permitted to market any of our product candidates, which would
materially adversely affect our prospects to generate revenue.
If
we fail to comply with applicable healthcare laws and regulations, we could face substantial penalties and our business, operations,
prospects and financial condition could be adversely affected.
The
healthcare industry is heavily regulated, constantly evolving and subject to significant change and fluctuation. The U.S. federal
and state healthcare laws and regulations that impact our business include, among others:
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the
laws and regulations administered and enforced by the FDA, including the FDCA, Controlled Substances Act and other federal
statutes and regulations, discussed above;
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the
federal Anti-Kickback Statute, which generally prohibits, among other things, soliciting, receiving or providing remuneration
to induce the referral of an individual for an item or service or the purchasing or ordering of an item 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 laws, which generally prohibit, among other things, knowingly presenting or causing to be presented claims
for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;
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the
federal Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, referred
to collectively as the Affordable Care Act, which, in general and among other things, expands the government’s investigative
and enforcement authority, including requiring pharmaceutical companies to record and disclose to government agencies any
transfers of value to doctors and teaching hospitals, and increases the penalties for fraud and abuse, including amendments
to the federal False Claims Act and the Anti-Kickback Statute to make it easier to file lawsuits under these statutes;
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the
federal Health Insurance Portability and Accountability Act of 1986, or HIPAA, as amended by the federal Health Information
Technology for Economic and Clinical Health Act, or HITECH, which, in general and among other things, establish comprehensive
federal standards with respect to the privacy, security and transmission of individually identifiable health information and
impose requirements for the use of standardized electronic transactions with respect to transmission of such information;
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The
federal Foreign Corrupt Practices Act, or FCPA, and other applicable anti-bribery laws; and
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state
law equivalents of each of these federal laws, such as anti-kickback and false claims laws that may apply to items or services
reimbursed by any third-party payor, including commercial insurers, 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 be preempted by
applicable federal laws, thus complicating compliance efforts.
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Additionally,
the healthcare compliance environment is continuously changing, with proposed revisions to or replacement of the Affordable Care
Act at the federal level and with some states mandating implementation of compliance programs, compliance with industry ethics
codes, spending limits and reporting to state governments of gifts, compensation and other remuneration to physicians. This shifting
regulatory environment, as well as our obligation to comply with different reporting and other compliance requirements, in multiple
jurisdictions, including foreign laws and regulations comparable to the U.S. laws and regulations described above, to the extent
we continue to pursue operations in foreign countries, such as our clinical activities in Australia, or if we seek to sell any
product that obtains regulatory approval in a foreign country, increases the possibility that we may violate one or more of these
laws. In addition, these conditions may also adversely affect our ability to obtain regulatory approval for any of our product
candidates, the availability of capital, our ability to generate meaningful or any revenue and, if any of our product candidates
achieve regulatory approval, our ability to establish a price we believe is fair for the approved product. Further, even though
we do not and will not control referrals of healthcare services or bill directly to third-party payors, certain federal and state
healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be applicable to our business, if
any of our product candidates obtain regulatory approval and become commercially available.
All
of these laws impose penalties for non-compliance, some of which may be severe. If we or our operations are found to be in violation
of any of these laws or any other governmental regulations that apply to us, we may be subject to fines or other monetary damages
or orders forcing us to curtail or restructure our operations. Any such penalties could adversely affect our ability to operate
our business and pursue our strategic plans. Additionally, 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 management’s attention from the operation
of our business. Moreover, achieving and sustaining compliance with the various U.S. federal and state and foreign laws and regulations
that apply to our business could prove costly. The occurrence of any of these risks could cause our performance and financial
condition to materially suffer.
We
face potential product liability exposure, and if successful claims are brought against us, we could incur substantial liability.
The
clinical use of our product candidates and, if any of our product candidates achieves regulatory approval, any future commercial
use of the approved products, exposes us to the risk of product liability claims. Any side effects, manufacturing defects, misuse,
or abuse associated with our product candidates or any approved products could result in injury to a patient or even death. In
addition, a liability claim could be brought against us even if our product candidates or any approved products merely appear
to have caused an injury. These product liability claims could be brought against us by consumers, healthcare providers, pharmaceutical
companies or others that come into contact with our product candidates or any approved products.
Regardless
of merit or potential outcome, product liability claims against us could result in, among other effects, the inability to continue
clinical testing of our product candidates or, for any approved products, commercialization of the products, impairment of our
business reputation, withdrawal of clinical trial participants and distraction of management’s attention from our primary
business activities. In addition, if we cannot successfully defend against product liability claims, we could incur substantial
liabilities, including liabilities that may be beyond the scope or limits of any applicable insurance policies we may have in
place. Any of these outcomes could severely harm our business, financial condition and prospects.
Our
business depends in large part on our ability to protect our proprietary rights and technologies, and we may be unsuccessful in
these efforts.
We
believe our success and ability to compete depends in large part on obtaining and maintaining patent, trademark and trade secret
protection of our product candidates and their respective components and underlying technologies, including devices, formulations,
manufacturing methods and methods of treatment, as well as successfully defending our intellectual property rights against third-party
challenges. Our ability to stop third parties from making, using or selling products that infringe on our intellectual property
rights depends on the extent to which we have secured and properly safeguarded these rights under valid and enforceable patents
or trade secrets. Although we have previously obtained patent protection for our ImmunoPulse® clinical device, our primary
U.S. patent providing such protection expired in September 2017 and our international patent providing such protection will expire
in 2018. As a result, we have limited ability to enforce these rights against third parties to prevent them from making or selling
competing products that rely upon the protected technology, which could significantly harm our competitive position and prospects.
To the extent our existing patents or pending or planned patent applications expire before we are able to commercialize product
depending on the technology or do not otherwise provide sufficient protection, we could be subject to substantially increased
competition and our business and ability to commercialize or license our technology or product candidates could be materially
adversely affected.
Even
if we secure patents that cover our proprietary technology, our efforts to protect our intellectual property rights with patents
may prove inadequate. For instance, the breadth of claims in a patent application is often restricted during patent prosecution,
resulting in granted claims with a more limited scope than the claims in the original application. Additionally, pending or future
patent applications may not result in issued patents. Laws and regulations for the prosecution of patents are continuously evolving,
and the U.S. Supreme Court has recently revised certain tests regarding granting patents that could make it more difficult to
obtain issued patents. Also, any patents that are granted could be subject to post-grant proceedings that could limit their scope
or enforceability, and claims that are amended during post-grant proceedings may not be broad enough to provide meaningful protection.
Moreover, any patents that are issued to us or any future collaborators may be circumvented or invalidated by third-party efforts,
may expire before or shortly after obtaining necessary regulatory approvals, or may not provide sufficient proprietary protection
or competitive advantage for other reasons. Further, obtaining and maintaining patent protection depends on compliance with various
procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection
could be reduced or eliminated for non-compliance with these requirements. These risks may be amplified in some foreign jurisdictions,
where patent protection may not be as strong or as effective as it is in the United States.
Our
reliance on unpatented proprietary rights, including trade secrets and know-how, may also pose significant risks. For instance,
it can be difficult to protect these rights and they may lose their value if they are independently developed by a third party
or if their secrecy is lost. Although we have taken measures to protect these rights, including establishing confidentiality agreements
with employees, consultants and other third parties, these measures may not sufficiently safeguard our unpatented proprietary
rights and may not provide adequate remedies in the event of unauthorized use or disclosure of the confidential information. For
instance, enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and
time-consuming and the outcome would be unpredictable.
If
we are unable to secure patent protection for our patentable technologies, if any of our issued patents are limited or found to
be invalid or unenforceable, or if we are otherwise unable to adequately protect our patented or unpatented proprietary rights,
our business and prospects could be materially negatively affected.
If
we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results and
stockholders and the investment community could lose confidence in our financial reporting, which could harm our business.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Although management
has determined that our internal control over financial reporting was effective as of January 31, 2018, our controls over financial
processes and reporting may not continue to be effective, or we may identify significant deficiencies or material weaknesses in
our internal controls in the future. Any failure to maintain effective internal control over financial reporting, including failures
to implement new or improved controls as needed in a timely and effective manner or remediate any significant deficiency or material
weakness that is identified in the future, could cause noncompliance with our public reporting obligations, an inability to produce
reliable financial reports or material misstatements in our financial statements or other public disclosures. If any of these
circumstances were to occur, investors could lose confidence in our financial and other reported information, our reputation could
otherwise be harmed, the investment of our stockholders in our company could be negatively affected and the costs to us of raising
additional capital could materially increase, any of which could harm our business and prospects.
Maintaining
compliance with our reporting and other obligations as a public company could strain our resources and distract management.
As
a public company, we experience significant demands that are not applicable to private companies. For example, the Sarbanes-Oxley
Act of 2002 and related and other rules implemented by the SEC and the Nasdaq Stock Market LLC, which maintains the securities
exchange on which our common stock is listed for trading, impose a number of requirements on public companies, including with
respect to corporate governance practices, periodic reporting and other disclosure requirements and financial and disclosure controls
and procedures. Further, the SEC and other regulators have continued to adopt new rules and make changes to existing regulations
that require our compliance, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the corporate governance
and executive compensation-related disclosure requirements of this legislation.
Maintaining
compliance with the rules and regulations applicable to public companies involves significant legal, accounting and financial
costs. Additionally, if we grow as anticipated, we may need to hire additional personnel and implement new and more sophisticated
financial and accounting systems and procedures to continue to meet our public company obligations. Our management and other personnel
devote substantial attention to maintaining our compliance with these obligations, which diverts attention from other aspects
of our business. Any failure to comply with these public company requirements could have a material adverse effect on our business
and prospects and could materially harm our stockholders’ investment in our Company.
We
may not be able to realize value from, or otherwise preserve and utilize, our net operating loss carryforwards and certain other
tax attributes.
If
a corporation undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986,
as amended, the corporation’s net operating loss carryforwards and certain other tax attributes arising prior to the ownership
change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative
change in the corporation’s equity ownership by certain stockholders that exceeds 50% over a rolling three-year period.
Similar rules may apply under state tax laws. If we experience such an ownership change, our net operating loss carryforwards
generated prior to the ownership change would be subject to annual limitations that could reduce, eliminate or defer the utilization
of these losses.
Moreover,
the recognition and measurement of net operating loss carryforwards may include estimates and judgments by management, and the
Internal Revenue Service could, upon audit or other investigation, disagree with the amount of net operating loss carryforwards
or the determination of whether an ownership change has occurred. Additionally, future legislative changes could negatively impact
the ability to use any tax benefits associated with net operating loss carryforwards. Any inability to use net operating loss
carryforwards to reduce our U.S. federal or state income tax liability could materially harm our financial condition and results
of operations.
Risks
Related to Our Common Stock
The
price and trading volume of our common stock may be subject to extreme volatility, and stockholders could lose all or part of
their investment in our company.
The
trading volume and market price of our common stock has experienced, and is likely to continue to experience, significant volatility.
This volatility could negatively impact our ability to raise additional capital or utilize equity as consideration in any acquisition
transactions we may seek to pursue, and could make it more difficult for existing stockholders to sell their shares of our common
stock at a price they consider acceptable or at all. This volatility is caused by a variety of factors, including, among the other
risks described in these risk factors:
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adverse
research and development or clinical trial results;
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our
liquidity and ability to obtain additional capital, including the market’s reaction to any capital-raising transaction
we may pursue;
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declining
working capital to fund operations, or other signs of financial uncertainty;
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any
negative announcement by the FDA or comparable regulatory bodies outside the United States, including that it has denied any
request to approve any of our product candidates for commercialization;
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conducting
open-ended clinical trials, which could lead to results (either positive or negative) being available to the public prior
to a formal announcement;
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market
assessments of any strategic transaction or collaboration arrangement we may pursue;
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potential
negative market reaction to the terms or volume of any issuance of shares of our common stock or other securities to new investors
pursuant to strategic or capital-raising transactions or to employees, directors or other service providers;
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sales
of substantial amounts of our common stock, or the perception that substantial amounts of our common stock may be sold, by
stockholders in the public market;
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issuance
of new or updated research or reports by securities analysts or changed recommendations for our common stock;
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significant
advances made by competitors that adversely affect our competitive position;
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the
loss of key personnel and the inability to attract and retain additional highly-skilled personnel; and
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general
market and economic conditions, including factors not directly related to our operating performance or the operating performance
of our competitors, such as increased uncertainty in the U.S. healthcare regulatory environment following the results of the
2016 U.S. presidential election.
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addition, the stock market in general, and the market for stock of companies in the life sciences and biotechnology industries
in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of specific companies. In addition, in the past, following periods of volatility in the overall market and
the market price of a particular company’s securities, securities class action litigation has often been instituted against
the company. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s
attention and resources.
If
our common stock is delisted from the Nasdaq Capital Market or we are found to be noncompliant with Nasdaq rules, the market price
and liquidity of our common stock could be materially negatively impacted.
The
listing of our common stock on the Nasdaq Capital Market, or Nasdaq, is contingent upon our compliance with all of Nasdaq’s
continued listing requirements. If we are found to be noncompliant with these requirements, our common stock could be subject
to delisting from Nasdaq. In such event, the market price of our common stock could be negatively impacted, the liquidity of our
common stock could be reduced and our ability to complete equity financings in the future may be limited or prevented.
If
we issue additional equity securities in the future, our existing stockholders would be diluted.
Our
articles of incorporation authorize the issuance of up to 160,000,000 shares of our common stock. In addition to capital-raising
activities, on which we have historically relied for cash to fund our operations, including with our recent October 2017 offerings,
November 2017 warrant exercise inducement offering and February 2018 offering, other possible business and financial uses for
our authorized common stock include, among others, stock splits, acquiring other businesses or assets in exchange for shares of
our common stock, issuing shares of our common stock to collaborators in connection with strategic alliances, issuing common stock
to vendors for services performed, attracting and retaining employees with equity compensation or other transactions and corporate
purposes that our Board of Directors deems to be in the best interest of our Company. Additionally, issuances of common stock
could be used for anti-takeover purposes or to delay or prevent changes in control or management of our Company. Any future issuances
of our common stock may be consummated on terms that are not favorable, may not enhance stockholder value and may adversely affect
the trading price of our common stock. Further, any such issuance will reduce the book value per share of our common stock and
reduce the proportionate ownership and voting power of our existing stockholders.
If
outstanding options or warrants to purchase shares of our common stock are exercised or outstanding restricted stock units vest
and settle, our existing stockholders would be diluted.
As
of January 31, 2018, we had outstanding (i) options to purchase 7.3 million shares of our common stock, (ii) warrants to purchase
9.3 million shares of our common stock and (iii) 1.1 million restricted stock units. In addition, as of January 31, 2018, there
were 3.2 million shares reserved for future issuance under our stock incentive and stock purchase plans. The exercise of options
and warrants, the vesting and settlement of restricted stock units or the issuance of additional equity awards under our stock
incentive and stock purchase plans could have an adverse effect on the market for our common stock, including the price that any
stockholder could obtain for its shares. Further, our existing stockholders could experience significant dilution in the net tangible
book value of their investment upon the issuance of additional shares of our common stock through the exercise of derivative securities
that are currently outstanding or that we may issue in the future.
Sales
of common stock by our stockholders, or the perception that such sales may occur, could depress the market price of our common
stock.
The
market price of our common stock could decline as a result of sales by, or the perceived possibility of sales by, our existing
stockholders. Since March 2011, we have completed a number of offerings of our common stock and warrants. Future sales of common
stock by significant stockholders, including by those who acquired their shares in our prior equity offerings, or the perception
that such sales may occur, could depress the price of our common stock.