Item 1A. Risk Factors
We operate
in a dynamic and rapidly changing business environment that involves risks and substantial uncertainty. The following discussion
addresses risks and uncertainties that could cause, or contribute to causing, actual results to differ from expectations in material
ways. In evaluating our business, investors should pay particular attention to the risks and uncertainties described below and
in other sections of this Quarterly Report on Form 10-Q and in our subsequent filings with the Securities and Exchange Commission,
or SEC. These risks and uncertainties, or other events that we do not currently anticipate or that we currently deem immaterial
also may affect our results of operations, cash flows and financial condition. The trading price of our common stock could also
decline due to any of these risks, and you could lose all or part of your investment.
Risks Related to Our Financial Position
and Need for Additional Capital
We will need substantial additional
funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development
programs or commercialization efforts.
Developing pharmaceutical products, including
conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years
to complete. We initiated our Phase 3 PolarisDMD clinical trial of edasalonexent in the third quarter of 2018 and our open-label
extension trial GalaxyDMD in March 2019 and expect that our expenses will increase substantially as we conduct these trials and
other potential trials. In addition, we may in the future initiate new research, preclinical and clinical development efforts for
and seek marketing approval for, other product candidates, and would expect our expenses to increase in connection with each of
these activities. If we obtain marketing approval for any of our product candidates, we may incur significant commercialization
expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing
and distribution are not the responsibility of a future collaborator, and these activities would require substantial additional
funding. Furthermore, we have incurred and will continue to incur significant additional costs associated with operating as a public
company.
Accordingly, we will need to obtain additional
funding in connection with our continuing operations and for costs related to filing a New Drug Application, or NDA, seeking regulatory
approvals and commercialization activities for edasalonexent in Duchenne muscular dystrophy, or DMD, and for any of our other product
candidates that have successful clinical trials. If we are unable to raise capital when needed or on attractive terms, we may be
forced to delay, reduce or eliminate our research and development programs or any future efforts to commercialize edasalonexent,
our lead product candidate. Any additional funding may not be available to us on acceptable terms, on a timely basis or at all.
In the event that we are unable to obtain such funding on acceptable terms and in a timely manner, we may not be able to complete
the regulatory approval or commercialization of edasalonexent or the clinical development, regulatory approval or commercialization
of any other product candidate.
In addition, while we may seek one or more
collaborators for future development of our product candidates or programs or for our platform technology, we may not be able to
enter into a collaboration for any of our product candidates or programs or for our platform technology on suitable terms or at
all. In any event, our existing cash, cash equivalents and short-term investments will not be sufficient to fund all of the efforts
that we plan to undertake or to fund the completion of development of any of our product candidates. Accordingly, we will be required
to obtain substantial additional funding through public or private equity offerings, debt financings, collaborations and licensing
arrangements or other sources. We do not have any committed external source of funds.
Adequate additional funding may not be
available to us on acceptable terms, on a timely basis or at all, impacting our ability to execute on our strategic plans. The
COVID-19 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions,
which could adversely impact our ability to raise additional funds through public offerings or private placements. Our failure
to raise capital on acceptable terms as and when needed would have a material adverse effect on our business, results of operations,
financial condition and ability to pursue our business strategy.
We believe that our existing cash, cash
equivalents and short-term investments as of March 31, 2020 will enable us to fund our operating expenses and capital expenditure
requirements based on our current operating plan beyond a potential NDA filing and into the third quarter of 2021. Our estimate
as to how long we expect our cash, cash equivalents and short-term investments securities to be able to fund our operations is
based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.
Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster
than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future funding requirements will
depend on many factors, including:
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any unanticipated costs or expenses related to our Phase 3 PolarisDMD and GalaxyDMD trials, including
costs and expenses for any additional research or preclinical or clinical development efforts related to this trial;
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the progress, timing, costs and results of clinical trials of, and research and preclinical development
efforts for, our product candidates and potential product candidates, including current and future clinical trials;
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the impact of COVID-19 on our operations, business and prospects;
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our ability to enter into and the terms and timing of any additional collaborations, licensing
or other arrangements that we may establish;
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the number and characteristics of future product candidates that we pursue and their development
requirements;
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the outcome, timing and costs of seeking regulatory approvals;
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the costs of commercialization activities for any of our product candidates that receive marketing
approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing
product sales, marketing, distribution and manufacturing capabilities;
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subject to receipt of marketing approval, revenue, if any, received from commercial sales of our
product candidates;
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our headcount growth and associated costs as we expand our research and development and establish
a commercial infrastructure;
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the costs of preparing, filing and prosecuting patent applications, maintaining and protecting
our intellectual property rights and defending against intellectual property related claims; and
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the costs of operating as a public company.
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Raising additional capital may cause
dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Significant additional
capital will be needed in the future to continue our planned operations. To the extent that we raise additional capital through
the sale of common stock, convertible securities or other equity securities, our existing stockholders’ ownership interest
may be substantially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution
protections that could adversely affect your rights as a common stockholder. For example, our June 2018 and February 2019 registered
offerings of common stock and common stock warrants and our January 2020 registered offering of common stock were highly dilutive
to existing stockholders’ ownership interests. Further, exercise of the common stock warrants sold in in our June 2018 and
February 2019 offerings could result in additional dilution upon exercise. Additional debt financing, if available, would result
in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to
take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring
dividends, that could adversely impact our ability to conduct our business. In addition, securing additional financing could require
a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away
from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product
candidates.
If we raise additional
funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable
to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise
prefer to develop and market ourselves.
Any future indebtedness could adversely
affect our ability to operate our business.
Any future indebtedness
that we may incur, combined with our other financial obligations and contractual commitments could have significant adverse consequences,
including:
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requiring us to dedicate a portion of our cash resources to the payment of interest and principal,
reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes;
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increasing our vulnerability to adverse changes in general economic, industry and market conditions;
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subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions
or obtain further debt or equity financing;
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limiting our flexibility in planning for, or reacting to, changes in our business and the industry
in which we compete; and
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placing us at a competitive disadvantage compared to our competitors that have less debt or better
debt servicing options.
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Failure to make payments
or comply with other covenants under any debt instruments could result in an event of default and acceleration of amounts due.
We have incurred significant losses
since inception and expect to incur significant losses for at least the next several years. We may never achieve or maintain profitability.
We have incurred significant
annual net operating losses in every year since our inception. We expect to continue to incur significant operating losses for
at least the next several years. Our net losses were $8.0 million for the three months ended March 31, 2020 and $26.3 million and
$25.9 million for the years ended December 31, 2019 and 2018, respectively. As of March 31, 2020, we had an accumulated deficit
of $231.5 million. We have not generated any revenues from product sales, have not completed the development of any product candidate
and may never have a product candidate approved for commercialization. We have financed our operations to date primarily through
private placements of our preferred stock, registered offerings of our common stock, including our initial public offering, or
IPO, our June 2018 and February 2019 registered offerings of common stock and common stock warrants and our January 2020 registered
offering of common stock, our at-the-market program, and a secured debt financing, and have devoted substantially all of our financial
resources and efforts to research and development, including preclinical studies and our clinical development programs. Our net
losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will
continue to have, an adverse effect on our stockholders’ equity and working capital.
We anticipate that
our expenses will increase substantially if and to the extent we:
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continue to conduct our Phase 3 PolarisDMD clinical trial and GalaxyDMD open-label extension clinical
trial of edasalonexent in DMD;
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initiate our planned Phase 2 clinical trial of edasalonexent
in non-ambulatory DMD patients with supportive funding from Duchenne UK;
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initiate and continue research and preclinical and clinical development efforts for edasalonexent
and our other product candidates;
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seek to identify and develop additional product candidates;
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seek regulatory and marketing approvals for our product candidates that successfully complete clinical
trials, if any;
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establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize
various products for which we may obtain marketing approval, if any;
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require the manufacture of larger quantities of product candidates for clinical development and
potentially commercialization;
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maintain, expand and protect our intellectual property portfolio;
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hire and retain additional personnel, such as clinical, quality control and scientific personnel;
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add operational, financial and management information systems and personnel, including personnel
to support our product development and help us comply with our obligations as a public company; and
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add equipment and physical infrastructure to support our research and development programs.
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Our ability to become
and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until
we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our
product candidates. This will require our, or any of our future collaborators’, success in a range of challenging activities,
including obtaining funding to conduct clinical trials of our product candidates, completing clinical trials of our product candidates,
obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or
any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement
for our products from private insurance or government payors. Because of the uncertainties and risks associated with these activities,
we are unable to accurately predict the timing and amount of increased expenses, and if or when we might achieve profitability.
We and any future collaborators may never succeed in these activities and, even if we do, or any future collaborator does, we may
never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not
be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would
decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and
development efforts, diversify our pipeline of product candidates or continue our operations. A decline in the value of our company
could cause our investors to lose all or part of their investments.
We have a limited operating history
and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future
viability.
We began operations
in 2008. Our operations to date have been limited to financing and staffing our company and developing our technology and conducting
preclinical research and clinical trials for our product candidates. We have not yet demonstrated an ability to successfully conduct
pivotal clinical trials, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do
so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, our
investors should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by
companies in the early stages of development, especially clinical-stage biopharmaceutical companies such as ours. Predictions about
our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully
developing and commercializing pharmaceutical products.
Risks Related to the Discovery, Development
and Commercialization of Our Product Candidates
Our approach to the discovery and development
of product candidates has been based on our SMART Linker drug discovery platform, which is unproven, and we do not know whether
we will be able to develop any products of commercial value.
We have been focused
on discovering and developing novel small molecule drugs by applying our SMART Linker drug discovery platform. We have not yet
succeeded and may never succeed in demonstrating efficacy and safety for any of our product candidates in a Phase 3 clinical trial
or in obtaining marketing approval thereafter. For example, although we have discovered and evaluated numerous compounds using
our SMART Linker drug discovery platform, no product created using the SMART Linker drug discovery platform has ever been approved
for sale.
We are dependent on the success of our
product candidate edasalonexent. If we are unable to complete the clinical development of, obtain marketing approval for or successfully
commercialize this product candidate, either alone or with a collaborator, or if we experience significant delays in doing so,
our business would be substantially harmed.
We currently have
no products approved for sale and are focusing substantially all of our efforts and financial resources in the development of edasalonexent
for the treatment of DMD. Our prospects are substantially dependent on our ability, or that of any future collaborator, to develop,
obtain marketing approval for and successfully commercialize edasalonexent. Because our business is almost entirely dependent upon
this one product candidate, any setback in obtaining regulatory approval for edasalonexent would have a material adverse effect
on our business and prospects.
The success of edasalonexent
will depend on several factors, including the following:
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successful completion of our Phase 3 PolarisDMD clinical trial of edasalonexent, as well as any
additional clinical trials of edasalonexent, including our ongoing GalaxyDMD open-label extension clinical trial;
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the extent of the impact of the COVID-19 pandemic on the timing and progress of our Phase 3 PolarisDMD
clinical trial of edasalonexent, our ongoing GalaxyDMD open label extension clinical trial, as well as any additional potential
new clinical trials of edasalonexent;
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safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration,
or FDA, or any comparable foreign regulatory authority for marketing approval;
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timely receipt of marketing approvals from applicable regulatory authorities;
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the performance of our future collaborators, if any;
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the extent of any required post-marketing approval commitments to applicable regulatory authorities;
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establishment of supply arrangements with third-party raw materials suppliers and manufacturers;
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establishment of arrangements with third-party manufacturers to obtain finished drug products that
are appropriately packaged for sale;
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obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the
United States and internationally;
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protection of our rights in our intellectual property portfolio;
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successful launch of commercial sales following any marketing approval;
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a continued acceptable safety profile following any marketing approval;
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commercial acceptance by patients, the medical community and third-party payors following any marketing
approval; and
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our ability to compete with other therapies, including therapies targeting dystrophin, myostatin
and inflammatory mediators.
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Many of these factors
are beyond our control, including the outcome of clinical development, the regulatory submission process, potential threats to
our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable
to develop, receive marketing approval for and successfully commercialize edasalonexent, on our own or with any future collaborator,
or experience delays as a result of any of these or other factors, our business would be substantially harmed.
The COVID-19 pandemic, which began in
late 2019 and has had impacts worldwide, may delay our ability to complete our ongoing clinical trials or delay the initiation
of future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. In addition,
this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of
which could result in adverse effects on our business and operations and ability to raise capital.
The COVID-19 pandemic,
which began in December 2019, has had impacts worldwide causing many governments to implement measures to slow the spread of the
outbreak through quarantines, travel restrictions, heightened border scrutiny, and other measures. The outbreak and government
measures taken in response, including widespread emergency orders requiring business and residents to curtail non-essential activities,
have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply
chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical
services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression
of the outbreak and its effects on our business and operations are uncertain.
We and our clinical
research organizations, as well as our clinical trial sites, may face disruptions with respect to our current global Phase
3 PolarisDMD trial and GalaxyDMD open-label extension trial due to governmental “stay at home” or “shelter
in place” orders. Our PolarisDMD trial and GalaxyDMD trial could experience further disruptions due to hospital staff shortages,
delays in the ability to obtain necessary institutional review board, or IRB, or other necessary site approvals, as well as other
delays at clinical trial sites. For example, we are aware that certain of our clinical sites for the PolarisDMD trial have
imposed limitations on clinical trial activity, including in-person patient visits in some situations. If in-patient visits
become unavailable to patients in our PolarisDMD trial or our GalaxyDMD trial, we may have to expand the use of telehealth visits
to monitor safety and to assess efficacy. The expanded use of telehealth assessments may introduce additional variability
that could potentially impact the integrity of the PolarisDMD trial. In both our PolarisDMD trial and GalaxyDMD trial, we
could also face difficulties in obtaining and maintaining adequate drug supply. This could potentially adversely impact our
ability to enroll or delay enrollment in the GalaxyDMD trial. The response to the COVID-19 pandemic may also redirect resources
of regulators in a way that would adversely impact our ability to progress regulatory approvals and we may face impediments to
regulatory meetings and approvals due to measures intended to limit in-person interactions.
The pandemic has also
caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability
to raise additional funds through public offerings and may also impact the volatility of our stock price and trading in our stock.
Moreover, it is possible the pandemic will continue to significantly impact economies worldwide, which could result in adverse
effects on our business and operations. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business
and it has the potential to adversely affect our business, financial condition, results of operations, and prospects.
Any negative impact
that the COVID-19 pandemic has on retaining patients in our clinical trials, the ability of our suppliers to provide materials
for our product candidates, or the regulatory review process could cause additional delays with respect to product development
activities, which could materially and adversely affect our ability to obtain regulatory approval for and to commercialize edasalonexent,
increase our operating expenses, affect our ability to raise additional capital, and have a material adverse effect on our financial
results.
The COVID-19
pandemic continues to rapidly evolve, and its ultimate scope, duration and effects are unknown. The extent of the impact of the
disruptions to our business, preclinical studies and clinical trials as a result of the outbreak will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the
duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing
and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness
of actions taken in the United States and other countries to contain and treat the disease.
Our SMART Linker drug discovery platform
may fail to help us discover and develop additional potential product candidates.
A significant portion
of the research that we have conducted to date and may in the future conduct, involves the development of new compounds using our
SMART Linker drug discovery platform. Although, we have suspended efforts to discover additional compounds while we focus our resources
on the clinical development of edasalonexent, any drug discovery that we are conducting using our SMART Linker drug discovery platform
may not be successful in creating compounds that have commercial value or therapeutic utility. Our SMART Linker drug discovery
platform may initially show promise in identifying potential product candidates, yet fail to yield viable product candidates for
clinical development or commercialization for a number of reasons, including:
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compounds created through our SMART Linker drug discovery platform may not demonstrate improved
efficacy, safety or tolerability;
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potential product candidates may, on further study, be shown to have harmful side effects or other
characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance;
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competitors may develop alternative therapies that render our potential product candidates non-competitive
or less attractive; or
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a potential product candidate may not be capable of being produced at an acceptable cost.
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Our research programs
to identify new product candidates will require substantial technical, financial and human resources, and we may be unsuccessful
in our efforts to identify new product candidates. If we are unable to identify suitable additional compounds for preclinical
and clinical development, either because our SMART Linker platform is not successful or because we do not develop alternative methods
to identify compounds for development, our ability to develop product candidates and obtain product revenues in future periods
could be compromised, which could result in significant harm to our financial position and adversely impact our stock price.
We have never obtained marketing approval
for a product candidate and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our product
candidates.
We have never obtained
marketing approval for a product candidate. It is possible that the FDA may refuse to accept for substantive review any NDAs that
we submit for our product candidates or may conclude after review of our data that our applications are insufficient to obtain
marketing approval of our product candidates. If the FDA does not accept or approve any NDAs we submit, it may require that we
conduct additional clinical, nonclinical or manufacturing validation studies and submit that data before it will reconsider our
applications. Depending on the extent of these or any other FDA-required studies, approval of any NDA or application that we submit
may be delayed by several years or may require us to expend more resources than we have available. It is also possible that additional
studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDAs.
Any delay in obtaining,
or an inability to obtain, marketing approvals would prevent us from commercializing our product candidates, generating revenues
and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts
for our product candidates, which could significantly harm our business.
Results of preclinical studies and early
clinical trials may not be predictive of results of future clinical trials.
The outcome of preclinical
studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical
trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we
cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will
support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well
advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support
marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many
companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless
failed to obtain marketing approval for the product candidates. Even if we, or any future collaborators, believe that the results
of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities
may disagree and may not grant marketing approval of our product candidates.
In some instances,
there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate
due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the
patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout
among clinical trial participants. For example, while we observed positive NF-κB biomarker data in the Phase 1 portion of
our MoveDMD Phase 1/2 clinical trial of edasalonexent for the treatment of DMD that demonstrated NF-κB target engagement
via statistically significant reduction in NF- κB controlled gene expression for the 67 mg/kg/day and 100 mg/kg/day dosing
levels, the primary efficacy endpoint in the Phase 2 portion of the trial, which was average change from baseline to week 12 in
the magnetic resonance imaging, or MRI, T2 composite measure of lower leg muscles for the pooled edasalonexent treatment groups
compared to placebo, for the same dosing levels was not met. If we fail to receive positive results in clinical trials of our product
candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced product candidates,
and, correspondingly, our business and financial prospects would be negatively impacted.
The regulatory approval processes for
product candidates that target rare diseases, including DMD and cystic fibrosis, are uncertain.
Due to the lack of
precedent, broad discretion of regulatory authorities, and a multitude of unique factors that impact the regulatory approval process,
the likelihood of the approval of any of our product candidates that target rare diseases, such as DMD or cystic fibrosis, is uncertain,
and we may not be able to anticipate, prepare for or satisfy requests or requirements from regulatory authorities, including completing
and submitting planned investigational new drug applications and NDAs for our product candidates, in a timely manner, or at all.
For example, DMD is a rare disease for which there are only two FDA approved therapeutics. Further, the FDA may determine, after
evaluation of our data and analyses, that such data and analyses do not support an NDA submission, filing or approval. Due to this
lack of predictability, we may not have the resources necessary to meet regulatory requirements and successfully complete a potentially
protracted, expensive and wide-ranging approval process for commercialization of product candidates for rare diseases.
We may expend our limited resources
to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be
more profitable or for which there is a greater likelihood of success.
Because we have limited
financial and managerial resources, we intend to focus on developing product candidates for specific indications that we identify
as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As a result, we may forego
or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial
potential.
Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on
current and future research and development programs and product candidates for specific indications may not yield any commercially
viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product
candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements
in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product
candidate.
Clinical drug development involves a
lengthy and expensive process with an uncertain outcome.
Clinical testing is
expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned
or completed on schedule, or at all. Further, the clinical development of our product candidates is susceptible to the risk of
failure at any stage of drug development, including failure to demonstrate efficacy in a clinical trial or across a broad population
of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with
protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that
a product candidate may not continue development or is not approvable. It is possible that even if one or more of our product candidates
has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of
factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result
of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the
actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by
our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact
the case.
In addition to the
risk of failure inherent in drug development, certain of the compounds that we are developing and may develop in the future using
our SMART Linker drug discovery platform may be particularly susceptible to failure to the extent they are based on compounds that
others have previously studied or tested, but did not progress in development due to safety, tolerability or efficacy concerns
or otherwise. Our failure to successfully complete clinical trials of our product candidates and to demonstrate the efficacy and
safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business.
If clinical trials of our product candidates
fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, we, or any future collaborators,
may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization
of these product candidates.
We, and any future
collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining
marketing approval from the FDA. Comparable foreign regulatory authorities, such as the European Medicines Agency, or the EMA,
impose similar restrictions. We, and any future collaborators, may never receive such approvals. We, and any future collaborators,
must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates
in humans before we, or they, will be able to obtain these approvals.
Clinical testing is
expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have
not previously submitted an NDA to the FDA or similar drug approval filings to comparable foreign regulatory authorities for any
of our product candidates. Any inability to complete preclinical and clinical development successfully could result in additional
costs to us, or any future collaborators, and impair our ability to generate revenues from product sales, regulatory and commercialization
milestones and royalties. Moreover, if (1) we, or any future collaborators, are required to modify our trial designs, such as required
modifications with respect to patient populations, endpoints, comparators or trial duration, (2) we, or any future collaborators,
are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that
we, or they contemplate, (3) we, or any future collaborators, are unable to successfully complete clinical trials of our product
candidates or other testing, (4) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable,
or (5) there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators, may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant
safety warnings, including boxed warnings;
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be subject to additional post-marketing testing or other requirements; or
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be required to remove the product from the market after obtaining marketing approval.
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Adverse events or undesirable side effects
caused by, or other unexpected properties of, any of our product candidates may be identified during development that could delay
or prevent their marketing approval or limit their use.
Adverse events or
undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, any future collaborators,
an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product
candidates and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign
regulatory authorities. If any of our product candidates is associated with adverse events or undesirable side effects or has properties
that are unexpected, we, or any future collaborators, may need to abandon development or limit development of that product candidate
to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe
or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing
have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.
If we, or any future collaborators,
experience any of a number of possible unforeseen events in connection with clinical trials of our product candidates, potential
marketing approval or commercialization of our product candidates could be delayed or prevented.
We, or any future
collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent
marketing approval or commercialization of our product candidates, including:
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clinical trials of our product candidates may produce unfavorable or inconclusive results, such
as occurred in our MoveDMD Phase 1/2 clinical trial of edasalonexent for the treatment of DMD, where the primary efficacy endpoint
was not met;
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we, or any future collaborators, may decide, or regulators may require us or them, to conduct additional
clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than
we, or any future collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any future collaborators,
anticipate or participants may drop out of these clinical trials at a higher rate than we, or any future collaborators, anticipate;
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the cost of planned clinical trials of our product candidates may be greater than we anticipate;
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our third-party contractors or those of any future collaborators, including those manufacturing
our product candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any future
collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or any future collaborators
in a timely manner or at all;
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regulators or institutional review boards may not authorize us, any future collaborators or our
or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we, or any future collaborators, may have delays in reaching or fail to reach agreement on acceptable
clinical trial contracts or clinical trial protocols with prospective trial sites;
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patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise
not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed
enrollment size for the clinical trial or extend the clinical trial’s duration;
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we, or any future collaborators, may have to delay, suspend or terminate clinical trials of our
product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks,
undesirable side effects or other unexpected characteristics of the product candidate, or travel bans or other restrictions imposed
by applicable governmental authorities due to the ongoing COVID-19 pandemic;
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regulators or institutional review boards may require that we, or any future collaborators, or
our or their investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory
requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable
side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically
or mechanistically similar drug or drug candidate;
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the FDA or comparable foreign regulatory authorities may disagree with our, or any future collaborators’,
clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials;
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the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault
with the manufacturing processes or facilities of third-party manufacturers with which we, or any future collaborators, enter into
agreements for clinical and commercial supplies;
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the supply or quality of raw materials or manufactured product candidates or other materials necessary
to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an acceptable cost, or
we may experience interruptions in supply, due to, among other things, the ongoing COVID-19 pandemic; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may
significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.
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In addition, we are
currently conducting and may in the future conduct clinical trials outside of the United States. Unforeseen global instability,
including political instability, or instability from an outbreak of pandemic or contagious disease, such as the ongoing COVID-19
pandemic, in or around the countries in which we conduct our clinical trials, could affect our ability to enroll patients in our
clinical trials in these countries, prevent patients already enrolled from completing our clinical trials, and/or cause other trial
delays or otherwise adversely impact our clinical trials.
Product development
costs for us, or any future collaborators, will increase if we, or they, experience delays in testing or pursuing marketing approvals
and we, or they, may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization
of our product candidates. We do not know whether any preclinical tests or clinical trials will begin as planned, will need to
be restructured, or will be completed on schedule or at all. Significant preclinical or clinical trial delays also could shorten
any periods during which we, or any future collaborators, may have the exclusive right to commercialize our product candidates
or allow our competitors, or the competitors of any future collaborators, to bring products to market before we, or any future
collaborators, do and impair our ability, or the ability of any future collaborators, to successfully commercialize our product
candidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays
may ultimately lead to the denial of marketing approval of any of our product candidates.
If we, or any future collaborators,
experience delays or difficulties in the enrollment of patients in clinical trials, our or their receipt of necessary regulatory
approvals could be delayed or prevented.
We, or any future
collaborators, may not be able to initiate or continue clinical trials for any of our product candidates if we, or they, are unable
to locate and enroll a sufficient number of eligible patients to participate in clinical trials as required by the FDA or comparable
foreign regulatory authorities, such as the EMA. Patient enrollment is a significant factor in the timing of clinical trials, and
is affected by many factors, including:
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the size and nature of the patient population;
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the severity of the disease under investigation;
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the proximity of patients to clinical sites;
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the eligibility criteria for the trial;
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the design of the clinical trial;
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efforts to facilitate timely enrollment;
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competing clinical trials; and
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clinicians’ and patients’ perceptions as to the potential advantages and risks of the
drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we
are investigating.
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The successful completion
of any future clinical trial for edasalonexent or any other product candidate for the treatment of DMD will be dependent upon our
ability to enroll a sufficient number of patients with DMD. DMD is a rare disease with a small patient population. Further, there
are only a limited number of specialist physicians that regularly treat patients with DMD and major clinical centers that support
DMD treatment are concentrated in a few geographic regions. Further, these specialized sites typically treat a range of pediatric
neuromuscular diseases and, at any point in time, may have constrained resources and capacity to handle clinical trials. In addition,
other companies are conducting clinical trials and have announced plans for future clinical trials that are seeking, or are likely
to seek, to enroll patients with DMD and patients are generally only able to enroll in a single trial at a time. The small population
of patients, competition for these patients and the limited trial sites and their constrained resources may make it difficult for
us to enroll enough patients to complete clinical trials for edasalonexent in a timely and cost-effective manner or at all.
The clinical trials
that we conduct may also have inclusion criteria that further limit the population of patients that we are able to enroll. For
example, further clinical trials for edasalonexent may require that the enrolled boys be between certain ages and not on certain
other medications. These inclusion criteria, or other inclusion criteria that are not yet defined, could further limit the available
patient pool and present challenges to clinical trial enrollment.
Our inability, or
the inability of any future collaborators, to enroll a sufficient number of patients for our, or their, clinical trials could result
in significant delays or may require us or them to abandon one or more clinical trials altogether. Enrollment delays in our, or
their, clinical trials may result in increased development costs for our product candidates, delay or halt the development of and
approval processes for our product candidates and jeopardize our, or any future collaborators’, ability to commence sales
of and generate revenues from our product candidates, which could cause the value of our company to decline.
Business disruptions could seriously
harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and
those of our third-party research institution collaborators, contract research organizations, contract manufacturing operations,
and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages,
floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics such as the ongoing COVID-19 pandemic,
and other natural or man-made disasters or business interruptions, for which we are partly uninsured. In addition, we rely on our
third-party research institution collaborators for conducting research and development of our product candidates, and they may
be affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could seriously harm
our operations and financial condition and increase our costs and expenses.
If any of our product candidates receives
marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable
side effects that were not previously identified, our ability, or that of any future collaborators, to market the drug could be
compromised.
Clinical trials of
our product candidates are conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently,
it is possible that our clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product
candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects.
If, following approval of a product candidate, we, or others, discover that the drug is less effective than previously believed
or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the drug or seize the drug;
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we, or any future collaborators, may be required to recall the drug, change the way the drug is
administered or conduct additional clinical trials;
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for,
the particular drug;
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we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
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regulatory authorities may require the addition of labeling statements, such as a “black
box” warning or a contraindication;
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we, or any future collaborators, may be required to create a Medication Guide outlining the risks
of the previously unidentified side effects for distribution to patients;
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we, or any future collaborators, could be sued and held liable for harm caused to patients;
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the drug may become less competitive; and
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our reputation may suffer.
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Any of these events
could have a material and adverse effect on our operations and business and could adversely impact our stock price.
Even if one of our product candidates
receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors
and others in the medical community necessary for commercial success and the market opportunity for the product candidate may be
smaller than we estimate.
We have never commercialized
a product. Even if one of our product candidates is approved by the appropriate regulatory authorities for marketing and sale,
it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical
community. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially
more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently
taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies
due to lack of reimbursement for existing therapies.
Efforts to educate
the medical community and third-party payors on the benefits of our product candidates may require significant resources and may
not be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we
may not generate significant revenues and we may not become profitable. The degree of market acceptance of our product candidates,
if approved for commercial sale, will depend on a number of factors, including:
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the efficacy and safety of the product;
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the potential advantages of the product compared to alternative treatments;
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the prevalence and severity of any side effects;
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the clinical indications for which the product is approved;
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whether the product is designated under physician treatment guidelines as a first-line therapy
or as a second- or third-line therapy;
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limitations or warnings, including distribution or use restrictions, contained in the product’s
approved labeling;
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our ability, or the ability of any future collaborators, to offer the product for sale at competitive
prices;
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the product’s convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try, and of physicians to prescribe, the product;
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the strength of sales, marketing and distribution support;
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the approval of other new products for the same indications;
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changes in the standard of care for the targeted indications for the product;
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the timing of market introduction of our approved products as well as competitive products;
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availability and amount of reimbursement from government payors, managed care plans and other third-party
payors;
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adverse publicity about the product or favorable publicity about competitive products; and
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potential product liability claims.
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The potential market
opportunities for our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunities
are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys.
While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on
the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent
source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than
our estimates of the potential market opportunities.
If we are unable to establish sales,
marketing and distribution capabilities or enter into sales, marketing and distribution arrangements with third parties, we may
not be successful in commercializing any product candidates that we develop if and when those product candidates are approved.
We have taken initial
steps towards planning for commercialization of our lead product candidate. However, we currently do not have a formal sales, marketing
or distribution infrastructure and have limited experience in the sale, marketing or distribution of pharmaceutical products. To
achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these
functions to third parties. We plan to use a combination of focused in-house sales and marketing capabilities and third-party collaboration,
licensing and distribution arrangements to sell any of our products that receive marketing approval.
We generally plan
to seek to retain full commercialization rights for products that we can commercialize with a specialized sales force and to retain
co-promotion or similar rights when feasible in indications requiring a larger commercial infrastructure. The development of sales,
marketing and distribution capabilities will require substantial resources, will be time-consuming and could delay any product
launch. If the commercial launch of a product for which we recruit a sales force and establish marketing and distribution capabilities
is delayed or does not occur for any reason, we could have prematurely or unnecessarily incurred these commercialization costs.
This may be costly, and our investment could be lost if we cannot retain or reposition our sales and marketing personnel. In addition,
we may not be able to hire or retain a sales force that is sufficient in size or has adequate expertise in the medical markets
that we plan to target. If we are unable to establish or retain a sales force and marketing and distribution capabilities, our
operating results may be adversely affected. If a potential partner has development or commercialization expertise that we believe
is particularly relevant to one of our products, then we may seek to collaborate with that potential partner even if we believe
we could otherwise develop and commercialize the product independently.
We may collaborate
with third parties for commercialization of any products that require a large sales, marketing and product distribution infrastructure.
We intend to potentially commercialize our product candidates through collaboration, licensing and distribution arrangements with
third parties. As a result of entering into arrangements with third parties to perform sales, marketing and distribution services,
our product revenues or the profitability of these product revenues may be lower, perhaps substantially lower, than if we were
to directly market and sell products in those markets. Furthermore, we may be unsuccessful in entering into the necessary arrangements
with third parties or may be unable to do so on terms that are favorable to us. In addition, we may have little or no control over
such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
If we do not
establish sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not
be successful in commercializing any of our product candidates that receive marketing approval.
We face substantial competition from
other pharmaceutical and biotechnology companies, and our operating results may suffer if we fail to compete effectively.
The development and
commercialization of new drug products is highly competitive. We expect that we, and any future collaborators, will face significant
competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with
respect to any of our product candidates that we, or they, may seek to develop or commercialize in the future. Specifically, there
are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development
of product candidates for the treatment of the key indication of our most advanced program, DMD.
There are currently
three therapies approved for the treatment of DMD in the United States: EXONDYS 51®, also known as eteplirsen, an
exon skipping therapy targeting the skipping of exon 51; VYONDYS 53, also known as golodirsen, an exon skipping agent targeting
the skipping of exon 53; and EMFLAZA®, also known as deflazacort, a glucocorticoid, which is indicated for the treatment
of DMD in patients two years of age and older. EXONDYS 51 and VYONDYS 53 have been granted accelerated approval and are marketed
by Sarepta Therapeutics, or Sarepta. EMFLAZA is marketed by PTC Therapeutics. Additionally, corticosteroid therapy, including
prednisone, is often prescribed off-label to treat the inflammation underlying DMD and to delay loss of ambulation. PTC Therapeutics’
TRANSLARNA™ has conditional marketing authorization in the European Union and marketing approval in Brazil for the treatment
of DMD caused by a nonsense mutation. A number of companies are developing additional therapies to treat DMD and are in the
process of registration or in late stage clinical development, including Italfarmaco S.p.A., NS Pharma, PTC Therapeutics, ReveraGen,
Sarepta, and Santhera Pharmaceuticals.
Our competitors may
succeed in developing, acquiring or licensing technologies and drug products that are more effective, have fewer or more tolerable
side effects or are less costly than any product candidates that we are currently developing or that we may develop, which could
render our product candidates obsolete and noncompetitive.
Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer
or less severe side effects, are more convenient or are less expensive than any products that we, or any future collaborators,
may develop. Our competitors also may obtain FDA or other marketing approval for their products before we, or any future collaborators,
are able to obtain approval for ours, which could result in our competitors establishing a strong market position before we, or
any future collaborators, are able to enter the market.
Many of our existing
and potential future competitors have significantly greater financial resources and expertise in research and development, manufacturing,
preclinical testing, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among
a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and
retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical
trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
If the FDA or comparable foreign regulatory
authorities approve generic versions of any of our products that receive marketing approval, or such authorities do not grant our
products appropriate periods of data exclusivity before approving generic versions of our products, the sales of our products could
be adversely affected.
Once an NDA is approved,
the product covered thereby becomes a “reference-listed drug” in the FDA’s publication, “Approved Drug
Products with Therapeutic Equivalence Evaluations.” Manufacturers may seek approval of generic versions of reference-listed
drugs through submission of abbreviated new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic
manufacturer need not conduct clinical studies. Rather, the applicant generally must show that its product has the same active
ingredient(s), dosage form, strength, route of administration and conditions of use or labeling as the reference-listed drug and
that the generic version is bioequivalent to the reference-listed drug, meaning it is absorbed in the body at the same rate and
to the same extent. Generic products may be significantly less costly to bring to market than the reference-listed drug and companies
that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug,
a significant percentage of the sales of any branded product or reference-listed drug may be typically lost to the generic product.
The FDA may not approve
an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference-listed drug has expired.
The Federal Food, Drug, and Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing
a new chemical entity, or NCE. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the
FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent
covering the reference-listed drug is either invalid or will not be infringed by the generic product, in which case the applicant
may submit its application four years following approval of the reference-listed drug. It is unclear whether the FDA will treat
the active ingredients in our product candidates as NCEs and, therefore, afford them five years of NCE data exclusivity if they
are approved. If any product we develop does not receive five years of NCE exclusivity, the FDA may approve generic versions of
such product three years after its date of approval. Manufacturers may seek to launch these generic products following the expiration
of the applicable marketing exclusivity period, even if we still have patent protection for our product.
Competition that our
products may face from generic versions of our products could materially and adversely impact our future revenue, profitability
and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates.
Even if we, or any future collaborators,
are able to commercialize any product candidate that we, or they, develop, the product may become subject to unfavorable pricing
regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm our business.
The commercial success
of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product
candidates will be paid by third-party payors, including government health administration authorities and private health coverage
insurers. If coverage and reimbursement is not available, or reimbursement is available only to limited levels, we, or any future
collaborators, may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved
reimbursement amount may not be high enough to allow us, or any future collaborators, to establish or maintain pricing sufficient
to realize a sufficient return on our or their investments. In the United States, no uniform policy of coverage and reimbursement
for products exists among third-party payors and coverage and reimbursement for products can differ significantly from payor to
payor.
There is significant
uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement
for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it
can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted.
In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial
approval is granted. As a result, we, or any future collaborators, might obtain marketing approval for a product in a particular
country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods,
which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing
limitations may hinder our ability or the ability of any future collaborators to recoup our or their investment in one or more
product candidates, even if our product candidates obtain marketing approval.
Patients who are provided
medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with
their treatment. Therefore, our ability, and the ability of any future collaborators, to commercialize any of our product candidates
will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available
from third-party payors. Third-party payors decide which medications they will cover and establish reimbursement levels. The healthcare
industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and other third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could
affect our ability or that of any future collaborators to sell our product candidates profitably. These payors may not view our
products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or those of any future
collaborators, or may not be sufficient to allow our products, if any, to be marketed on a competitive basis. Cost-control initiatives
could cause us, or any future collaborators, to decrease the price we, or they, might establish for products, which could result
in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third-party
payors do not provide coverage or adequate reimbursement, our prospects for revenue and profitability will suffer.
There may also be
delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications
for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement
does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development,
manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical
setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or
may be incorporated into existing payments for other services.
In addition, increasingly,
third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging
the prices charged. We cannot be sure that coverage will be available for any product candidate that we, or any future collaborator,
commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products
may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where
they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates
from both government-funded and private payors for any of our product candidates for which we, or any future collaborator, obtain
marketing approval could significantly harm our operating results, our ability to raise capital needed to commercialize products
and our overall financial condition.
Product liability lawsuits against us
could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
We face an inherent
risk of product liability claims as a result of the clinical testing of our product candidates despite obtaining appropriate informed
consents from our clinical trial participants. We will face an even greater risk if we or any future collaborators commercially
sell any product that we may or they may develop. For example, we may be sued if any product we develop allegedly causes injury
or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims
may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence,
strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully
defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization
of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend resulting litigation;
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substantial monetary awards to trial participants or patients;
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reduced resources of our management to pursue our business strategy; and
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the inability to commercialize any products that we may develop.
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Although we maintain
general liability insurance of $5.0 million in the aggregate and clinical trial liability insurance of $10.0 million
in the aggregate, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability
litigation or other proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage
if and when we begin selling any product candidate that receives marketing approval. In addition, insurance coverage is becoming
increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise
protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale
of our product candidates, which could adversely affect our business, financial condition, results of operations and prospects.
Risks Related to Our Dependence on Third
Parties
We expect to seek to establish collaborations
and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization
plans.
Our drug development
programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses.
We expect to seek one or more collaborators for the development and commercialization of one or more of our product candidates.
For example, conducting clinical trials of CAT-5571 in patients with cystic fibrosis will likely involve significant cost, and
we expect that we would conduct any clinical trial of CAT-5571 in patients with cystic fibrosis in collaboration with one or more
partners. Likely collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies
and biotechnology companies.
We face significant
competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among
other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed
collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the potential
differentiation of our product candidate from competing product candidates, design or results of clinical trials, the likelihood
of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential
market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential
of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications
that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our
product candidate.
Collaborations are
complex and time-consuming to negotiate and document. Further, there have been a significant number of business combinations among
large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. In addition, any loan
and security agreements or collaboration agreements that we enter into in the future may contain, restrictions on our ability to
enter into potential collaborations or to otherwise develop specified compounds.
We may not be able
to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail
the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one
or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing
activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect
to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital,
which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further
develop our product candidates or bring them to market and generate product revenue.
If we enter into collaborations with
third parties for the development and commercialization of our product candidates, our prospects with respect to those product
candidates will depend in significant part on the success of those collaborations.
We expect to enter
into collaborations for the development and commercialization of certain of our product candidates. If we enter into such collaborations,
we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or
commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on any future
collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, any future
collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding
obligations, prior to or upon the expiration of the agreed upon terms.
Collaborations involving
our product candidates pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will
apply to these collaborations;
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collaborators may not perform their obligations as expected;
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collaborators may not pursue development and commercialization of our product candidates or may
elect not to continue or renew development or commercialization programs, based on clinical trial results, changes in the collaborators’
strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program,
stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product
candidate for clinical testing;
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a collaborator with marketing and distribution rights to one or more products may not commit sufficient
resources to the marketing and distribution of such product or products;
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation
or the preferred course of development, might cause delays or termination of the research, development or commercialization of
product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation
or arbitration, any of which would be time-consuming and expensive;
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collaborators may not properly maintain or defend our intellectual property rights or may use our
proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or
proprietary information or expose us to potential litigation;
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collaborators may infringe the intellectual property rights of third parties, which may expose
us to litigation and potential liability; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital
to pursue further development or commercialization of the applicable product candidates.
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Collaboration agreements
may not lead to development or commercialization of product candidates in the most efficient manner or at all. If any future collaborator
of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization
of any product candidate licensed to it by us.
We rely on third parties to conduct
our clinical trials. If they do not perform satisfactorily, our business could be significantly harmed.
We do not independently
conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research organizations, clinical
data management organizations, medical institutions and clinical investigators, to conduct these clinical trials and expect to
rely on these third parties to conduct clinical trials of any other product candidate that we develop. Any of these third parties
may terminate their engagements with us under certain circumstances. We may not be able to enter into alternative arrangements
or do so on commercially reasonable terms. In addition, there is a natural transition period when a new contract research organization
begins work. As a result, delays would likely occur, which could materially impact our ability to meet our expected clinical development
timelines and harm our business, financial condition and prospects.
Further, our reliance
on these third parties for clinical development activities limits our control over these activities, but we remain responsible
for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific
standards. For example, notwithstanding the obligations of a contract research organization for a trial of one of our product candidates,
we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as current Good
Clinical Practices, or cGCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA
enforces these cGCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and institutional
review boards. If we or our third-party contractors fail to comply with applicable cGCPs, the clinical data generated in our clinical
trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our product candidates,
which would delay the marketing approval process. We cannot be certain that, upon inspection, the FDA will determine that any of
our clinical trials comply with cGCPs. We are also required to register clinical trials and post the results of completed clinical
trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines,
adverse publicity and civil and criminal sanctions.
Furthermore, the third
parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements
with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development
programs. These contractors may also have relationships with other commercial entities, including our competitors, for whom they
may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate
time to our clinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines
or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain,
or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we will not be able to, or may
be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the
commercial prospects for any product candidates that we seek to develop could be harmed, our costs could increase and our ability
to generate revenues could be impaired.
We also rely on other
third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors
could delay clinical development or marketing approval of our product candidates or commercialization of any resulting products,
producing additional losses and depriving us of potential product revenue.
We contract with third parties for the
manufacture and distribution of our product candidates for clinical trials and expect to continue to do so in connection with our
future development and commercialization efforts. This reliance on third parties increases the risk that we will not have sufficient
quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development
or commercialization efforts.
We currently have
no manufacturing facilities and limited personnel with manufacturing experience. We rely on contract manufacturers to produce both
drug substance and drug product required for our clinical trials. We plan to continue to rely upon contract manufacturers, and,
potentially collaboration partners, to manufacture commercial quantities of our products, if approved. Reliance on such third-party
contractors entails risks, including:
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manufacturing delays if our third-party contractors give greater priority to the supply of other
products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreements between
us and them;
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the possible termination or nonrenewal of agreements by our third-party contractors at a time that
is costly or inconvenient for us;
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the possible breach by the third-party contractors of our agreements with them;
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the failure of third-party contractors to comply with applicable regulatory requirements;
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the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts
being supplied or active drug or placebo not being properly identified;
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the possibility of clinical supplies not being delivered to clinical sites on time, leading to
clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in
lost sales; and
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the possible misappropriation of our proprietary information, including our trade secrets and know-how.
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We currently rely, and expect to continue
to rely, on a small number of third-party contract manufacturers to supply the majority of our active pharmaceutical ingredient
and required finished product for our preclinical studies and clinical trials. We do not have long-term agreements with any of
these third parties. If any of our existing manufacturers should become unavailable to us for any reason, we may incur some delay
in identifying or qualifying replacements.
Any manufacturing
problem or the loss of a contract manufacturer could be disruptive to our operations, delay our clinical trials and, if our products
are approved for sale, result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture
our product candidates. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical
materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption
to future contract manufacture caused by problems at suppliers could delay shipment of our product candidates, increase our cost
of goods sold and result in lost sales.
Our ability to obtain
clinical supplies of our product candidates could also be disrupted if the operations of any of our third-party contract manufacturers
are affected by a man-made or natural disaster or other business interruption, including from the COVID-19 pandemic. While we currently
do not anticipate any interruptions in the manufacturing process for our drug substance and drug product required for our clinical
trials as a result of the COVID-19 pandemic, there can be no assurance that our supply of research and development, preclinical
study, and clinical trial drugs and other materials will not be limited, interrupted, restricted in certain geographic regions,
or be of satisfactory quality as a result of the pandemic or any other business interruption. If we are at any time unable to provide
an uninterrupted supply of our product candidates or, following regulatory approval, any products to patients, we may lose patients,
physicians may elect to utilize competing therapeutics instead of our products, and our clinical trials may be adversely affected,
which could materially and adversely affect our clinical trial outcomes.
If any of our product
candidates are approved by any regulatory agency, we plan to enter into agreements with third-party contract manufacturers for
the commercial production and distribution of those products. It may be difficult for us to reach agreement with a contract manufacturer
on satisfactory terms or in a timely manner. In addition, we may face competition for access to manufacturing facilities as there
are a limited number of contract manufacturers operating under current good manufacturing practices, or cGMPs, that are capable
of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on
satisfactory terms, which could delay our commercialization efforts.
Third-party manufacturers
are required to comply with cGMPs and similar regulatory requirements outside the United States. Facilities used by our third-party
manufacturers must be approved by the FDA after we submit an NDA and before potential approval of the product candidate. Similar
regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing
process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements
for the manufacture of our product candidates. If our manufacturers cannot successfully manufacture material that conforms to our
specifications or the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not
be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial
manufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the
applicable product candidate.
In addition, our manufacturers
are subject to ongoing periodic inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and
similar regulatory requirements both prior to and following the receipt of marketing approval for any of our product candidates.
Some of these inspections may be unannounced. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory
requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions
or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could adversely
affect supplies of our product candidates and significantly harm our business, financial condition and results of operations.
Our current and anticipated
future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and
our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain
sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficiently broad, our
competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize our product
candidates successfully may be adversely affected.
Our success depends
in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to
our proprietary product candidates. If we do not adequately protect our intellectual property, competitors may be able to erode
or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect
our proprietary position, we file patent applications in the United States and abroad related to our novel product candidates that
are important to our business. The patent application and approval process is expensive and time-consuming. We may not be able
to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
The patent position
of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims
allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions.
In addition, the determination of patent rights with respect to pharmaceutical compounds commonly involves complex legal and factual
questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability
and commercial value of our patent rights are highly uncertain.
Our pending patent
applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a
patent issues from such applications. Assuming the other requirements for patentability are met, currently, patents are granted
to the party who was the first to file a patent application. However, prior to March 16, 2013, in the United States,
patents were granted to the party who was the first to invent the claimed subject matter. Publications of discoveries in the scientific
literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically
not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the
first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent
protection of such inventions.
Moreover, because
the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent
applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject
to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in post-grant
review procedures, oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States
or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may
result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which
could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the
duration of the patent protection of our technology and products. In addition, given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after
such candidates are commercialized.
Our pending and future
patent applications may not result in patents being issued which protect our product candidates, in whole or in part, or which
effectively prevent others from commercializing competitive products. Changes in either the patent laws or interpretation of the
patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the
United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than
United States law does.
Even if our patent
applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors
from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents
by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval
to market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to
market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that patents owned or licensed
by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both,
including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction
may find our patents invalid or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, even if
we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient
to achieve our business objectives.
If we are unable to protect the confidentiality
of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.
While we have obtained
composition of matter patents with respect to our most advanced product candidates, we also rely on trade secret protection for
certain aspects of technology platform, including certain aspects of our SMART Linker drug discovery platform. We seek to protect
these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them,
such as our employees, consultants, independent contractors, advisors, contract manufacturers, suppliers and other third parties.
We also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party
with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our
trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, if
any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent
such third party, or those to whom they communicate such technology or information, from using that technology or information to
compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and
competitive position could be harmed.
We may become involved in lawsuits to
protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe
our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required
to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and
scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against
us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable,
or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable,
in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also
a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide
that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do
not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert
our patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from making
and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position,
business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the
marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has
superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
Even if we establish
infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary
damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection
with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure
during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or
developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect
on the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other
resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately
prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific
personnel could outweigh any benefit we receive as a result of the proceedings.
If we are sued for infringing intellectual
property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing
or commercializing our product candidates.
Our commercial success
depends, in part, on our ability to develop, manufacture, market and sell our product candidates and use our SMART Linker drug
discovery platform without infringing the intellectual property and other proprietary rights of third parties. Third parties have
U.S. and non-U.S. issued patents and pending patent applications relating to compounds and methods of use for the treatment of
DMD, the key indication for our most advanced program. If any third-party patents or patent applications are found to cover our
product candidates or their methods of use, we may not be free to manufacture or market our product candidates as planned without
obtaining a license, which may not be available on commercially reasonable terms, or at all.
There is a substantial
amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened
with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our product candidates,
including interference proceedings before the USPTO. Third parties may assert infringement claims against us based on existing
or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot
be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of patents,
and it may not always be clear to industry participants, including us, which patents cover various types of products or methods
of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we
were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not
infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able
to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear
and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings,
we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing
these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient resources
to bring these actions to a successful conclusion.
If we are found to
infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing,
manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license
from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing
product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even
if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies
licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees
if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have
misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
Changes to the patent law in the United
States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with
other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and
enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time
consuming and inherently uncertain. Patent reform legislation in the United States and other countries, including the Leahy-Smith
America Invents Act, or the Leahy-Smith Act, signed into law in September 2011, could increase those uncertainties and costs.
The Leahy-Smith Act included a number of significant changes to U.S. patent law. These include provisions that affect the way patent
applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge
the validity of patents, for example, via post grant review and inter partes review proceedings at the USPTO. In addition, the
Leahy-Smith Act transformed the U.S. patent system into a “first to file” system. The first-to-file provisions, however,
only became effective in March 2013. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain
patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration
partners’ patent applications and the enforcement or defense of our or our collaboration partners’ issued patents,
all of which could harm our business, results of operations and financial condition.
The U.S. Supreme Court
has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances
or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes
to the patent laws of the United States and other countries that, if adopted, could impact our ability to enforce our proprietary
technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in
other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to
obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Obtaining and maintaining our patent
protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance
fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be
cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application
include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our
product candidates, our competitive position would be adversely affected.
We may not be able to enforce our intellectual
property rights throughout the world.
Filing, prosecuting
and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements
for patentability may differ in certain countries, particularly in developing countries. Competitors may use our technologies in
jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing
products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United
States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents or where
any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing
with us.
Moreover, our ability
to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual
property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property
protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems
in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries,
including India, China and other developing countries, do not favor the enforcement of patents and other intellectual property
rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual
property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses
to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries
outside the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection
to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection,
if our ability to enforce our patents to stop infringing activities in those jurisdictions is inadequate. These products may compete
with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Proceedings to enforce
our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts
and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in major
markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in
which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries
may be inadequate.
Patent term may be inadequate to protect
our competitive position on our products for an adequate amount of time.
Given the amount of
time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates
might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United
States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition
and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the
patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However,
the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other
countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our
patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of
our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier
than might otherwise be the case.
We may be subject to claims by third
parties asserting that our employees or we have misappropriated their intellectual property or claiming ownership of what we regard
as our own intellectual property.
Many of our employees,
including our senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Some of these employees, including members of our senior management, executed
proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment.
Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us,
we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or
other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel
or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license
from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable
terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be
a distraction to management.
In addition, while
we typically require our employees, consultants and contractors who may be involved in the development of intellectual property
to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each
party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related
to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such
claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.
Risks Related to Regulatory Approval
and Other Legal Compliance Matters
Even if we complete the necessary preclinical
and clinical studies, the marketing approval process is expensive, time consuming and uncertain and may prevent us or any future
collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot
predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize
a product candidate.
The research, testing,
manufacturing, labeling, approval, selling, marketing, promotion and distribution of drug products are subject to extensive regulation
by the FDA and comparable foreign regulatory authorities, which regulations differ from country to country. We, and any future
collaborators, are not permitted to market our product candidates in the United States or in other countries until we, or they,
receive approval of an NDA from the FDA or marketing approval from applicable regulatory authorities outside the United States.
Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development.
We have not submitted an application for or received marketing approval for any of our product candidates in the United States
or in any other jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain marketing
approvals, including FDA approval of an NDA.
The process of obtaining
marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, if approval
is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the
product candidates involved.
In addition, changes
in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes,
regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval
or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept
any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other
studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or
prevent marketing approval of a product candidate. Any marketing approval we, or any future collaborators, ultimately obtain may
be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Any delay in obtaining
or failure to obtain required approvals could materially adversely affect our ability or that of any future collaborators to generate
revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely
impact our stock price.
Failure to obtain marketing approval
in foreign jurisdictions would prevent our product candidates from being marketed abroad.
In order to market
and sell our products in the European Union and many other jurisdictions, we, and any future collaborators, must obtain separate
marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries
and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain
FDA approval. The marketing approval process outside the United States generally includes all of the risks associated with obtaining
FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement
before the product can be approved for sale in that country. We, and any future collaborators, may not obtain approvals from regulatory
authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory
authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure
approval by regulatory authorities in other countries or jurisdictions or by the FDA.
Additionally, on June
23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. Following
protracted negotiations, the United Kingdom left the European Union on January 31, 2020. Under the withdrawal agreement, there
is a transitional period until December 31, 2020 (extendable up to two years). Discussions between the United Kingdom and the European
Union have so far mainly focused on finalizing withdrawal issues and transition agreements but have been extremely difficult to
date. To date, only an outline of a trade agreement has been reached. Much remains open but the Prime Minister has indicated
that the United Kingdom will not seek to extend the transitional period beyond the end of 2020. If no trade agreement has
been reached before the end of the transitional period, there may be significant market and economic disruption. The Prime Minister
has also indicated that the United Kingdom will not accept high regulatory alignment with the European Union.
Since the regulatory
framework for pharmaceutical products in the United Kingdom covering quality, safety, and efficacy of pharmaceutical products,
clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from European
Union directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the
approval of product candidates in the United Kingdom. Any delay in obtaining, or an inability to obtain, any marketing approvals,
as a result of Brexit or otherwise, may force us to restrict or delay efforts to seek regulatory approval in the United Kingdom
for our product candidates, which could significantly and materially harm our business.
We, or any future collaborators, may
not be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates.
Regulatory authorities
in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as
orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a
rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the
United States. While we have obtained orphan drug designation from the FDA and orphan medicinal product designation from the European
Commission for edasalonexent for the treatment of DMD, we, or any future collaborators, may seek orphan drug designations for other
product candidates or in other jurisdictions and may be unable to obtain such designations.
Even if we, or any
future collaborators, obtain orphan drug designation for a product candidate, we, or they, may not be able to obtain orphan drug
exclusivity for that product candidate. Generally, a product with orphan drug designation only becomes entitled to orphan drug
exclusivity if it receives the first marketing approval for the indication for which it has such designation, in which case the
FDA or the EMA will be precluded from approving another marketing application for the same drug for that indication for the applicable
exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in Europe. The European
exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug
is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or
the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we, or any
future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from
competition because FDA has taken the position that, under certain circumstances, another drug with the same active moiety can
be approved for the same condition. Specifically, the FDA’s regulations provide that it can approve another drug with
the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is
shown to be safer, more effective or makes a major contribution to patient care.
In August 2017, the
Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDA’s pre-existing
regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise
the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The new legislation
reverses prior precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity
period regardless of a showing of clinical superiority. The FDA may further reevaluate the Orphan Drug Act and its regulations
and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it
is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations
and policies, our business could be adversely impacted.
Even if we, or any future collaborators,
obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit
how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.
Once marketing approval
has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation.
We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our product
candidates for which we or they obtain marketing approval. Promotional communications with respect to prescription drugs are subject
to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling.
Thus, we and any future collaborators will not be able to promote any products we develop for indications or uses for which they
are not approved.
In addition, manufacturers
of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including
ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control
and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our
contract manufacturers, any future collaborators and their contract manufacturers could be subject to periodic unannounced inspections
by the FDA to monitor and ensure compliance with cGMPs.
Accordingly, assuming
we, or any future collaborators, receive marketing approval for one or more of our product candidates, we, and any future collaborators,
and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance,
including manufacturing, production, product surveillance and quality control.
If we, and any future
collaborators, are not able to comply with post-approval regulatory requirements, we, and any future collaborators, could have
the marketing approvals for our products withdrawn by regulatory authorities and our, or any future collaborators’, ability
to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further,
the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any of our product candidates for which
we, or any future collaborators, obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal
from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to comply with
regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product
candidates for which we, or any future collaborators, obtain marketing approval in the future, as well as the manufacturing processes,
post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will
be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions
of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing,
quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution
of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject
to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement
to implement a Risk Evaluation and Mitigation Strategy.
The FDA may also impose
requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product.
The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion
of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance
with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding
off-label use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receive
marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label
marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising
of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse
laws and state consumer protection laws.
In addition, later
discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes,
or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such products, manufacturers or manufacturing processes;
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restrictions on the labeling or marketing of a product;
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restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
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warning letters or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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restrictions on coverage by third-party payors;
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fines, restitution or disgorgement of profits or revenues;
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suspension or withdrawal of marketing approvals;
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refusal to permit the import or export of products;
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injunctions or the imposition of civil or criminal penalties.
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Under the Cures Act and the Trump Administration’s
regulatory reform initiatives, the FDA’s policies, regulations and guidance may be revised or revoked and that could prevent,
limit or delay regulatory approval of our product candidates, which would impact our ability to generate revenue.
In December 2016, the 21st Century Cures
Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and
spur innovation, but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing
approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business,
prospects, financial condition and results of operations.
We also cannot predict the likelihood,
nature or extent of government regulation that may arise from future legislation or administrative or executive action, either
in the United States or abroad. For example, certain policies of the Trump Administration may impact our business and industry.
Namely, the Trump Administration has taken several executive actions, including the issuance of a number of executive orders, that
could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and
oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing
applications. An under-resourced FDA could result in delays in the FDA’s responsiveness or in its ability to review submissions
or applications, issue regulations or guidance, or implement or enforce regulatory requirements in a timely fashion or at all.
In January 2017, President Trump issued an executive order, applicable to all executive agencies including the FDA, which requires
that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at
least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one”
provisions. This executive order includes a budget neutrality provision that requires the total incremental cost of all new regulations
in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal
years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of a new regulation
and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued
by the Office of Information and Regulatory Affairs within OMB in February 2017, the administration indicates that the “two-for-one”
provisions may apply not only to agency regulations, but also to significant agency guidance documents. In addition, on February 24,
2017, President Trump issued an executive order directing each affected agency to designate an agency official as a “Regulatory
Reform Officer” and establish a “Regulatory Reform Task Force” to implement the two-for-one provisions and other
previously issued executive orders relating to the review of federal regulations. Subsequently, on October 9, 2019, the President
issued Executive Order 13,892, which is titled “Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative
Enforcement and Adjudication.” This Order declares that “guidance documents may not be used to impose new standards
of conduct on persons outside the executive branch.” It is difficult to predict how these various requirements will be implemented,
and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions
impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business
may be negatively impacted.
Recently enacted and future legislation
may increase the difficulty and cost for us and any future collaborators to obtain marketing approval of and commercialize our
product candidates and affect the prices we, or they, may obtain.
In the United States
and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the
healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate
post-approval activities and affect our ability, or the ability of any future collaborators, to profitably sell any products for
which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may
be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we,
or any future collaborators, may receive for any approved products.
In the United States,
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare
covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced
a new reimbursement methodology based on average sales prices for physician administered drugs. In addition, this legislation provided
authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other
provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare
Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the
Medicare Modernization Act may result in a similar reduction in payments from private payors.
The Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable
Care Act, or ACA, became law in 2010 and includes the following provisions of potential importance to our product candidates:
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an annual, non-deductible fee on any entity that manufactures, or imports specified branded prescription
drugs and biologic agents;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program;
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expansion of federal healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback
Statute, new government investigative powers and enhanced penalties for noncompliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer
50% point-of-sale discounts off negotiated prices;
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extension of manufacturers’ Medicaid rebate liability;
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expansion of eligibility criteria for Medicaid programs;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical
pricing program new requirements to report financial arrangements with physicians and teaching hospitals;
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a new requirement to annually report drug samples that manufacturers and distributors provide to
physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research.
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In addition, other legislative changes
have been proposed and adopted since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created
measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted
deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering
the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2029
unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare
payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers
from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise
affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency
with which any such product candidate is prescribed or used.
We expect that these
healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions
in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure
on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any
approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the
frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government
programs may result in a similar reduction in payments from private payors.
Since enactment of
the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions
of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22,
2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry
a minimal level of health insurance, became effective in 2019. Additionally, the 2020 federal spending package permanently eliminated,
effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical
device tax and, effective January 1, 2021, also eliminates the health insurer tax. Further, the Bipartisan Budget Act of 2018,
among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount
that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare
drug plans, commonly referred to as the “donut hole.” The Congress may consider other legislation to replace elements
of the ACA during the next Congressional session.
The Trump Administration
has also taken executive actions to undermine or delay implementation of the ACA. Since January 2017, President Trump has signed
two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the
requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities
under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose
a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals
or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several
state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining
order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018, U.S. Court of Appeals for the
Federal Circuit ruled that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to
third-party payors who argued were owed to them. On April 27, 2020, the Supreme Court overruled this decision. The full effects
of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business,
are not yet known. In addition, Centers for Medicare & Medicaid Services has recently proposed regulations that would give
states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the
effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
In addition, on December
14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is
an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs
Act, the remaining provisions of the ACA are invalid as well. The Trump administration and CMS have both stated that the ruling
will have no immediate effect, and on December 30, 2018 the same judge issued an order staying the judgment pending appeal. The
Trump Administration recently represented to the Court of Appeals considering this judgment that it does not oppose the lower court’s
ruling. On July 10, 2019, the Court of Appeals for the Fifth Circuit heard oral argument in this case. On December 18, 2019, that
court affirmed the lower court’s ruling that the individual mandate portion of the ACA was unconstitutional, and it remanded
the case to the district court for reconsideration of the severability question and additional analysis of the provisions of the
ACA. On January 21, 2020, the U.S. Supreme Court declined to review this decision on an expedited basis. Litigation and legislation
over the ACA are likely to continue, with unpredictable and uncertain results.
We will continue
to evaluate the effect that the ACA and its possible repeal and replacement could have on our business. It is possible that such
initiatives, if enacted into law, could ultimately result in fewer individuals having health insurance coverage or in individuals
having insurance coverage with less generous benefits. While the timing and scope of any potential future legislation to amend
the ACA is uncertain in many respects, it is also possible that some of the ACA provisions that generally are not favorable for
the research-based pharmaceutical industry could also be repealed along with ACA coverage expansion provisions. Accordingly, such
reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop
and for which we may obtain marketing approval and may affect our overall financial condition and ability to develop commercialize
product candidates.
Further, there have
been several recent U.S. congressional inquiries and proposed and enacted federal and state legislation designed to, among other
things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce
the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level,
the Trump administration has pressed for drug price control measures that could be enacted during the 2019 budget process or in
other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs
under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic
drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become
effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative
measures to control drug costs.
In addition, on May 11,
2018, the Administration issued a plan to lower drug prices. Under this blueprint for action, the Administration indicated that
the Department of Health and Human Services, or HHS, will: take steps to end the gaming of regulatory and patent processes by drug
makers to unfairly protect monopolies; advance biosimilars and generics to boost price competition; evaluate the inclusion of prices
in drug makers’ ads to enhance price competition; speed access to and lower the cost of new drugs by clarifying policies
for sharing information between insurers and drug makers; avoid excessive pricing by relying more on value-based pricing by expanding
outcome-based payments in Medicare and Medicaid; work to give Part D plan sponsors more negotiation power with drug makers; examine
which Medicare Part B drugs could be negotiated for a lower price by Part D plans, and improving the design of the Part B Competitive
Acquisition Program; update Medicare’s drug-pricing dashboard to increase transparency; prohibit Part D contracts that include
“gag rules” that prevent pharmacists from informing patients when they could pay less out-of-pocket by not using insurance;
and require that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price
increases. In addition, on December 23, 2019, the Trump Administration published a proposed rulemaking that, if finalized, would
allow states or certain other non-federal government entities to submit importation program proposals to FDA for review and approval.
Applicants would be required to demonstrate their importation plans pose no additional risk to public health and safety and will
result in significant cost savings for consumers. At the same time, FDA issued draft guidance that would allow manufacturers to
import their own FDA-approved drugs that are authorized for sale in other countries (multi-market approved products).
At the state level,
individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical
and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product
access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding
procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other
health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product
pricing.
Moreover, legislative and regulatory proposals
have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical drugs.
We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be. In addition,
increased scrutiny by the Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as
well as subject us and any collaborators to more stringent drug labeling and post-marketing testing and other requirements.
Our relationships with customers and
third-party payors, among others, will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations,
which could expose us to penalties, including criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare providers
and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing
approval. Our arrangements with third-party payors and customers, if any, will subject us to broadly applicable fraud and abuse
and other healthcare laws and regulations. The laws and regulations may constrain the business or financial arrangements and relationships
through which we market, sell and distribute any products for which we obtain marketing approval. These include the following:
Anti-Kickback Statute.
The federal healthcare Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for,
either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which
payment may be made under a federal healthcare program such as Medicare and Medicaid;
False Claims Laws.
The federal false claims laws impose criminal and civil penalties against individuals or entities for, among other things, knowingly
presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false
statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the
federal government, with potential liability including mandatory treble damages and significant per-claim penalties;
HIPAA.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among
other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters,
and, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also
imposes obligations, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security
and transmission of individually identifiable health information;
Transparency Requirements.
Federal laws require applicable manufacturers of covered drugs, biologics, devices and supplies to report payments and other transfers
of value to physicians and teaching hospitals and ownership and investment interests by physicians; and
Analogous State
and Foreign Laws. Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false
claims laws, which may be broader in scope, can apply to our business activities, including sales or marketing arrangements, and
claims involving healthcare items or services and are generally broad and are enforced by many different federal and state agencies
as well as through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers
to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing
expenditures. State laws also govern the privacy and security of health information in some circumstances, many of which differ
from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
Efforts to ensure
that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future
statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations
are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject
to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the
physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable
laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs.
The provision of benefits
or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use
of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is governed
by the national anti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws
could result in substantial fines and imprisonment.
Payments made to physicians
in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject
of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the
regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry
codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements
could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
Compliance with global privacy and data
security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data
globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have
a material adverse effect on our business, financial condition or results of operations.
The regulatory framework
for the collection, use, safeguarding, sharing, transfer and other processing of information worldwide is rapidly evolving and
is likely to remain uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established
its own data security and privacy frameworks with which we must comply. For example, the collection, use, disclosure, transfer,
or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to
the European Union General Data Protection Regulation, or the GDPR, which took effect across all member states of the European
Economic Area, or EEA, in May 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process
personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals
to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards
to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures
when engaging third-party processors. The GDPR increases our obligations with respect to clinical trials conducted in the EEA by
expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed
notices for clinical trial subjects and investigators. In addition, the GDPR also imposes strict rules on the transfer of personal
data to countries outside the European Union, including the United States and, as a result, increases the scrutiny that clinical
trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are considered to lack
an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities to require destruction
of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR, which can be up
to four percent of global revenues or 20 million Euros, whichever is greater, and it also confers a private right of action on
data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation
for damages resulting from violations of the GDPR. In addition, the GDPR provides that European Union member states may make their
own further laws and regulations limiting the processing of personal data, including genetic, biometric or health data.
Given the breadth
and depth of changes in data protection obligations, preparing for and complying with the GDPR’s requirements is rigorous
and time intensive and requires significant resources and a review of our technologies, systems and practices, as well as those
of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data collected
in the European Union. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types
of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our
business practices and put in place additional compliance mechanisms, may interrupt or delay our development, regulatory and commercialization
activities and increase our cost of doing business, and could lead to government enforcement actions, private litigation and significant
fines and penalties against us and could have a material adverse effect on our business, financial condition or results of operations.
Similarly, failure to comply with federal and state laws regarding privacy and security of personal information could expose us
to fines and penalties under such laws. Even if we are not determined to have violated these laws, government investigations into
these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation
and our business.
If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could significantly harm
our business.
We are subject to
numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling,
use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may
involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous
waste products. Although we contract with third parties for the disposal of these materials and waste products, we cannot completely
eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting
from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to
comply with such laws and regulations.
We maintain workers’
compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use
of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, we do not
maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may
incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current
or future environmental laws and regulations may impair our research, development or production efforts, which could adversely
affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and
regulations may result in substantial fines, penalties or other sanctions.
Governments outside the United States
tend to impose strict price controls, which may adversely affect our revenues, if any.
In some countries,
such as the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In
these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval
for a product. To obtain reimbursement or pricing approval in some countries, we, or any future collaborators, may be required
to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement
of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could
be materially harmed.
A fast track designation by the FDA
may not actually lead to a faster development, regulatory review or approval process.
If a product is intended
for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet needs
for this condition, the treatment sponsor may apply for FDA fast track designation. In July 2015, the FDA notified us that
we obtained fast track designation for edasalonexent for the treatment of DMD. Fast track designation does not ensure that we will
experience a faster development, regulatory review or approval process compared to conventional FDA procedures. Additionally, the
FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development
program.
Although FDA has granted rare pediatric
disease designation to edasalonexent for the treatment of DMD, that designation will not expedite or ensure approval of edasalonexent
nor will it guarantee that we receive a Priority Review Voucher if edasalonexent is approved by the FDA for the treatment of DMD.
The FDA has awarded
rare pediatric disease Priority Review Vouchers to sponsors of drug candidates to treat rare pediatric disease products, if the
treatment sponsors apply for this designation and meet certain criteria. Under this program, upon the approval of a qualifying
NDA or biologics license application, or BLA, for the treatment of a rare pediatric disease, the sponsor of such an application
would be eligible for a rare pediatric disease Priority Review Voucher that can be used to obtain priority review for a subsequent
NDA or BLA. The Priority Review Voucher may be sold or transferred an unlimited number of times. In September 2015, the FDA notified
us that we obtained rare pediatric disease designation for edasalonexent for the treatment of DMD. This designation does not guarantee
that an NDA for edasalonexent will meet the eligibility criteria for a rare pediatric disease priority review voucher at the time
the application is approved. It also does not ensure expedited review or approval of edasalonexent for the treatment of DMD. With
passage of the 21st Century Cures Act in December 2016, the Rare Pediatric Disease Priority Review Voucher program was reauthorized
until 2020. In addition, if a product candidate is designated before October 1, 2020, as is the case with edasalonexent, it is
eligible to receive a voucher if it is approved before October 2022. However, there is no guarantee that edasalonexent will be
approved by that date and, therefore, we may not be in a position to obtain the Priority Review Voucher prior to expiration of
the program.
We are subject to anti-corruption laws,
as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with
these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely
affect our business, results of operations and financial condition.
Our operations are
subject to anti-corruption laws, including the U.K. Bribery Act 2010, or Bribery Act, the U.S. Foreign Corrupt Practices Act, or
FCPA, and other anti-corruption laws that apply in countries where we do business and may do business in the future. The Bribery
Act, FCPA and these other laws generally prohibit us, our officers, and our employees and intermediaries from bribing, being bribed
or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business
advantage. We may in the future operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and
we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability
under the Bribery Act, FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future
regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered
or interpreted.
We are also subject
to other laws and regulations governing our international operations, including regulations administered by the governments of
the United Kingdom and the United States, and authorities in the European Union, including applicable export control regulations,
economic sanctions on countries and persons, customs requirements and currency exchange regulations, which we collectively refer
to as the Trade Control Laws.
There is no assurance
that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery
Act, the FCPA or other legal requirements, including Trade Control Laws. If we are not in compliance with the Bribery Act, the
FCPA and other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and
other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition,
results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other
anti-corruption laws or Trade Control Laws by U.K., U.S. or other authorities could also have an adverse impact on our reputation,
our business, results of operations and financial condition.
Risks Related to Employee Matters, Managing
Growth and Information Technology
Our future success depends on our ability
to retain our senior management and to attract, retain and motivate qualified personnel.
We are highly dependent
on members of our senior management, including Jill C. Milne, Ph.D., our President and Chief Executive Officer, Joanne Donovan,
M.D., Ph.D., our Chief Medical Officer, Andrew Nichols, Ph.D., our Chief Scientific Officer, Andrew Komjathy, our Chief Commercial
Officer, and Noah Clauser, our VP of Finance. The loss of the services of any of these persons could impede the achievement of
our research, development and commercialization objectives. Recruiting and retaining qualified scientific, clinical, manufacturing,
sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other
key employees and any difficulties in recruiting and retaining other critical personnel could impede the achievement of our research,
development and commercialization objectives and seriously harm our ability to successfully implement our business strategy.
If we are unable to
retain our executive officers or other key employees, replacing them may be difficult and may take an extended period of time because
of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain marketing
approval of and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable
to hire, train, retain or motivate these additional key employees on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions.
We rely on consultants
and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization
strategy. Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisory
contracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly
qualified personnel, our ability to develop and commercialize our product candidates will be limited.
We expect to grow our organization significantly
if our Phase 3 trial of edasalonexent for the treatment of DMD is successful, and as a result, we may encounter difficulties in
managing our growth, which could disrupt our operations.
We expect to experience
significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug manufacturing,
regulatory affairs and sales, marketing and distribution, if our Phase 3 trial of edasalonexent for the treatment of DMD is successful
and we obtain FDA approval to market edasalonexent for the treatment of DMD in the United States. To manage these growth activities,
we would need to implement and improve our managerial, operational and financial systems, expand our facilities and to recruit
and train additional qualified personnel. Our management may need to devote a disproportionate amount of its attention to managing
these growth activities. Due to our limited financial resources and the limited experience of our management team in managing a
company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or identify, recruit
and train additional qualified personnel. Our inability to manage the expansion of our operations effectively may result in weaknesses
in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity
among remaining employees. Our expected growth could also require significant capital expenditures and may divert financial resources
from other projects, such as the development of additional product candidates. If we are unable to effectively manage our expected
growth, our expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able
to implement our business strategy, including the successful commercialization of our product candidates.
Security breaches and other disruptions
to our information technology systems could compromise our information, disrupt our business and expose us to liability, which
would cause our business and reputation to suffer.
In the ordinary course
of our business, we collect, process and store sensitive data, including intellectual property, as well as our proprietary business
information, employee data and personally identifiable information of clinical trial participants. We also rely to a large extent
on information technology systems to operate our business. We have outsourced elements of our confidential information processing
and information technology structure, and as a result, we are managing independent vendor relationships with third parties who
may or could have access to our confidential information. The secure maintenance of this information is important to our operations
and business strategy. Despite our security measures, our information technology infrastructure, and that of our vendors and third-party
providers, may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. We, our
vendors and third-party providers could be susceptible to third party attacks on our, and their, information security systems,
which attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives
and expertise, including organized criminal groups, hacktivists, nation states and others. While we have invested in information
technology security measures and the protection of confidential information, there can be no assurance that our efforts will prevent
service interruptions or security breaches. Although we are not aware of any material information security incidents to date, we
have detected common types of attempts to attack our information technology systems and data using means that have included phishing.
Any service interruptions or security breaches of our information technology systems may substantially impair our ability to operate
our business and could compromise our networks, or those of our vendors and third-party providers, and the information stored could
be accessed, publicly disclosed, lost or stolen. Any such access, disclosure, or other loss of information could result in legal
claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage
our reputation, any of which could adversely affect our business.
Risks Related to Our Common Stock
An active trading market for our common
stock may not be sustained.
Our shares of common
stock began trading on The Nasdaq Global Market, or Nasdaq, in June 2015. Given the limited trading history of our common
stock, there is a risk that an active trading market for our shares will not be sustained, which could put downward pressure on
the market price for our common stock and thereby affect the ability of our stockholders to sell their shares. An inactive trading
market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability
to acquire other companies or technologies by using our shares as consideration.
If we were to be delisted from The Nasdaq
Stock Market, it could make trading in our stock more difficult.
There are various
quantitative listing requirements for a company to remain listed on the Nasdaq, including maintaining a minimum bid price of $1.00
per share. No assurance can be given that we will continue to remain compliant with the minimum bid price requirement or Nasdaq’s
other continued listing requirements. For example, in August 2018, we received a deficiency letter from the Listing Qualifications
Department of Nasdaq notifying us that, for the preceding 30 consecutive business days, the bid price for our common stock had
closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market as required by Nasdaq
Listing Rule 5450(a)(1). In order to regain compliance, on December 28, 2018, we effected a one-for-ten reverse split of our common
stock Any delisting would likely have a negative effect on the price of our common stock and would impair stockholders’ ability
to sell or purchase their common stock when they wish to do so.
The price of our common stock is likely
to be highly volatile, which could result in substantial losses for our stockholders.
Our stock price is
likely to be highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies
in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
As a result of this volatility, our investors may lose some or all of their investments. The market price for our common stock
may be influenced by many factors, including:
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the timing and results of clinical trials of edasalonexent and any of our other product candidates;
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commencement or termination of collaborations for our development programs;
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failure or discontinuation of any of our development programs;
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the success of existing or new competitive products or technologies;
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results of clinical trials of product candidates of our competitors;
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regulatory or legal developments in the United States and other countries;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to develop additional product candidates or products;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations
by securities analysts;
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announcement or expectation of additional financing efforts;
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sales of our common stock by us, our insiders or other stockholders;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in estimates or recommendations by securities analysts, if any, that cover our stock;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions, including political instability, or instability
from an outbreak of pandemic or contagious disease, such as the ongoing COVID-19 pandemic; and
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the other factors described in this “Risk Factors” section.
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Additionally, in the
past, securities class action litigation has often been brought against a company following a decline in the market price of its
securities. This risk is especially relevant for us because smaller pharmaceutical and biotechnology companies have experienced
significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion
of management’s attention and resources, which could harm our business.
We are an “emerging growth company”
and a “smaller reporting company,” and the reduced disclosure requirements applicable to such companies may make our
common stock less attractive to investors.
We are an “emerging
growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging
growth company until the last day of our fiscal year following the fifth anniversary of our IPO, subject to specified conditions.
For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements
that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX Section 404,
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and
the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We expect to continue to take advantage of some or all of the available exemptions until we cease to be an emerging growth
company on January 1, 2021. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting
company, which would allow us to take advantage of many of the same exceptions from disclosure requirements, including not being
required to comply with the auditor attestation requirements of SOX Section 404 and reduced disclosure obligations regarding executive
compensation. Investors may find our common stock less attractive as a result of our reliance on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock
price may be more volatile.
We have incurred and will continue to
incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time
to new compliance initiatives and corporate governance practices.
As a public company,
and particularly after we are no longer an “emerging growth company” or a “smaller reporting company,”
we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements
of The Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public companies,
including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect
that we will need to hire additional accounting, finance and other personnel in connection with our efforts to comply with the
requirements of being a public company and our management and other personnel will need to devote a substantial amount of time
towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs
and will make some activities more time-consuming and costly. We are currently evaluating these rules and regulations and
cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations
are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application
in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to SOX Section 404
we are required to furnish reports by our management on our internal control over financial reporting with our Annual Reports on
Form 10-K with the SEC. Commencing January 1, 2021, when we are no longer an emerging growth company, we may also be required
to include attestation reports on internal control over financial reporting issued by our independent registered public accounting
firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to document
and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need
to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the
adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through
testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control
over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting
firm will be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is
effective as required by SOX Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction
in the financial markets due to a loss of confidence in the reliability of our financial statements.
A portion of our total outstanding shares
may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly,
even if our business is doing well.
Sales of a substantial number of shares
of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders
of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. As of April
30, 2020, we had outstanding 17,897,172 shares of common stock. As of April 30, 2020, we had outstanding warrants to purchase
4,200,000 shares of common stock at an exercise price of $12.00 per share, and 1,991,300 shares of common stock at an exercise
price of $6.25 per share. These warrants are fully exercisable, and we have registered the issuance of shares upon exercise of
these warrants under registration statements. As a result, the shares issuable upon exercise of these warrants can be freely sold
in the public marked upon issuance, subject to volume limitations applicable to affiliates.
The number of shares of common stock
underlying our outstanding warrants is significant in relation to our currently outstanding common stock, which could have a negative
effect on the market price of our common stock and make it more difficult for us to raise funds through future equity offerings.
As part of our June
2018 equity financing we issued warrants to purchase an aggregate of 4,200,000 shares of common stock at an exercise price of $12.00
per share, all of which are outstanding, and as part of our February 2019 equity financing we issued warrants to purchase an aggregate
of 2,000,000 shares of common stock at an exercise price of $6.25 per share, of which warrants to purchase 1,991,300 shares remain
outstanding. Upon exercise in full of these outstanding warrants, the shares issuable upon exercise would represent a significant
portion of our outstanding common stock. The warrants were fully exercisable upon issuance and remain exercisable for five years
from their respective dates of issuance. We have registered the issuance of shares upon exercise of these warrants under a registration
statements under the Securities Act of 1933, as amended, and, accordingly, such shares can be freely sold into the public market
upon issuance, subject to volume limitations applicable to affiliates. Sales of these shares could cause the market price of our
common stock to decline significantly. Furthermore, if our stock price rises, the holders of these warrants may be more likely
to exercise their warrants and sell a large number of shares, which could negatively impact the market price of our common stock
and reduce or eliminate any appreciation in our stock price that might otherwise occur.
We may also find it
more difficult to raise additional equity capital while these warrants are outstanding. At any time during which these warrants
are likely to be exercised, we may be unable to obtain additional equity capital on more favorable terms from other sources. In
addition, the exercise of these warrants would result in a significant increase in the number of our outstanding shares of common
stock, which could have the effect of significantly diluting the interest of our current stockholders, and following such exercise
the former holders of such warrants could have significant influence over our company as a result of the shares of common stock
they acquire upon such exercise.
We do not anticipate paying any cash
dividends on our capital stock in the foreseeable future, accordingly, stockholders must rely on capital appreciation, if any,
for any return on their investment.
We have never declared
nor paid cash dividends on our capital stock. We currently plan to retain all of our future earnings, if any, to finance the operation,
development and growth of our business. Any future debt agreements may preclude us from paying dividends. As a result, capital
appreciation, if any, of our common stock will be investors’ sole source of gain for the foreseeable future.
Provisions in our corporate charter
documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and
may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our
corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders
may consider favorable, including transactions in which our investors might otherwise receive a premium for their shares. These
provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby
depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the
members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things,
these provisions:
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establish a classified board of directors such that all members of the board are not elected at
one time;
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
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establish advance notice requirements for nominations for election to the board of directors or
for proposing matters that can be acted on at stockholder meetings;
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit
actions by our stockholders by written consent;
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limit who may call a special meeting of stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could
be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer,
effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would
be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
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Moreover, because
we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State
of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with
us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone
from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders.
Our certificate of incorporation designates
the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal
court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated
by our stockholders, which could discourage lawsuits against the company and our directors and officers.
Our certificate of incorporation provides
that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or,
if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the sole
and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a
fiduciary duty owed by any of our directors, officers or employees to our company or our stockholders, any action asserting a claim
against us arising pursuant to any provision of the General Corporation Law of the State of Delaware or our certificate of incorporation
or bylaws, or any action asserting a claim against us governed by the internal affairs doctrine. This exclusive forum provision
includes actions arising under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended. There
is uncertainty as to whether a court would enforce such exclusive forum provision in the case of an action arising under the Securities
Act of 1933, as amended, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders
find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors
and officers.
If securities or industry analysts do
not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could
decline.
The trading market
for our common stock will likely depend, in part, on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide
favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely
decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which could cause our share price or trading volume to decline.