Item 1A. Risk Factors
Investing in our common stock is subject
to a number of risks and uncertainties. You should carefully consider the risk factors described under the heading “Item
1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, in other reports we file
with the SEC, and below.
Risks Related to Our Business
Because we have a limited operating
history to evaluate our Company, the likelihood of our success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered by an early-stage company.
Since we have a limited operating history
in our current business of technology and biotechnology development, it will make it difficult for investors and securities analysts
to evaluate our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties
we face as an early stage company with a limited operating history. Investors should evaluate an investment in our securities
in light of the uncertainties encountered by early stage companies in an intensely competitive industry. There can be
no assurance that our efforts will be successful or that we will be able to become profitable.
Our cancer
treatment business is pre-revenue, pre-development and subject to the risks of an early stage biotechnology company.
Since the Company’s
primary focus for the foreseeable future will likely be our cancer treatment business, shareholders should understand that we are
primarily an early stage biotechnology company with no history of revenue-generating operations, and our only assets consist of
our proprietary drug and the know-how of our officers. Therefore, we are subject to all the risks and uncertainties inherent in
a new business, in particular new businesses engaged in the early detection of certain cancers. DHA-dFdC is in its early
stages of development, and we still must establish and implement many important functions necessary to commercialize the biotechnology.
Accordingly, you
should consider the Company’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered
by companies in their pre-revenue and pre-development generating stages, particularly those in the biotechnology field. Shareholders
should carefully consider the risks and uncertainties that a business with no operating history will face. In particular, shareholders
should consider that there is a significant risk that we will not be able to:
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demonstrate
the effectiveness of DHA-dFdC;
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implement
or execute our current business plan, or that our current business plan is sound;
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raise
sufficient funds in the capital markets or otherwise to fully effectuate our business plan;
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maintain
our management team;
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conduct
the required clinical studies;
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determine
that the processes and technologies that we have developed or will develop are commercially viable; and/or
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attract,
enter into or maintain contracts with potential commercial partners such as licensors of technology and suppliers.
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Any of the foregoing risks may adversely
affect the Company and result in the failure of our business. In addition, we expect to encounter unforeseen expenses, difficulties,
complications, delays and other known and unknown factors. At some point, we will need to transition from a company with a
research and development focus to a company capable of supporting commercial activities. We may not be able to reach such achievements,
which would have a material adverse effect on our Company.
We continue to incur operating losses and may not achieve
profitability.
Our loss from operations for the six months
ended June 30, 2020 and 2019 was $4.2 million and $1.6 million, respectively. Our net loss for the six months ended June 30, 2020
and 2019 was $10.6 million and $1.8 million, respectively. Our accumulated deficit was $154.9 million at June 30, 2020. Our ability
to become profitable depends upon our ability to generate revenue from biotechnology products. We do not know when, or if, we will
generate any revenue from such biotechnology products. Even though our revenue may increase, we expect to incur significant additional
losses while we grow and expand our business. We cannot predict if and when we will achieve profitability. Our failure to achieve
and sustain profitability could negatively impact the market price of our common stock.
We expect to need additional capital
to fund our growing operations and if we are unable to obtain sufficient capital, we may be forced to limit the scope of our operations.
We expect that for our business to grow
we will need additional working capital. If adequate additional debt and/or equity financing is not available on reasonable
terms or at all, we may not be able to continue to expand our business or pay our outstanding obligations, and we will have to
modify our business plans accordingly. These factors would have a material adverse effect on our future operating results
and our financial condition.
If we reach a point where we are unable
to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the Company. In
such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related
obligations and we may not have sufficient funds to pay to our stockholders.
If we fail to maintain an effective
system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent
fraud and our business may be harmed and our stock price may be adversely impacted.
Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide
reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management
to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply
with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies,
procedures and internal controls. If we fail to maintain the adequacy of our internal controls over financial reporting, we
could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our
financial reports. We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley
Act or that management will conclude that our internal control over financial reporting is effective. If we fail to fully
comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.
Our assessment, testing and evaluation
of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as
of June 30, 2020, our internal control over financial reporting was not effective, due to our lack of segregation of duties, and
lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected. We
can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial
reporting in the future.
Our independent auditors have expressed
substantial doubt about our ability to continue as a going concern.
Due to our net losses, negative cash flow
and negative working capital, in their report on our audited financial statements for the years ended December 31, 2019 and 2018,
our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going
concern.
We may seek to internally develop
additional new inventions and intellectual property, which would take time and be costly. Moreover, the failure to obtain
or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities.
Part of our business may include the internal
development of new inventions or intellectual property that we will seek to monetize. For example, in December 2019, we acquired
substantially all of the assets of CBM, including the acquisition of certain licensing rights with respect to patents and other
intellectual property related to pioneering drug compounds that were developed at the University of Wake Forest and the University
of Texas at Austin, in the areas of AML, ALL, acral lentiginous melanoma and pancreatic cancer (collectively, the “University
Developments”). Should we choose to assist in the development of the University Developments and/or internally develop any
other inventions or intellectual property, such aspect of our business will require significant capital and will take time to achieve. Such
activities may also distract our management team from its present business initiatives, which could have a material and adverse
effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions
or technology, which would lead to a loss of our investments in time and resources in such activities.
Our ability to raise additional capital
may be adversely affected by certain of our agreements.
Our ability to raise additional capital
for use in our operating activities may be adversely impacted by the terms of a securities purchase agreement, dated as of July
15, 2015 (the “Securities Purchase Agreement”), between us and the investors who purchased securities in our July 2015
offering of our common stock and warrants for the purchase of our common stock. The Securities Purchase Agreement provides that,
until the warrants issued thereunder are no longer outstanding, we will not effect or enter into a variable rate transaction, which
includes issuances of securities whose prices or conversion prices may vary with the trading prices of or quotations for the shares
of our common Stock at any time after the initial issuance of such securities, as well as the entry into agreements where our stock
would be issued at a future-determined price. These warrants may remain outstanding as late as January 22, 2021, when the warrants
expire in accordance with their terms. These restrictions may have an adverse impact on our ability to raise additional capital,
or to use our cash to make certain payments that we are contractually obligated to make.
We may also identify targets with patent
or other intellectual property assets that cost more than we are prepared to spend with our own capital resources. We
may incur significant costs to organize and negotiate a structured acquisition that does not ultimately result in an acquisition
of any patent assets or, if consummated, proves to be unprofitable for us. Acquisitions involving issuance of our securities
could be dilutive to existing stockholders and could be at prices lower than those prices reflected in the trading markets. These
higher costs could adversely affect our operating results and, if we incur losses, the value of our securities will decline.
The integration of acquired assets may place a significant burden on management and our internal resources. The diversion
of management attention and any difficulties encountered in the integration process could harm our business.
As we are targeting technology companies
in the development stage, their patents and technologies are in the early stages of adoption. Demand for some of these
technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees or others adopt
our patents and technologies in their products and services. As a result, there can be no assurance as to whether technologies
we acquire or develop will have value that can be realized through licensing or other activities.
We are exploring and evaluating strategic
alternatives and there can be no assurance that we will be successful in identifying, or completing any strategic alternative or
that any such strategic alternative will yield additional value for shareholders.
Our management and board of directors (“Board
of Directors”) has commenced a review of strategic alternatives which could result in, among other things, a sale, a merger,
consolidation or business combination, asset divestiture, partnering or other collaboration agreements, or potential acquisitions
or recapitalizations, in one or more transactions, or continuing to operate with our current business plan and strategy. There
can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction.
In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The
process of exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable
to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We
also cannot assure you that any potential transaction or other strategic alternative, if identified, evaluated and consummated,
will provide greater value to our shareholders than that reflected in the current stock price. Any potential transaction would
be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry
trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.
We may be unsuccessful at integrating
future acquisitions.
If we find appropriate opportunities in
the future, we may acquire businesses to further the Company’s strategic business objectives. For example, in December 2019,
we acquired substantially all of the assets of CBM, including the acquisition of certain licensing rights with respect to patents
and other intellectual property related to pioneering drug compounds that were developed at the University of Wake Forest and the
University of Texas at Austin, in the areas of AML, ALL, acral lentiginous melanoma and pancreatic cancer. There can be no guarantee
that we will be able to successfully integrate the business or assets of CBM into the Company.
As we acquire businesses or substantial
stakes in certain businesses, the process of integration may produce unforeseen operating difficulties and expenditures, fail to
result in expected synergies or other benefits and absorb significant attention of our management that would otherwise be available
for the ongoing development of our business. In addition, in the event of any future acquisitions, we may record a portion of the
assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived intangible assets. We do not amortize goodwill
and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or whenever events or changes
in circumstances indicate that their carrying value may not be recoverable. The recoverability of goodwill and indefinite-lived
intangible assets is dependent on our ability to generate sufficient future earnings and cash flows. Changes in estimates, circumstances
or conditions, resulting from both internal and external factors, could have a significant impact on our fair valuation determination,
which could then have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee
that we will be able to identify suitable acquisition opportunities, consummate any pending or future acquisitions or that we will
realize any anticipated benefits from any such acquisitions.
Our pre-CBM acquisition stockholders
have a reduced ownership and voting interest after the acquisition of CBM’s assets and exercise less influence over our management
and policies than they did prior to the acquisition.
Our pre-CBM acquisition stockholders had
the right to vote in the election of our Board of Directors on other matters affecting us. As a result of the CBM Purchase Agreement,
because of the issuance of shares of common stock to the CBM shareholders, our pre-CBM acquisition stockholders hold a percentage
ownership of the Company that is much smaller than the pre-CBM acquisition stockholder’s previous percentage ownership. Because
of this, our pre-CBM acquisition stockholders have less influence over the management and policies of the Company than they now
have after the consummation of the acquisition of CBM’s assets.
Any failure to maintain or protect
our patent assets or other intellectual property rights could significantly impair our return on investment from such assets and
harm our brand, our business and our operating results.
Our ability to operate our new line of
business and compete in the intellectual property market largely depends on the superiority, uniqueness and value of our acquired
patent assets and other intellectual property. To protect our proprietary rights, we will rely on a combination of patent,
trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual
provisions. No assurances can be given that any of the measures we undertake to protect and maintain our assets will
have any measure of success.
We are required to spend significant time
and resources to maintain the effectiveness of our assets by paying maintenance fees and making filings with the USPTO. We
may acquire patent assets, including patent applications, which require us to spend resources to prosecute the applications with
the USPTO prior to issuance of patents. Further, there is a material risk that patent related claims (such as, for example,
infringement claims (and/or claims for indemnification resulting therefrom), unenforceability claims, or invalidity claims) will
be asserted or prosecuted against us, and such assertions or prosecutions could materially and adversely affect our business.
Despite our efforts to protect our intellectual
property rights, any of the following or similar occurrences may reduce the value of our intellectual property:
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our
applications for patents, trademarks and copyrights may not be granted and, if granted, may be challenged or invalidated;
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issued
trademarks, copyrights, or patents may not provide us with any competitive advantages when compared to potentially infringing
other properties;
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our
efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; or
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our
efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior
to those we acquire and/or prosecute.
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Moreover, we may not be able to effectively
protect our intellectual property rights in certain foreign countries where we may do business or enforce our patents against infringers
in foreign countries. If we fail to maintain, defend or prosecute our patent assets properly, the value of those assets would
be reduced or eliminated, and our business would be harmed.
We may be unable to issue securities
under our shelf registration statement, which may have an adverse effect on our liquidity.
We have filed a shelf registration statement
on Form S-3 with the SEC. The registration statement, which has been declared effective, was filed in reliance on Instruction I.B.6.
of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration statement
during any twelve-month period. At the time we sell securities pursuant to the registration statement, the amount of securities
to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6. may
not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as of a day during the
60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Whether we sell securities under the
registration statement will depend on a number of factors, including availability of our existing S-3 under the 1/3 limitation
calculations set forth in Instruction I.B.6 of Form S-3, the market conditions at that time, our cash position at that time and
the availability and terms of alternative sources of capital. Furthermore, Instruction I.B.6. of Form S-3 requires that the issuer
have at least one class of common equity securities listed and registered on a national securities exchange. If we are not able
to maintain compliance with applicable Nasdaq rules, we will no longer be able to rely upon that Instruction. If we cannot sell
securities under our shelf registration, we may be required to utilize more costly and time-consuming means of accessing the capital
markets, which could materially adversely affect our liquidity and cash position.
We may be at risk for delay in technology
development and other economic repercussions as a result of the COVID-19 pandemic.
We may be at risk as a result of the current
COVID-19 pandemic. Risks that could affect our business include the duration and scope of the COVID-19 pandemic and the impact
on the demand for our products; actions by governments, businesses and individuals taken in response to the pandemic; the length
of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop effective treatments and
a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response to the pandemic on
global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
Additionally, New York, where our U.S.
operations are based, is currently significantly affected by COVID-19, which led to measures taken by the New York government trying
to contain the spread of COVID-19, such as shelter in place, closure of schools and travel restrictions. Additional travel and
other restrictions may be put in place to further control the outbreak in U.S. Accordingly, our operation and business have been
and will continue to be adversely affected as the results of the COVID-19 pandemic.
The extent to which COVID-19 negatively
impacts our business is highly uncertain and cannot be accurately predicted. We believe that the coronavirus outbreak and the measures
taken to control it may have a significant negative impact on not only our business, but economic activities globally. The magnitude
of this negative effect on the continuity of our business operations in the U.S. remains uncertain. These uncertainties impede
our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results
of operations, and as a result affect our stock price and create more volatility.
Risks Related to the Product Development,
Regulatory Approval, Manufacturing and Commercialization
We are early
in our development efforts and currently have no clinical-stage product candidates. If we are unable to clinically develop and
ultimately commercialize DHA-dFdC or other product candidates, or experience significant delays in doing so, our business will
be materially harmed.
We are early in
our development efforts and have no clinical-stage product candidates as of the date of this prospectus. We have the exclusive
U.S. rights to develop DHA-dFdC for the treatment of cancer in the licensed field. We are presently planning on filing an IND for
DHA-dFdC, and we hope to begin human testing for this indication in 2021, although no assurance can be given that we will be able
to achieve this goal.
Therefore, our
ability to generate product or royalty revenues, which we do not expect will occur for several years, if ever, will depend heavily
on our ability to develop and eventually commercialize our product candidate. The positive development of our product candidate
will depend on several factors, including the following:
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positive
commencement and completion of clinical trials;
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successful
preparation of regulatory filings and receipt of marketing approvals from applicable regulatory authorities;
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obtaining
and maintaining patent and trade secret protection and potential regulatory exclusivity for our product candidate and protecting
our rights in our intellectual property portfolio;
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launching
commercial sales of our product, if and when approved for one or more indications, whether alone or in collaboration with others;
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acceptance
of the product for one or more indications, if and when approved, by patients, the medical community and third-party payors;
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protection
from generic substitution based upon our own or licensed intellectual property rights;
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effectively
competing with other therapies;
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obtaining
and maintaining adequate reimbursement from healthcare payors; and
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maintaining
a continued acceptable safety profile of our product following approval, if any.
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If we do not achieve
one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to clinically
develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.
If we are
unable to convince physicians as to the benefits of DHA-dFdC as a therapy for cancer, if and when it is approved, we may incur
delays or additional expense in our attempt to establish market acceptance.
Use of DHA-dFdC
as a cancer therapy will require physicians to be informed regarding the intended benefits of the product for a new indication.
The time and cost of such an educational process may be substantial. Inability to carry out this physician education process may
adversely affect market acceptance of DHA-dFdC as a therapy for cancer. We may be unable to timely educate physicians in sufficient
numbers regarding our intended application of DHA-dFdC to achieve our marketing plans or to achieve product acceptance. Any delay
in physician education or acceptance may materially delay or reduce demand for our product candidate. In addition, we may expend
significant funds toward physician education before any acceptance or demand for DHA-dFdC as a therapy for cancer is created, if
at all.
Clinical
drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience
delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidate.
The risk of failure
for product candidates in clinical development is high. It is impossible to predict when our sole product candidate, DHA-dFdC for
the treatment of cancer, will prove effective and safe in humans or will receive regulatory approval for the treatment of any disease,
the indication for which is licensed to us. Before obtaining marketing approval from regulatory authorities for the sale of DHA-dFdC
as a cancer therapy, we must conduct one or more clinical trials to demonstrate the safety and efficacy of our product candidate
in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as
to outcome. A failure of one or more clinical trials can occur at any stage of testing. Moreover, the outcome of early clinical
trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily
predict final results. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses,
and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed
to obtain marketing approval of their products.
We may experience
numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing
approval or commercialize our product candidate, including:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may experience 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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clinical trials of our product candidate may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs, which would be time consuming and costly;
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;
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we may have to 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;
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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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the cost of clinical trials may be greater than we anticipate;
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the supply or quality of materials necessary to conduct clinical trials of our product candidate may be insufficient or inadequate;
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our product candidate may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; and
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interactions with other drugs.
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If we are required
to conduct additional clinical trials or other testing of our product candidate beyond those that we currently contemplate, if
we are unable to complete clinical trials of our product candidates or other testing, if the results of these trials or tests are
not positive or are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our product candidate for one or more indications;
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not obtain marketing approval at all for one or more indications;
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obtain approval for indications or patient populations that are not as broad as intended or desired (particularly, in our case, for different types of cancer);
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be subject to additional post-marketing testing requirements; or
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have the product removed from the market after obtaining marketing approval.
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Our product development
costs will also increase if we experience delays in testing or marketing approvals. We do not know which, if any, of our clinical
trials 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 may have the right to commercialize our product candidate or allow our competitors
to bring products to market before we do and impair our ability to commercialize our product candidate and may harm our business
and results of operations.
If we experience
delays or difficulties in the enrollment of patients in any future clinical trials, our receipt of necessary regulatory approvals
could be delayed or prevented.
We may not be
able to initiate or continue future clinical trials for DHA-dFdC or our present or future product candidates if we are unable to
locate and enroll a sufficient number of eligible patients to participate in these trials as required by the U.S. Food and Drug
Administration (“FDA”) or similar regulatory authorities outside the United States. In addition, some of our competitors
have ongoing clinical trials for product candidates that treat the same indications as our product candidate, and patients who
would otherwise be eligible for our future clinical trials may instead enroll in clinical trials of our competitors’ product
candidates.
Patient enrollment
is affected by other factors including:
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the severity of the disease under investigation;
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the eligibility criteria for the study in question;
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the perceived risks and benefits of the product candidate under study;
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the patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment; and
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the proximity and availability of clinical trial sites for prospective patients.
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Our inability
to enroll a sufficient number of patients for any future clinical trials would result in significant delays and could require us
to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development
costs for our product candidate, which would cause the value of our company to decline and otherwise materially and adversely affect
our company.
If serious
adverse or unacceptable side effects are identified during the development of our product candidate, we may need to abandon or
limit such development, which would adversely affect our company.
If clinical testing
of our product candidates results in undesirable side effects or demonstrates characteristics that are unexpected, we may need
to abandon such development or limit such development to more narrow 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 early stage testing for treating cancer have later been found to cause side effects that prevented
further development of the compound.
For the
foreseeable future, we expect to expend our limited resources primarily to pursue a particular product candidate, leaving us unable
to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood
of clinical and commercial development.
Because we have
limited financial and managerial resources, we will focus for the foreseeable future primarily on the clinical development of DHA-dFdC
for the treatment of prostate cancer. As a result, we may forego or be unable to pursue opportunities with other product candidates
or for indications other than those we intend to pursue that later 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
research and development programs related to DHA-dFdC for the treatment of cancer may not yield any commercially viable therapies.
Because of this concentration of our efforts, our business will be particularly subject to significant risk of failure of our one
current product candidate.
We expect
to rely on collaborations with third parties for key aspects of our business. If we are unable to secure or maintain any of these
collaborations, or if these collaborations do not achieve their goals, our business would be adversely affected.
We presently have
very limited capabilities for drug development and do not yet have any capability for manufacturing, sales, marketing or distribution.
Accordingly, we expect to enter into collaborations with other companies that we believe can provide such capabilities. These collaborations
may also provide us with important funding for our development programs.
There is a risk
that we may not be able to maintain our current collaboration or to enter into additional collaborations on acceptable terms or
at all, which would leave us unable to progress our business plan. We will face significant competition in seeking appropriate
collaborators. Our ability to 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. If we are unable to maintain or reach agreements with suitable collaborators on a timely basis,
on acceptable terms, or at all, we may have to curtail the development of our product candidate, reduce or delay its development
program, 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.
Moreover, even
if we are able to maintain and/or enter into such collaborations, such collaborations may pose a number of risks, including the
following:
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collaborators may not perform their obligations as expected;
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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 our product candidate, might lead to additional responsibilities for us with respect to such product candidate, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
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collaborators could independently develop or be associated with products that compete directly or indirectly with our product candidate;
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collaborators could have significant discretion in determining the efforts and resources that they will apply to our arrangements with them;
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should our product candidate achieve regulatory approval, a collaborator with marketing and distribution rights to our product candidate may not commit sufficient resources to the marketing and distribution of such product;
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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 for the convenience of the collaborator and, if terminated, we could be required to either find alternative collaborators (which we may be unable to do) or raise additional capital to pursue further development or commercialization of our product candidate on our own.
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Our business could
be materially harmed if any of the foregoing or similar risks comes to pass with respect to our key collaborations.
Even if
any of our product candidates receive marketing approval for any indication, they 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.
Even if DHA-dFdC
for the treatment of cancer receives marketing approval for any indication, it may nonetheless fail to gain sufficient market acceptance
by physicians, patients, third-party payors and others in the medical community. For example, current cancer treatments such as
chemotherapy, immunotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely
on these treatments. If our product candidate does not achieve an adequate level of acceptance, we may not generate significant
product revenues and we may not become profitable. The degree of market acceptance of DHA-dFdC for the treatment of cancer, if
approved for commercial sale, will depend on a number of factors, including:
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the efficacy and potential advantages compared to alternative treatments;
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our ability to offer our products for sale at competitive prices;
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the convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of marketing and distribution support;
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the availability of third-party coverage and adequate reimbursement;
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the prevalence and severity of any side effects; and
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any restrictions on the use of our product together with other medications.
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If we are
unable to establish sales, marketing and distribution capabilities, we may not be able to commercialize our product candidate if
and when it is approved.
We currently do
not have a sales or marketing infrastructure. To achieve any level of commercial success for any product for which we have obtained
marketing approval, we will need to establish a sales and marketing organization or outsource sales and marketing functions to
third parties, and achieve the following:
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successful
preparation of regulatory filings and receipt of marketing approvals from applicable regulatory authorities;
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obtaining
and maintaining patent and trade secret protection and potential regulatory exclusivity for our product candidate and protecting
our rights in our intellectual property portfolio;
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launching
commercial sales of our product, if and when approved for one or more indications, whether alone or in collaboration with others;
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acceptance
of the product for one or more indications, if and when approved, by patients, the medical community and third-party payors;
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protection
from generic substitution based upon our own or licensed intellectual property rights;
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effectively
competing with other therapies;
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obtaining
and maintaining adequate reimbursement from healthcare payors; and
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maintaining
a continued acceptable safety profile of our product following approval, if any.
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If we do not achieve
one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to clinically
develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.
In addition, given
our current limited financial resources, we are currently focusing our efforts on one key cancer indication, namely prostate cancer.
We are thus faced with the risk that DHA-dFdC could be ineffective in addressing this particular cancer indication, and if our
efforts to demonstrate the efficacy of DHA-dFdC in prostate cancer are not positive, we may lack the resources to expand our efforts
into other cancer indications.
We face
substantial competition, which may result in others discovering, developing or commercializing products before or more successfully
than we do.
The development
and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidate
and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from
major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of
large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products
for the treatment of cancer. Potential competitors also include academic institutions, government agencies and other public and
private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research,
development, manufacturing and commercialization.
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 may develop. Our competitors
also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could
result in our competitors establishing a strong market position before we are able to enter the market.
Many of the companies
against which we are competing or against which we may compete in the future have significantly greater financial resources and
expertise in research and development, manufacturing, conducting clinical trials, obtaining regulatory 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 and other early stage companies may also prove
to be significant competitors, particularly through collaborative arrangements with large and established companies. These third
parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial
sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our
programs, and we may be unable to effectively compete with these companies for these or other reasons.
Even if
we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-party
reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations
that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country.
Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and
cause delays in obtaining approvals.
Our ability to
commercialize any product candidate also will depend in part on the extent to which coverage and adequate reimbursement for our
product candidate will be available from government health administration authorities, private health insurers and other organizations.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which
medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere
is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the
amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide
them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement
may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not
be satisfactory. Reimbursement may affect the demand for, or the price of, any product candidate for which we obtain marketing
approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive
pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage
and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to commercialize
any product candidate for which we obtain marketing approval.
In addition, there
may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes
for which the drug is approved by the FDA. Moreover, eligibility for reimbursement does not imply that a drug will be paid for
in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement
levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement
rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels
already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be
reduced by mandatory discounts or rebates required by government healthcare programs or private payors. Third-party payors often
rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly
obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that
we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize
products and our overall financial condition.
Product
liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that
we may develop.
We face an inherent
risk of product liability exposure related to the testing of DHA-dFdC in human clinical trials and will face an even greater risk
if we commercially sell any products that we may develop. If we cannot defend ourselves against claims that our product candidate
or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may
result in:
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decreased demand for any product candidates or products that we may develop;
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damage 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 the related litigation;
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substantial monetary awards to trial participants or patients;
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loss of revenue;
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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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We currently do
not have product liability insurance coverage, which leaves us exposed to any product-related liabilities that we may incur. We
may be unable to obtain insurance on reasonable terms or at all. Insurance coverage is increasingly expensive. We may not be able
to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
If we fail to comply with healthcare
regulations, we could face substantial enforcement actions, including civil and criminal penalties and our business, operations
and financial condition could be adversely affected.
We could be subject to healthcare fraud
and abuse laws and patient privacy laws of both the federal government and the states in which we conduct our business. The laws
include:
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the federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, and which may apply to entities like us which provide coding and billing information to customers;
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the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
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the FDCA which among other things, strictly regulates drug manufacturing and product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug sample; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
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If our operations are found to be in violation
of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including
civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines,
curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot
be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses and divert management’s attention from the operation of our business. Moreover, achieving
and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
Members of our management team lack
experience in the pharmaceutical field.
Members of our management team lack experience
in the pharmaceutical field. This lack of experience may impair our ability to commercialize our pharmaceutical products and attain
profitability. We will need to hire or engage managerial personnel with relevant experience in the pharmaceutical field; however,
there can be no assurance that such personnel will be available to us or, that once engaged, will be retained by us. Failure to
establish and maintain an effective management team with experience in the pharmaceutical field and commercialization of pharmaceuticals
products would have a material adverse effect on our business and results of operations.
The marketing approval process of
the FDA is lengthy, time consuming and inherently unpredictable, and if were ultimately are unable to obtain marketing approval
for the product candidates we intend to develop, our business will be substantially harmed.
None of the product candidates we intend
to develop have gained marketing approval in the U.S. and we cannot guarantee that we will ever have marketable products. Our business
is substantially dependent on our ability to complete the development of, obtain marketing approval for, and successfully commercialize
our product candidates in a timely manner. We cannot commercialize our product candidates in the United States without first obtaining
approval from the FDA to market each product candidate. Our product candidates could fail to receive marketing approval for many
reasons.
In addition, the process of seeking regulatory
clearance or approval to market the product candidates we intend to develop is expensive and time consuming and, notwithstanding
the effort and expense incurred, clearance or approval is never guaranteed. If we are not successful in obtaining timely clearance
or approval of our product candidates from the FDA, we may never be able to generate significant revenue and may be forced to cease
operations. The FDA process is costly, lengthy and uncertain. Any FDA application filed by the Company will have to be supported
by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate
to the FDA’s satisfaction the safety and efficacy of the product for its intended use.
Obtaining clearances or approvals from
the FDA and from the regulatory agencies in other countries is an expensive and time consuming process and is uncertain as to outcome.
The FDA and other agencies could ask us to supplement our submissions, collect non-clinical data, conduct additional clinical trials
or engage in other time-consuming actions, or it could simply deny our applications. In addition, even if we obtain an FDA approval
or pre-market approvals in other countries, the approval could be revoked or other restrictions imposed if post-market data demonstrates
safety issues or lack of effectiveness. We cannot predict with certainty how, or when, the FDA will act. If we are unable to obtain
the necessary regulatory approvals, our financial condition and cash flow may be adversely affected, and our ability to grow domestically
and internationally may be limited. Additionally, even if cleared or approved, the Company’s products may not be approved
for the specific indications that are most necessary or desirable for successful commercialization or profitability.
Modifications to our products may
require new FDA approvals.
Once a particular product receives FDA
approval or clearance, expanded uses or uses in new indications of our products may require additional human clinical trials and
new regulatory approvals or clearances, including additional IND and FDA submissions and premarket approvals before we can begin
clinical development, and/or prior to marketing and sales. If the FDA requires new clearances or approvals for a particular use
or indication, we may be required to conduct additional clinical studies, which would require additional expenditures and harm
our operating results. If the products are already being used for these new indications, we may also be subject to significant
enforcement actions. Conducting clinical trials and obtaining clearances and approvals can be a time consuming process, and delays
in obtaining required future clearances or approvals could adversely affect our ability to introduce new or enhanced products in
a timely manner, which in turn would harm our future growth.
Additional delays to the completion
of clinical studies may result from modifications being made to the protocol during the clinical trial, if such modifications are
warranted and/or required by the occurrences in the given trial.
Each modification to the protocol during
a clinical trial has to be submitted to the FDA. This could result in the delay or halt of a clinical trial while the modification
is evaluated. In addition, depending on the quantity and nature of the changes made, the FDA could take the position that the data
generated by the clinical trial is not poolable because the same protocol was not used throughout the trial. This might require
the enrollment of additional subjects, which could result in the extension of the clinical trial and the FDA delaying clearance
or approval of a product. Any such delay could have a material adverse effect on our business and results of operations.
There can be no assurance that the
data generated from our clinical trials using modified protocols will be acceptable to FDA.
There can be no assurance that the data
generated using modified protocols will be acceptable to the FDA or that if future modifications during the trial are necessary,
that any such modifications will be acceptable to the FDA. If the FDA believes that its prior approval is required for a particular
modification, it can delay or halt a clinical trial while it evaluates additional information regarding the change.
Serious injury or death resulting from
a failure of one of our drug candidates during current or future clinical trials could also result in the FDA delaying our clinical
trials or denying or delaying clearance or approval of a product.
Even though an adverse event may not be
the result of the failure of our drug candidate, the FDA or an Internal Review Board (“IRB”) could delay or halt a
clinical trial for an indefinite period of time while an adverse event is reviewed, and likely would do so in the event of multiple
such events.
Any delay or termination of our current
or future clinical trials as a result of the risks summarized above, including delays in obtaining or maintaining required approvals
from IRBs, delays in patient enrollment, the failure of patients to continue to participate in a clinical trial, and delays or
termination of clinical trials as a result of protocol modifications or adverse events during the trials, may cause an increase
in costs and delays in the filing of any product submissions with the FDA, delay the approval and commercialization of our products
or result in the failure of the clinical trial, which could adversely affect our business, operating results and prospects.
The future results of our current or future clinical trials
may not support our product candidate claims or may result in the discovery of unexpected adverse side effects.
Even if our clinical trials are completed
as planned, we cannot be certain that their results will support our drug candidate claims or that the FDA or foreign authorities
will agree with our conclusions regarding them. Success in preclinical studies and early clinical trials does not ensure that later
clinical trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and
preclinical studies. The clinical trial process may fail to demonstrate that our drug candidates are safe and effective for the
proposed indicated uses. If the FDA concludes that the clinical trials for DHA-dFdC, or any other product for which we might seek
clearance, has failed to demonstrate safety and effectiveness, we would not receive FDA clearance to market that product in the
United States for the indications sought.
In addition, such an outcome could cause
us to abandon the product candidate and might delay development of others. Any delay or termination of our clinical trials will
delay the filing of any product submissions with the FDA and, ultimately, our ability to commercialize our product candidates and
generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are
not currently part of the product candidate’s profile.
Current and future legislation may
increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the
prices we may obtain for such product candidates.
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
prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability
to profitably sell our product candidates. Legislative and regulatory proposals have been made to expand post-approval requirements
and restrict sales and promotional activities for pharmaceutical products. We do not know 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 product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the
FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product
labeling and post-marketing testing and other requirements.
In the United States, the Medicare Modernization
Act (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. As a result of this legislation and
the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs.
These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive
for our product candidates and could seriously harm our business.
The Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “Health Care
Reform Law”) is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries,
impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform Law remains
subject to legislative efforts to repeal, modify or delay the implementation of the law. However, if the Health Care Reform Law
is repealed or modified, or if implementation of certain aspects of the Health Care Reform Law are delayed, such repeal, modification
or delay may materially adversely impact our business, strategies, prospects, operating results or financial condition.
In addition, other legislative changes
have been proposed and adopted in the United States since the Health Care Reform Law was enacted. We expect that additional federal
healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development
projects and reduce or eliminate our profitability.
Upon commercialization of our products,
we may be dependent on third parties to market, distribute and sell our products.
Our ability to receive revenues may be
dependent upon the sales and marketing efforts of any future co-marketing partners and third-party distributors. At this time,
we have not entered into an agreement with any commercialization partner and only plan to do so after the successful completion
of Phase 1 clinical trials and prior to commercialization. If we fail to reach an agreement with any commercialization partner,
or upon reaching such an agreement that partner fails to sell a large volume of our products, it may have a negative impact on
our business, financial condition and results of operations.
Adverse events involving our products
may lead the FDA to delay or deny clearance for our products or result in product recalls that could harm our reputation, business
and financial results.
Once a product receives FDA clearance or
approval, the agency has the authority to require the recall of commercialized products in the event of adverse side effects, material
deficiencies or defects in design or manufacture. The authority to require a recall must be based on an FDA finding that there
is a reasonable probability that the product would cause serious injury or death. Manufacturers may, under their own initiative,
recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or one of our
distributors could occur as a result of adverse side effects, impurities or other product contamination, manufacturing errors,
design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial
resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications
of recalls be reported to FDA within ten working days after the recall is initiated. Companies are required to maintain certain
records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the
future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require
us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect
our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted.
Risks Related to Ownership of Our Common
Stock
We face evolving regulation of corporate
governance and public disclosure that may result in additional expenses and continuing uncertainty.
As a public company, we incur significant
legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, or SOX, 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. Our management and other personnel devote a substantial amount of time towards maintaining compliance
with these requirements. These rules, regulations and standards are subject to varying interpretations, 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. We intend to invest the resources necessary to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed
laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may
initiate legal proceedings against us, which could be costly and time-consuming, and our reputation and business may be harmed.
Our common stock may be delisted
from The Nasdaq Capital Market if we fail to comply with continued listing standards.
Our common stock is currently traded on
The Nasdaq Capital Market under the symbol “AIKI”. If we fail to meet any of the continued listing standards
of The Nasdaq Capital Market, our common stock could be delisted from The Nasdaq Capital Market. These continued listing
standards include specifically enumerated criteria, such as:
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a $1.00 minimum closing bid price;
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stockholders’ equity of $2.5 million;
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500,000 shares of publicly-held common stock with a market value of at least $1 million;
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300 round-lot stockholders; and
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compliance with Nasdaq’s corporate governance requirements, as well as additional or more stringent criteria that may be applied in the exercise of Nasdaq’s discretionary authority.
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On April 28, 2020,
we received a staff deficiency notice from Nasdaq informing the Company that its common stock failed to comply with the $1.00 minimum
bid price required for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). Nasdaq’s letter
advised the Company that, based upon the closing bid price during the period from March 16, 2020 to April 27, 2020, the Company
no longer met this test.
Given the current
extraordinary market conditions, Nasdaq had determined to toll the compliance periods for the bid price and market value of publicly
held shares requirements through June 30, 2020. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company had been provided
with a compliance period of 180 calendar days, or until December 28, 2020, to regain compliance with the minimum bid price requirement.
To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum
of 10 consecutive business days prior to December 28, 2020. As of the close of trading on July 30, 2020, the closing bid price
of our common stock was at least $1.00 per share for 10 consecutive trading days and, accordingly, we regained compliance with
NASDAQ’s continued listing requirements.
There can be no assurance that we will
be able to maintain compliance and remain in compliance in the future. In particular, our share price may continue to decline for
a number of reasons, including many that are beyond our control. If we fail to comply with Nasdaq’s continued listing standards,
we may be delisted and our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board
or OTCQX market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In
addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially
adversely affect our ability to raise capital on terms acceptable to us, or at all. Further, delisting of our common stock would
likely result in our common stock becoming a “penny stock” under the Exchange Act.
Our share price may be volatile and
there may not be an active trading market for our common stock.
There can be no assurance that the market
price of our common stock will not decline below its present market price or that there will be an active trading market for our
common stock. The market prices of technology or technology related companies have been and are likely to continue to be highly
volatile. Fluctuations in our operating results and general market conditions for technology or technology related stocks
could have a significant impact on the volatility of our common stock price. We have experienced significant volatility in
the price of our common stock. From January 1, 2019 through June 30, 2020, the share price of our common stock (on a
split-adjusted basis) ranged from a high of $3.92 to a low of $0.51. The reason for the volatility in our stock is not well understood
and may continue. Factors that may have contributed to such volatility include, but are not limited to:
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developments regarding regulatory filings;
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our funding requirements and the terms of our financing arrangements;
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technological innovations;
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introduction of new technologies by us or our competitors;
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material changes in existing litigation;
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changes in the enforceability or other matters surrounding our patent portfolios;
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government regulations and laws;
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public sentiment relating to our industry;
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developments in patent or other proprietary rights;
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the number of shares issued and outstanding;
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the number of shares trading on an average trading day;
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performance of companies in the non-performing entity space generally;
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announcements regarding other participants in the technology and technology related industries, including our competitors;
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block sales of our shares by stockholders to whom we have sold stock in private placements, or the cessation of transfer restrictions with respect to those shares; and
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market speculation regarding any of the foregoing.
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We could fail in future financing
efforts or be delisted from The Nasdaq Capital Market if we fail to receive stockholder approval when needed.
We are required under the Nasdaq rules
to obtain stockholder approval for any issuance of additional equity securities that would comprise more than 20% of the total
shares of our common stock outstanding before the issuance of such securities sold in an offering that is not deemed to be a “public
offering” by Nasdaq. Funding of our operations and acquisitions of assets may require issuance of additional equity securities
that would comprise more than 20% of the total shares of our common stock outstanding, but we might not be successful in obtaining
the required stockholder approval for such an issuance. If we are unable to obtain financing due to stockholder approval difficulties,
such failure may have a material adverse effect on our ability to continue operations.
Our shares of common stock are thinly
traded and, as a result, stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to raise
money or otherwise desire to liquidate their shares.
Our common stock has been “thinly-traded”
meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively
small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that
is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate
or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we
become more seasoned and viable. Our trading volumes are further adversely affected by the 1-for-19 reverse stock split that was
effective as of March 4, 2016. In addition, we believe that due to the limited number of shares of our common stock outstanding,
an options market has not been established for our common stock, limiting the ability of market participants to hedge or otherwise
undertake trading strategies available for larger companies with broader shareholder bases which prevents institutions and others
from acquiring or trading in our securities. Consequently, there may be periods of several days or more when trading activity in
our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance
that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading
levels will be sustained.
Because of the “anti-takeover”
provisions in our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware General Corporation
Law, a third party may be discouraged from making a takeover offer that could be beneficial to our stockholders.
The effect of certain provisions of our
Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the anti-takeover provisions of the Delaware
General Corporation Law (the “DGCL”), could delay or prevent a third party from acquiring us or replacing members of
our Board of Directors, or make more costly any attempt to acquire control of the Company, even if the acquisition or the Board
designees would be beneficial to our stockholders. These factors could also reduce the price that certain investors might be willing
to pay for shares of the common stock and result in the market price being lower than it would be without these provisions.
Dividends on our common stock are
not likely.
During the last five years, we have not
paid cash dividends on our common stock, and we do not anticipate paying cash dividends on our common stock in the foreseeable
future. Investors must look solely to the potential for appreciation in the market price of the shares of our common stock to obtain
a return on their investment.
It may be difficult to predict our
financial performance because our quarterly operating results may fluctuate.
Our revenues, operating results and valuations
of certain assets and liabilities may vary significantly from quarter to quarter due to a variety of factors, many of which are
beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future
performance. Our results of operations may fall below the expectations of market analysts and our own forecasts. If this happens,
the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include
the following:
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fluctuations in results of our enforcement and licensing activities or outcome of cases;
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fluctuations in duration of judicial processes and time to completion of cases;
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the timing and amount of expenses incurred to negotiate with licensees and obtain settlements from
infringers;
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the impact of our anticipated need for personnel and expected substantial increase in headcount;
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fluctuations in the receptiveness of courts and juries to significant damages awards in patent
infringement cases and speed to trial in the jurisdictions in which our cases may be brought and the accepted royalty rates attributable
to damages analysis for patent cases generally, including the royalty rates for industry standard patents which we may own or acquire;
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worsening economic conditions which cause revenues or profits attributable to infringer sales of
products or services to decline;
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changes in the regulatory environment, including regulation of NPE activities or patenting practices,
that may negatively impact our or infringers practices;
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the timing and amount of expenses associated with litigation, regulatory investigations or restructuring
activities, including settlement costs and regulatory penalties assessed related to government enforcement actions;
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any changes we make in our Critical Accounting Estimates described in the Management’s Discussion
and Analysis of Financial Condition and Results of Operations sections of our periodic reports;
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the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements,
that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial
measures; and
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costs related to acquisitions of technologies or businesses.
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If we fail to retain our key personnel,
we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future depends, in part, on our ability
to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to
replace. In particular, Anthony Hayes, our Chief Executive Officer, is important to the management of our business and operations
and the development of our strategic direction. The loss of the services of any such individual and the process to replace any
key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business
objectives.
Because an increasing amount of our
outstanding shares may become freely tradable, sales of these shares could cause the market price of our common stock to drop significantly,
even if our business is performing well.
As of August 5, 2020, we had outstanding 34,920,219
shares of common stock, of which our directors and executive officers owned 24,283 shares which are subject to the limitations
of Rule 144 under the Securities Act.
In general, Rule 144 provides that any
non-affiliate of ours, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock
freely, provided that we are then current in our filings with the SEC.
An affiliate of the Company may sell after
six months with the following restrictions:
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we are current in our filings;
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certain manner of sale provisions;
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filing of Form 144; and
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volume limitations limiting the sale of shares within any three-month period to a number of shares
that does not exceed the greater of 1% of the total number of outstanding shares or, the average weekly trading volume during the
four calendar weeks preceding the filing of a notice of sale.
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Because almost all of our outstanding shares
are freely tradable (subject to certain restrictions imposed by lockup agreements executed by the holders thereof) and the shares
held by our affiliates may be freely sold (subject to the Rule 144 limitations), sales of these shares could cause the market price
of our common stock to drop significantly, even if our business is performing well.