Investing
in our common stock involves a high degree of risk. We have described below a number of uncertainties and risks which, in addition
to uncertainties and risks presented elsewhere in this Quarterly Report, may adversely affect our business, operating results and
financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Quarterly
Report should be considered carefully when evaluating our Company, business and the value of our securities.
Risks Related to the Company’s
Development, Commercialization and Regulatory Approval of the Company’s Investigational Therapies
The Company’s business depends
on the successful clinical development, regulatory approval and commercialization of LB1148.
The success of the
Company’s business, including its ability to finance itself and generate revenue in the future, primarily depends on the
successful development, regulatory approval and commercialization of LB1148. The clinical and commercial success of LB1148 depends
on a number of factors, including the following:
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timely and successful completion of required clinical trials not yet initiated, which may be significantly slower or costlier than the Company currently anticipates and/or produce results that do not achieve the endpoints of the trials;
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whether the Company is required by the FDA or similar foreign regulatory agencies to conduct additional studies beyond those planned to support the approval and commercialization of LB1148;
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achieving and maintaining, and, where applicable, ensuring that the Company’s third-party contractors achieve and maintain compliance with their contractual obligations and with all regulatory requirements applicable to LB1148;
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ability of third parties with whom the Company contracts to manufacture adequate clinical trial and commercial supplies of LB1148, to remain in good standing with regulatory agencies and to develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices (“cGMP”);
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a continued acceptable safety profile during clinical development and following approval of LB1148;
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ability to obtain favorable labeling for LB1148 through regulators that allows for successful commercialization, given the drugs may be marketed only to the extent approved by these regulatory authorities (unlike with most other industries);
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ability to successfully commercialize LB1148 in the United States and internationally, if approved for marketing, sale and distribution in such countries and territories, whether alone or in collaboration others;
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acceptance by physicians, insurers and payors, and patients of the quality, benefits, safety and efficacy of LB1148, if either is approved, including relative to alternative and competing treatments;
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existence of a regulatory environment conducive to the success of LB1148;
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ability to price LB1148 to recover the Company’s development costs and generate a satisfactory profit margin; and
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The Company’s ability and its partners’ ability to establish and enforce intellectual property rights in and to LB1148.
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If the Company does
not achieve one or more of these factors, many of which are beyond its control, in a timely manner or at all, the Company could
experience significant delays or an inability to obtain regulatory approvals or commercialize LB1148. Even if regulatory approvals
are obtained, the Company may never be able to successfully commercialize LB1148. Accordingly, the Company cannot assure you that
it will ever be able to generate sufficient revenue through the sale of LB1148, if approved, to continue its business.
Some of the initial indications in
which the Company plans to pursue development of LB1148 are indications for which there are no FDA-approved therapies. This makes
it difficult to predict the timing and costs of clinical development for LB1148 in these indications, as well as the regulatory
approval path.
There are no FDA-approved
therapies for decreasing the time to normal feedings and bowel movement (or preventing necrotizing enterocolitis) in infants after
heart surgery. While Entereg is approved to accelerate the time to upper and lower gastrointestinal recovery following surgeries
that include partial bowel resection with primary anastomosis, there is no guarantee that regulatory precedence regarding Entereg
will apply to the approval of other therapies that may accelerate the time to gastrointestinal recovery following surgery. While
there are multiple medical devices approved for the reduction or elimination of postoperative intra-abdominal adhesions, there
are no drugs approved to reduce postoperative intra-abdominal adhesions. The regulatory approval process for novel product candidates
such as LB1148 can be more expensive and take longer than for other, better known or extensively studied therapeutic approaches.
The development and commercialization
strategy for the Company’s product candidate LB1148 depends, in part, on published scientific literature and the FDA’s
prior findings regarding the safety and efficacy of tranexamic acid. If the Company is not able to pursue this strategy, it may
be delayed in receiving regulatory authority approval.
The Hatch-Waxman Act
added Section 505(b)(2) to the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”). Section 505(b)(2) permits the submission
of an NDA or BLA where at least some of the information required for approval comes from investigations that were not conducted
by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom
the investigations were conducted. The FDA interprets Section 505(b)(2) of the FDCA, for purposes of approving an NDA/BLA,
to permit the applicant to rely, in part, upon published literature and/or the FDA’s previous findings of safety and efficacy
for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any deviation
from the previously approved product and to justify that it is scientifically appropriate to rely on the applicable published literature
or referenced product, referred to as bridging. The FDA may then approve the new product candidate for all or some of the indications
for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant,
if such approval is supported by study data. The labeling, however, may be required to include all or some of the limitations,
contraindications, warnings or precautions or restrictions on use included in the reference product’s labeling, including
a boxed warning, or may require additional limitations, contraindications, warnings or precautions or restrictions on use.
The Company
currently plans to pursue marketing approval for LB1148, in the United States through a 505(b)(2) NDA and will be completing bridging
analyses prior to NDA submissions. If the FDA disagrees with the Company’s conclusions regarding the appropriateness of its
reliance on the FDA’s prior findings of safety and efficacy for tranexamic acid (“TXA”) or on published literature,
or if the Company is not otherwise able to bridge to the listed drug or published literature to demonstrate that its reliance is
scientifically appropriate, the Company could be required to conduct additional clinical trials or other studies to support its
NDA, which could lead to unanticipated costs and delays or to the termination of the development program for LB1148. If the Company
is unable to obtain approval for LB1148 through the 505(b)(2) NDA process, it may be required to pursue the more expensive and
time consuming 505(b)(1) approval process, which consists of full reports of investigations of safety and effectiveness conducted
by or for the Company.
Notwithstanding
the approval of a number of products by the FDA under Section 505(b)(2), pharmaceutical companies and others have objected to the
FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged,
the FDA may be required to change its policies and practices with respect to Section 505(b)(2) regulatory approvals, which could
delay or even prevent the FDA from approving any NDA that the Company submits pursuant to the 505(b)(2) process. Even if the Company
is allowed to pursue the 505(b)(2) regulatory pathway to FDA approval, it cannot assure you that its product candidates will receive
the requisite approvals for commercialization.
The Company may find it difficult
to enroll patients in its clinical trials, which could delay or prevent it from proceeding with clinical trials of its product
candidates.
Identifying and qualifying
subjects to participate in clinical trials of the Company’s product candidates is critical to its success. The timing of
clinical trials depends on the Company’s ability to recruit subjects to participate, as well as the completion of required
follow-up periods. Patients may be unwilling to participate in clinical trials because of negative publicity from adverse events
related to the biotechnology or pharmaceutical fields, competitive clinical trials for similar patient populations, the existence
of current treatments or for other reasons. The timeline for recruiting patients, conducting studies and obtaining regulatory approval
of the Company’s product candidates may be delayed, which could result in increased costs, delays in advancing its product
candidates, delays in testing the effectiveness of its product candidates or termination of the clinical trials altogether.
Patient enrollment
and trial completion are affected by numerous additional factors, including the:
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process for identifying patients;
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design of the trial protocol;
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eligibility and exclusion criteria;
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perceived risks and benefits of the product candidate under study;
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availability of competing therapies and clinical trials;
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severity of the disease under investigation;
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proximity and availability of clinical trial sites for prospective patients;
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ability to obtain and maintain patient consent;
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risk that enrolled patients will drop out before completion of the trial;
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patient referral practices of physicians; and
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ability to monitor patients adequately during and after treatment.
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If the Company has
difficulty enrolling a sufficient number of patients to conduct its clinical trials as planned, it may need to delay, limit or
terminate ongoing or planned clinical trials, any of which would have an adverse effect on its business, financial condition, results
of operations and prospects.
Clinical drug development is very
expensive, time-consuming and uncertain.
Clinical development
for the Company’s product candidates is very expensive, time-consuming, difficult to design and implement, and the outcomes
are inherently uncertain. Most product candidates that commence clinical trials are never approved by regulatory authorities for
commercialization and of those that are approved many do not cover their costs of development. In addition, the Company, any partner
with which it may in the future collaborate, the FDA, an institutional review board (“IRB”), or other regulatory authorities,
including state and local agencies and counterpart agencies in foreign countries, may suspend, delay, require modifications to
or terminate the Company’s clinical trials at any time.
The results of previous clinical
trials may not be predictive of future results, and the results of the Company’s current and planned clinical trials may
not satisfy the requirements of the FDA or non-U.S. regulatory authorities.
The results from the
prior preclinical studies and clinical trials for LB1148 discussed elsewhere in this prospectus may not necessarily be predictive
of the results of future preclinical studies or clinical trials. Even if the Company is able to complete its planned clinical trials
of its product candidates according to its current development timelines, the results from its prior clinical trials of its product
candidates may not be replicated in these future trials. Many companies in the pharmaceutical and biotechnology industries (including
those with greater resources and experience than the Company) have suffered significant setbacks in late-stage clinical trials
after achieving positive results in early stage development, and the Company cannot be certain that it will not face similar setbacks.
These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety
or efficacy observations made in clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical
data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed
satisfactorily in preclinical studies and clinical trials nonetheless have failed to obtain FDA approval. If the Company fails
to produce positive results in its clinical trials of any of its product candidates, the development timelines and regulatory approvals
and commercialization prospects for its product candidates and its business and financial prospects, would be adversely affected.
If the Company fails to produce positive results in its clinical trials of any of its product candidates, the development timelines,
regulatory approvals, and commercialization prospects for its product candidates, as well as the Company’s business and financial
prospects, would be adversely affected. Further, the Company’s product candidates may not be approved even if they achieve
their respective primary endpoints in Phase 3 registration trials. The FDA or non-U.S. regulatory authorities may disagree with
the Company’s trial designs or its interpretation of data from preclinical studies and clinical trials. the Company has taken
the position that LB1148 has a single active ingredient, TXA. LB1148 also contains polyethylene glycol 3350 (“PEG”).
Across different countries and different circumstances, PEG may be regulated as an inactive ingredient, a medical device, or an
active ingredient. There is uncertainty on how the FDA and other regulatory agencies will classify the PEG in LB1148. If the FDA
determines that LB1148 is a combination product (of TXA and PEG) regulatory approval of this product candidate will require additional
clinical trials for which there is not currently a feasible clinical trial design. In addition, any of these regulatory authorities
may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol
for a pivotal clinical trial that has the potential to result in approval by the FDA or another regulatory authority. Furthermore,
any of these regulatory authorities may also approve the Company’s product candidate for fewer or more limited indications
than it requests or may grant approval contingent on the performance of costly post-marketing clinical trials.
If the clinical development of LB1148 is successful,
the Company plans to eventually seek regulatory approvals of LB1148 initially in the United States, and may seek approvals in other
geographies. Before obtaining regulatory approvals for the commercial sale of any product candidate for any target indication,
the Company must demonstrate with substantial evidence gathered in preclinical studies and adequate and well-controlled clinical
studies, and, with respect to approval in the United States, to the satisfaction of the FDA, that the product candidate is safe
and effective for use for that target indication. The Company cannot assure you that the FDA or non-U.S. regulatory authorities
would consider its planned clinical trials to be sufficient to serve as the basis for approval of its product candidates for any
indication. The FDA and non-U.S. regulatory authorities retain broad discretion in evaluating the results of the Company’s
clinical trials and in determining whether the results demonstrate that its product candidates are safe and effective. If the Company
is required to conduct clinical trials of its product candidates in addition to those it has planned prior to approval, the Company
will need substantial additional funds, and cannot assure you that the results of any such outcomes trial or other clinical trials
will be sufficient for approval.
The Company’s product candidates may cause undesirable
side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile
of an approved label, or result in post-approval regulatory action.
Unforeseen side effects from LB1148 could
arise either during clinical development or, if approved, after it has been marketed. Undesirable side effects could cause the
Company, any partners with which the Company may collaborate, or regulatory authorities to interrupt, extend, modify, delay or
halt clinical trials and could result in a more restrictive or narrower label or the delay or denial of regulatory approval by
the FDA or comparable foreign authorities.
Results of clinical
trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials could be suspended
or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny
approval of a product candidate for any or all targeted indications. The drug-related side effects could affect patient recruitment
or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm
the Company’s business, financial condition, operating results and prospects.
Additionally, if the
Company or others identify undesirable side effects, or other previously unknown problems, caused by a product after obtaining
U.S. or foreign regulatory approval, a number of potentially negative consequences could result, which could prevent the Company
or its potential partners from achieving or maintaining market acceptance of the product and could substantially increase the costs
of commercializing such product.
The Company may in the future conduct clinical trials for
its product candidates outside the United States, and the FDA and applicable foreign regulatory authorities may not accept data
from such trials.
The Company, as well
as investigator sponsors, have conducted clinical trials, is conducting clinical trials, and may in the future choose to conduct
one or more clinical trials outside of the United States. Although the FDA or applicable foreign regulatory authority may accept
data from clinical trials conducted outside the United States or the applicable jurisdiction, acceptance of such study data by
the FDA or applicable foreign regulatory authority may be subject to certain conditions or exclusion. Where data from foreign clinical
trials are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application
on the basis of foreign data alone unless such data are applicable to the U.S. population and U.S. medical practice; the studies
were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site
inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through
an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign
studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be
no assurance the FDA or applicable foreign regulatory authority will accept data from trials conducted outside of the United States
or the applicable home country. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely
result in the need for additional trials, which would be costly and time-consuming and delay aspects of the Company’s business
plan.
The Company expects to rely on third-party CROs and other
third parties to conduct and oversee its clinical trials. If these third parties do not meet the Company’s requirements or
otherwise conduct the trials as required, the Company may not be able to satisfy its contractual obligations or obtain regulatory
approval for, or commercialize, its product candidates.
The Company expects to rely on third-party
contract research organizations (“CROs”) to conduct and oversee its LB1148 clinical trials and other aspects of product
development. The Company also expects to rely on various medical institutions, clinical investigators and contract laboratories
to conduct its trials in accordance with the Company’s clinical protocols and all applicable regulatory requirements, including
the FDA’s regulations and good clinical practice (“GCP”) requirements, which are an international standard meant
to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and
state regulations governing the handling, storage, security and recordkeeping for drug and biologic products. These CROs and other
third parties will play a significant role in the conduct of these trials and the subsequent collection and analysis of data from
the clinical trials. the Company will rely heavily on these parties for the execution of its clinical trials and preclinical studies
and will control only certain aspects of their activities. The Company and its CROs and other third-party contractors will be required
to comply with GCP and good laboratory practice (“GLP”) requirements, which are regulations and guidelines enforced
by the FDA and comparable foreign regulatory authorities. Regulatory authorities enforce these GCP and GLP requirements through
periodic inspections of trial sponsors, principal investigators and trial sites. If the Company or any of these third parties fail
to comply with applicable GCP and GLP requirements, or reveal noncompliance from an audit or inspection, the clinical data generated
in the Company’s clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require the Company
to perform additional clinical trials before approving the Company’s or the Company’s partners’ marketing applications.
the Company cannot assure that upon inspection by a given regulatory authority, such regulatory authority will determine that any
of the Company’s clinical or preclinical trials comply with applicable GCP and GLP requirements. In addition, the Company’s
clinical trials generally must be conducted with product produced under cGMP regulations. The Company’s failure to comply
with these regulations and policies may require it to repeat clinical trials, which would delay the regulatory approval process.
If any of the Company’s
CROs or clinical trial sites terminate their involvement in one of its clinical trials for any reason, it may not be able to enter
into arrangements with alternative CROs or clinical trial sites or do so on commercially reasonable terms. In addition, if the
Company’s relationship with clinical trial sites is terminated, it may experience the loss of follow-up information on patients
enrolled in its ongoing clinical trials unless the Company is able to transfer the care of those patients to another qualified
clinical trial site. In addition, principal investigators for the Company’s clinical trials may serve as scientific advisors
or consultants to it from time to time and could receive cash or equity compensation in connection with such services. If these
relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated
at the applicable clinical trial site may be questioned by the FDA.
Even if the Company receives marketing
approval for LB1148, or any future product candidate, it may not be able to successfully commercialize its product candidates due
to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for the Company
to sell its product candidates profitably.
Obtaining coverage
and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that
could require the Company to provide supporting scientific, clinical and cost effectiveness data to the payor. There may be significant
delays in obtaining such coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes
for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and
reimbursement does not imply that a product will be paid for in all cases or at a rate that covers costs, including research, development,
intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable,
may also not be sufficient to cover costs and may not be made permanent. Reimbursement rates may vary according to the use of the
product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products
and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts
or rebates required by government healthcare programs or private payors, by any future laws limiting drug prices and by any future
relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the
United States.
There is significant
uncertainty related to the insurance coverage and reimbursement of newly approved products. Third-party payors often rely upon
Medicare coverage policy and payment limitations in setting reimbursement policies, but also have their own methods and approval
process apart from Medicare coverage and reimbursement determinations.
Coverage and reimbursement
by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a
product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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cost-effective; and
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neither experimental nor investigational.
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The Company cannot be sure that coverage and
reimbursement will be available for any product that it commercializes and, if coverage and reimbursement are available, what the
level of reimbursement will be. The Company’s inability to promptly obtain coverage and adequate reimbursement rates from
both government-funded and private payors for any approved products that the Company develops could have a material adverse effect
on its operating results, its ability to raise capital needed to commercialize products and its overall financial condition.
Reimbursement may impact the demand for, and
the price of, any product for which the Company obtains marketing approval. Assuming the Company obtains coverage for a given product
by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients
find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians,
generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely
to use the Company’s products unless coverage is provided and reimbursement is adequate to cover all or a significant portion
of the cost of the Company’s products. Therefore, coverage and adequate reimbursement is critical to new product acceptance.
Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost
therapeutic alternatives are already available or subsequently become available.
The Company’s
expects to experience pricing pressures in connection with the sale of any of its product candidates due to the trend toward managed
healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure
on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments,
has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new products.
Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result
in additional downward pressure on the price that the Company may receive for any approved product.
Outside of the United
States, many countries require approval of the sale price of a product before it can be marketed and the pricing review period
only begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing approval in some of these
countries, the Company may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate
to other available therapies. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. As a result, the Company might obtain marketing approval for a product candidate
in a particular country, but then be subject to price regulations that delay its commercial launch of the product, possibly for
lengthy time periods, and negatively impact the revenues, if any, the Company is able to generate from the sale of the product
in that country. Adverse pricing limitations may hinder the Company’s ability to recoup its investment in one or more product
candidates, even if such product candidates obtain marketing approval.
Even if a product candidate obtains
regulatory approval, it may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial
success.
The commercial success
of both LB1148, if approved, will depend significantly on the broad adoption and use of them by physicians and patients for approved
indications, and it may not be commercially successful even though it is shown to be safe and effective. The degree and rate of
physician and patient adoption of a product, if approved, will depend on a number of factors, including but not limited to:
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patient demand for approved products that treat the indication for which a product is approved;
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the effectiveness of the product compared to other available therapies or treatment regimens;
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the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors;
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the cost of treatment in relation to alternative treatments and willingness to pay on the part of patients;
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insurers’ willingness to see the applicable indication as a disease worth treating’
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proper administration;
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patient satisfaction with the results, administration and overall treatment experience;
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limitations or contraindications, warnings, precautions or approved indications for use different than those sought by the Company that are contained in the final FDA-approved labeling for the applicable product;
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any FDA requirement to undertake a risk evaluation and mitigation strategy;
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the effectiveness of the Company’s sales, marketing, pricing, reimbursement and access, government affairs, and distribution efforts;
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adverse publicity about a product or favorable publicity about competitive products;
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new government regulations and programs, including price controls and/or limits or prohibitions on ways to commercialize drugs, such as increased scrutiny on direct-to-consumer advertising of pharmaceuticals; and
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potential product liability claims or other product-related litigation.
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If LB1148 is approved
for use but fails to achieve the broad degree of physician and patient adoption necessary for commercial success, the Company’s
operating results and financial condition will be adversely affected, which may delay, prevent or limit its ability to generate
revenue and continue its business.
The Company’s product candidates,
if approved, will face significant competition and their failure to compete effectively may prevent them from achieving significant
market penetration.
The pharmaceutical
industry is characterized by rapidly advancing technologies, intense competition, less effective patent terms, and a strong emphasis
on developing newer, fast-to-market proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing
and marketing of healthcare products competitive with those that the Company is developing, including LB1148. The Company will
face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies, medical
device companies and academic and research institutions, many of which have greater financial resources, marketing capabilities,
sales forces, manufacturing capabilities, research and development capabilities, regulatory expertise, clinical trial expertise,
intellectual property portfolios, more international reach, experience in obtaining patents and regulatory approvals for product
candidates and other resources than the Company. Some of the companies that offer competing products also have a broad range of
other product offerings, large direct sales forces and long-term customer relationships with the Company’s target physicians,
which could inhibit the Company’s market penetration efforts.
With respect to the
Company’s lead product candidate, LB1148, for the indication of postoperative improvement of bowel function, the Company
expects to face competition in the pharmacological therapy space from alvimopan, marketed as a branded product, ENTEREG, by Merck,
as well as in generic form. There are no pharmacotherapies for decreasing the time to normal feedings and bowel movement (or preventing
necrotizing enterocolitis) in infants after heart surgery or for the reduction or elimination of postoperative intra-abdominal
adhesions. However, the Company will face general competition from other medical interventions, namely surgical procedures and
adhesion barrier products. Adhesion barrier products approved for abdominal or pelvic surgery in the United States consist of SEPRAFILM,
INTERCEED and ADEPT. In addition, several products are used off-label for adhesion prevention in the United States, including EVICEL,
SURGIWRAP, COSEAL and PRECLUDE. Adhesion barrier products available outside the United States include HYALOBARRIER, SPRAYSHIELD,
PREVADH, and INTERCOAT. Such products are used as adjunctive interventions, have variable efficacy, and are not easily used with
laparoscopic procedures, which are becoming increasingly common.
Any adverse developments that occur during any clinical trials
conducted by Newsoara may affect the Company’s ability to obtain regulatory approval or commercialize LB1148.
Newsoara Biopharma Co., Ltd. (“Newsoara”)
has the rights to develop and commercialize LB1148 in China for return of bowel function, reduction of adhesions, and sepsis. If
serious adverse events occur during any clinical trials Newsoara decides to conduct with respect to LB1148, the FDA and other regulatory
authorities may delay, limit or deny approval of LB1148 or require the Company to conduct additional clinical trials as a condition
to marketing approval, which would increase our costs. If the Company receives FDA approval for LB1148 and a new and serious safety
issue is identified in connection with clinical trials conducted by Newsoara, the FDA and other regulatory authorities may withdraw
their approval of the product or otherwise restrict the Company’s ability to market and sell the Company’s product.
In addition, treating physicians may be less willing to administer the Company’s product due to concerns over such adverse
events, which would limit the Company’s ability to commercialize LB1148.
Risks Related to the Company’s
Business
The Company has a very limited operating
history and has never generated any revenues from product sales.
The Company is an early-stage biotechnology
company with a very limited operating history that may make it difficult to evaluate the success of its business to date and to
assess its future viability. The Company was initially formed in 2005 and its operations, to date, have been limited to business
planning, raising capital, developing the Company’s pipeline assets and other research and development. The Company has not
yet demonstrated an ability to successfully complete any clinical trials and has never completed the development of any product
candidate, nor has it ever generated any revenue from product sales or otherwise. Consequently, the Company has no meaningful operations
upon which to evaluate its business, and predictions about its future success or viability may not be as accurate as they could
be if it had a longer operating history or a history of successfully developing and commercializing biopharmaceutical products.
The Company currently has no products
approved for sale, and it may never obtain regulatory approval to commercialize any of its product candidates.
The research, testing,
manufacturing, safety surveillance, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, sale, marketing,
distribution, import, export and reporting of safety and other post-market information related to its biopharmaceutical products
are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign countries,
and such regulations differ from country to country and frequently are revised.
Even after the Company
achieves U.S. regulatory approval for a product candidate, if any, the Company will be subject to continued regulatory review and
compliance obligations. For example, with respect to the Company’s product candidates, the FDA may impose significant restrictions
on the approved indicated uses for which the product may be marketed or on the conditions of approval. A product candidate’s
approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical
trials, to monitor the safety and efficacy of the product. The Company also will be subject to ongoing FDA obligations and continued
regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, pharmacovigilance
and adverse event reporting, storage, advertising, promotion and recordkeeping for the Company’s product candidates. These
requirements include submissions of safety and other post-marketing information and reports, registration, continued compliance
with cGMP requirements and with the FDA’s GCP requirements and GLP requirements, which are regulations and guidelines enforced
by the FDA for all of the Company’s product candidates in clinical and preclinical development, and for any clinical trials
that it conducts post-approval, as well as continued compliance with the FDA’s laws governing commercialization of the approved
product, including but not limited to the FDA’s Office of Prescription Drug Promotion (“OPDP”) regulation of
promotional activities, fraud and abuse, product sampling, scientific speaker engagements and activities, formulary interactions
as well as interactions with healthcare practitioners. To the extent that a product candidate is approved for sale in other countries,
the Company may be subject to similar or more onerous (i.e., prohibition on direct-to-consumer advertising that does not exist
in the United States) restrictions and requirements imposed by laws and government regulators in those countries.
In addition, manufacturers
of drug and biologic products and their facilities are subject to continual review and periodic inspections by the FDA and other
regulatory authorities for compliance with cGMP regulations. If the Company or a regulatory agency discovers previously unknown
problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the manufacturing, processing,
distribution or storage facility where, or processes by which, the product is made, a regulatory agency may impose restrictions
on that product or the Company, including requesting that the Company initiate a product recall, or requiring notice to physicians
or the public, withdrawal of the product from the market, or suspension of manufacturing.
If the Company, its
product candidates or the manufacturing facilities for its product candidates fail to comply with applicable regulatory requirements,
a regulatory agency may:
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impose restrictions on the sale, marketing or manufacturing of the product, amend, suspend or withdraw product approvals or revoke necessary licenses;
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mandate modifications to promotional and other product-specific materials or require the Company to provide corrective information to healthcare practitioners or in its advertising;
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require the Company or its partners to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions, penalties for noncompliance and, in extreme cases, require an independent compliance monitor to oversee the Company’s activities;
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issue warning letters, bring enforcement actions, initiate surprise inspections, issue show cause notices or untitled letters describing alleged violations, which may be publicly available;
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commence criminal investigations and prosecutions;
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impose injunctions, suspensions or revocations of necessary approvals or other licenses;
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impose other civil or criminal penalties;
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suspend any ongoing clinical trials;
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place restrictions on the kind of promotional activities that can be done;
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delay or refuse to approve pending applications or supplements to approved applications filed by the Company or its potential partners;
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refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States;
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suspend or impose restrictions on operations, including costly new manufacturing requirements; or
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seize or detain products or require the Company or its partners to initiate a product recall.
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The regulations, policies or guidance of the
FDA and other applicable government agencies may change, and new or additional statutes or government regulations may be enacted,
including at the state and local levels, which can differ by geography and could prevent or delay regulatory approval of the Company’s
product candidates or further restrict or regulate post-approval activities. The Company cannot predict the likelihood, nature
or extent of adverse government regulations that may arise from future legislation or administrative action, either in the United
States or abroad. If the Company is not able to achieve and maintain regulatory compliance, it may not be permitted to commercialize
its product candidates, which would adversely affect its ability to generate revenue and achieve or maintain profitability.
The Company currently has no marketing
capabilities and no sales organization. If the Company is unable to establish sales and marketing capabilities on its own or through
third parties, the Company will be unable to successfully commercialize its product candidates, if approved, or generate product
revenue.
The Company currently
has no marketing capabilities and no sales organization. To commercialize the Company’s product candidates, if approved,
in the United States and other jurisdictions, the Company must build its marketing, sales, distribution, managerial and other non-technical
capabilities or make arrangements with third parties to perform these services, and the Company may not be successful in doing
so. Although the Company’s employees, consultants, contractors, and partners have experience in the marketing, sale and distribution
of pharmaceutical products, and business development activities involving external alliances, from prior employment at other companies,
the Company as a company has no prior experience in the marketing, sale and distribution of pharmaceutical products, and there
are significant risks involved in building and managing a sales organization, including its ability to hire, retain and incentivize
qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively
manage a geographically dispersed sales and marketing team. Any failure or delay in the development of the Company’s internal
sales, marketing, distribution and pricing/reimbursement/access capabilities would impact adversely the commercialization of these
products.
The Company may face product liability
exposure, and if successful claims are brought against it, the Company may incur substantial liability if its insurance coverage
for those claims is inadequate.
The Company faces an inherent risk of product
liability or similar causes of action as a result of the clinical testing of its product candidates and will face an even greater
risk if the Company commercializes any products. This risk exists even if a product is approved for commercial sale by the FDA
and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority and notwithstanding
the Company complying with applicable laws on promotional activity. The Company’s products and product candidates are designed
to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with the
Company’s product candidates could result in injury to a patient or potentially even death. The Company cannot offer any
assurance that it will not face product liability suits in the future, nor can it assure that its insurance coverage will be sufficient
to cover its liability under any such cases.
In addition, a liability
claim may be brought against the Company even if its product candidates merely appear to have caused an injury. Product liability
claims may be brought against the Company by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise
coming into contact with its product candidates, among others, and under some circumstances even government agencies. If the Company
cannot successfully defend itself against product liability or similar claims, it will incur substantial liabilities, reputational
harm and possibly injunctions and punitive actions. In addition, regardless of merit or eventual outcome, product liability claims
may result in:
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withdrawal or delay of recruitment or decreased enrollment rates of clinical trial participants;
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termination or increased government regulation of clinical trial sites or entire trial programs;
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the inability to commercialize the Company’s product candidates;
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decreased demand for the Company’s product candidates;
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impairment of the Company’s business reputation;
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product recall or withdrawal from the market or labeling, marketing or promotional restrictions;
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substantial costs of any related litigation or similar disputes;
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distraction of management’s attention and other resources from the Company’s primary business;
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significant delay in product launch;
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substantial monetary awards to patients or other claimants against the Company that may not be covered by insurance;
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withdrawal of reimbursement or formulary inclusion; or
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The Company intends to obtain product liability
insurance coverage for its clinical trials. Large judgments have been awarded in class action or individual lawsuits based on drugs
that had unanticipated side effects. The Company’s insurance coverage may not be sufficient to cover all of its product liability-related
expenses or losses and may not cover it for any expenses or losses it may suffer. Moreover, insurance coverage is becoming increasingly
expensive, restrictive and narrow, and, in the future, the Company may not be able to maintain adequate insurance coverage at a
reasonable cost, in sufficient amounts or upon adequate terms to protect it against losses due to product liability or other similar
legal actions. The Company will need to increase its product liability coverage if any of its product candidates receive regulatory
approval, which will be costly, and it may be unable to obtain this increased product liability insurance on commercially reasonable
terms or at all and for all geographies in which the Company wishes to launch. A successful product liability claim or series of
claims brought against the Company, if judgments exceed its insurance coverage, could decrease its cash and harm its business,
financial condition, operating results and future prospects.
The Company’s employees, independent
contractors, principal investigators, other clinical trial staff, consultants, vendors, CROs and any partners with whom the Company
may collaborate may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
The Company is exposed
to the risk that its employees, independent contractors, principal investigators, other clinical trial staff, consultants, vendors,
CROs and any partners with which the Company may collaborate may engage in fraudulent or other illegal activity. Misconduct by
these persons could include intentional, reckless, gross or negligent misconduct or unauthorized activity that violates: laws or
regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory
authorities; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; anticorruption
laws, antikickback and Medicare/Medicaid rules, or laws that require the true, complete and accurate reporting of financial information
or data, books and records. If any such or similar actions are instituted against the Company and the Company is not successful
in defending itself or asserting the Company’s rights, those actions could have a significant impact on the Company’s
business, including the imposition of civil, criminal and administrative and punitive penalties, damages, monetary fines, possible
exclusion from participation in Medicare, Medicaid and other federal healthcare programs, debarments, contractual damages, reputational
harm, diminished profits and future earnings, injunctions, and curtailment or cessation of the Company’s operations, any
of which could adversely affect the Company’s ability to operate the Company’s business and the Company’s operating
results.
The Company may be subject to risks
related to off-label use of its product candidates.
The FDA strictly regulates
the advertising and promotion of drug products, and drug products may only be marketed or promoted for their FDA approved uses,
consistent with the product’s approved labeling. Advertising and promotion of any product candidate that obtains approval
in the United States will be heavily scrutinized by the FDA, the Department of Justice, the Office of Inspector General of the
Department of Health and Human Services, state attorneys general, members of Congress and the public. Violations, including promotion
of the Company’s products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations,
and civil, criminal and/or administrative sanctions by the FDA. Additionally, advertising and promotion of any product candidate
that obtains approval outside of the United States will be heavily scrutinized by relevant foreign regulatory authorities.
Even if the Company
obtains regulatory approval for its product candidates, the FDA or comparable foreign regulatory authorities may require labeling
changes or impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for
potentially costly post-approval studies or post-market surveillance.
In the United States,
engaging in impermissible promotion of the Company’s product candidates for off-label uses can also subject it to false claims
litigation under federal and state statutes, which can lead to civil, criminal and/or administrative penalties and fines and agreements,
such as a corporate integrity agreement, that materially restrict the manner in which the Company promotes or distributes its product
candidates. If the Company does not lawfully promote its products once they have received regulatory approval, the Company may
become subject to such litigation and, if it is not successful in defending against such actions, those actions could have a material
adverse effect on its business, financial condition and operating results and even result in having an independent compliance monitor
assigned to audit the Company’s ongoing operations for a lengthy period of time.
The Company’s or third party’s
clinical trials may fail to demonstrate the safety and efficacy of its product candidates, or serious adverse or unacceptable side
effects may be identified during their development, which could prevent or delay marketing approval and commercialization, increase
the Company’s costs or necessitate the abandonment or limitation of the development of the product candidate.
Before obtaining marketing
approvals for the commercial sale of any product candidate, the Company must demonstrate through lengthy, complex and expensive
preclinical testing and clinical trials that such product candidate is both safe and effective for use in the applicable indication,
and failures can occur at any stage of testing. Clinical trials often fail to demonstrate safety and are associated with side effects
or have characteristics that are unexpected. Based on the safety profile seen in clinical testing, the Company may need to abandon
development or limit development to more narrow uses in which the side effects or other characteristics are less prevalent, less
severe or more tolerable from a risk-benefit perspective. The FDA or an IRB may also require that the Company suspend, discontinue,
or limit clinical trials based on safety information. Such findings could further result in regulatory authorities failing to provide
marketing authorization for the product candidate. Many pharmaceutical candidates that initially showed promise in early stage
testing and which were efficacious have later been found to cause side effects that prevented further development of the drug candidate
and, in extreme cases, the side effects were not seen until after the drug was marketed, causing regulators to remove the drug
from the market post-approval.
The Company may expend its limited
resources to pursue a particular indication and fail to capitalize on indications that may be more profitable or for which there
is a greater likelihood of success.
Because the Company has limited financial and
managerial resources, it is currently focusing only on development programs that it identifies for specific indications for its
product candidates. As a result, the Company may forego or delay pursuit of opportunities for other indications, or with other
potential product candidates that later prove to have greater commercial potential. the Company’s resource allocation decisions
may cause it to fail to capitalize on viable commercial products or profitable market opportunities. The Company’s spending
on current and future research and development programs for specific indications or future product candidates may not yield any
commercially viable product. If the Company does not accurately evaluate the commercial potential or target market for its product
candidates, it may not gain approval or achieve market acceptance of that candidate, and its business and financial results will
be harmed.
The Company may choose not to continue
developing or commercializing any of its product candidates, or may choose not to commercialize product candidates in approved
indications, at any time during development or after approval, which would reduce or eliminate its potential return on investment
for those product candidates.
At any time, the Company
may decide to discontinue the development of any of its product candidates for a variety of reasons, including the appearance of
new technologies that make its product obsolete, competition from a competing product or changes in or failure to comply with applicable
regulatory requirements. If the Company terminates a program in which it has invested significant resources, the Company will not
receive any return on its investment and it will have missed the opportunity to have allocated those resources to potentially more
productive uses.
Healthcare reform measures could
hinder or prevent the commercial success of the Company’s product candidates.
The current presidential
administration and certain members of the majority of the U.S. Congress have sought to repeal all or part of the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “Affordable Care Act”),
and implement a replacement program. For example, the so-called “individual mandate” was repealed as part of tax reform
legislation adopted in December 2017, such that the shared responsibility payment for individuals who fail to maintain minimum
essential coverage under section 5000A of the Code was eliminated beginning in 2019. In addition, litigation may prevent some
or all of the Affordable Care Act legislation from taking effect. For example, on December 14, 2018, the U.S. District Court
for the Northern District of Texas held that the individual mandate is a critical and inseverable feature of the Affordable Care
Act, and therefore, because it was repealed as part of the tax reform legislation, the remaining provisions of the Affordable Care
Act are invalid as well. The impact of this ruling is stayed as it is appealed to the Fifth Circuit Court of Appeals. While the
ruling will have no immediate effect, it is unclear how this decision, and subsequent appeals, if any, will impact the law. In
2019 and beyond, the Company may face additional uncertainties as a result of likely federal and administrative efforts to repeal,
substantially modify or invalidate some or all of the provisions of the Affordable Care Act. There is no assurance that the Affordable
Care Act, as amended in the future, will not adversely affect the Company’s business and financial results.
Additionally, in October
2018, the U.S. President proposed to lower Medicare Part B drug prices, in addition to contemplating other measures to lower
prescription drug prices. While this proposal has not yet been enacted, the Company expects that additional state and federal healthcare
reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay
for healthcare products and services, which could result in reduced demand for its product candidates if approved or additional
pricing pressures.
There are also calls
to ban all direct-to-consumer advertising of pharmaceuticals, which would limit the Company’s ability to market its product
candidates. The United States is in a minority of jurisdictions that allow this kind of advertising and its removal could limit
the potential reach of a marketing campaign.
The Company may also be subject to
stricter healthcare laws, regulation and enforcement, and its failure to comply with those laws could adversely affect its business,
operations and financial condition.
Certain federal and
state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to the
Company’s business. The Company is subject to regulation by both the federal government and the states in which it or its
partners conduct business. The healthcare laws and regulations that may affect the Company’s ability to operate include:
the federal Anti-Kickback Statute; federal civil and criminal false claims laws and civil monetary penalty laws; the federal Health
Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical
Health Act; the Prescription Drug Marketing Act (for sampling of drug product among other things); the federal physician sunshine
requirements under the Affordable Care Act; the Foreign Corrupt Practices Act as it applies to activities outside of the United
States; the new federal Right-to-Try legislation; and state law equivalents of many of the above federal laws.
Because of the breadth
of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of the Company’s
business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation
has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amended the intent requirement
of the federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have
actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government
may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining
compliance with these laws may prove costly. In addition, any action against the Company for violation of these laws, even if the
Company successfully defends against it, could cause the Company to incur significant legal expenses and divert its management’s
attention from the operation of its business and result in reputational damage. If the Company’s operations are found to
be in violation of any of the laws described above or any other governmental laws or regulations that apply to the Company, it
may be subject to penalties, including administrative, civil and criminal penalties, damages, including punitive damages, fines,
disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment
or restructuring of its operations, and injunctions, any of which could adversely affect the Company’s ability to operate
its business and its financial results.
The Company’s failure to successfully
to in-license, acquire, develop and market additional product candidates or approved products would impair its ability to grow
its business.
The Company intends
to in-license, acquire, develop and market additional products and product candidates. Because the Company’s internal research
and development capabilities are limited, it may be dependent on pharmaceutical companies, academic or government scientists and
other researchers to sell or license products or technology to it. The success of this strategy depends partly on the Company’s
ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements
with their current owners, and finance these arrangements.
The process of proposing,
negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other
companies, including some with substantially greater financial, marketing, sales and other resources, may compete with the Company
for the license or acquisition of product candidates and approved products. The Company has limited resources to identify and execute
the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into its current infrastructure.
Moreover, the Company may devote resources to potential acquisitions or licensing opportunities that are never completed, or the
Company may fail to realize the anticipated benefits of such efforts. The Company may not be able to acquire the rights to additional
product candidates on terms that it finds acceptable or at all.
Further, any product
candidate that the Company acquires may require additional development efforts prior to commercial sale, including preclinical
or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to
risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be
shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, the Company cannot provide assurance
that any approved products that it acquires will be manufactured or sold profitably or achieve market acceptance.
The Company may seek to avail itself
of mechanisms to expedite the development or approval for product candidates it may pursue in the future, such as fast track or
breakthrough designation, but such mechanisms may not actually lead to a faster development or regulatory review or approval process.
LB1148 has received
Fast Track designation from the FDA for the treatment of postoperative GI dysfunction (which may present as feeding intolerance,
ileus, necrotizing enterocolitis, etc.) associated with gut hypoperfusion injury in pediatric patients who underwent congenital
heart disease repair surgery. In addition, the Company may seek fast track designation, breakthrough designation, orphan drug designation,
rare pediatric disease designation, priority review, or accelerated approval for product candidates it may pursue in the future.
For example, if a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential
to address unmet medical needs for this condition, the drug sponsor may apply for FDA fast track designation. However, the FDA
has broad discretion with regard to these mechanisms, and even if the Company believes a particular product candidate is eligible
for any such mechanism, it cannot guarantee that the FDA would decide to grant it. Even if it does obtain fast track or priority
review designation or pursue an accelerated approval pathway, the Company may not experience a faster development process, review,
or approval compared to conventional FDA procedures. The FDA may withdraw a particular designation if it believes that the designation
is no longer supported by data from the Company’s clinical development program.
The Company intends to seek breakthrough designation
for LB1148 for the treatment of postoperative GI dysfunction associated with gut hypoperfusion injury in pediatric patients who
underwent congenital heart disease repair surgery and for the treatment of postoperative GI dysfunction associated with major surgeries
that risk disrupting the intestinal mucosal barrier. A breakthrough therapy is defined as a drug that is intended, alone or in
combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical
evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant
endpoints. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if the Company believes
a product candidate meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not
to make such designation. The Company cannot be sure that its evaluation of a product candidate as qualifying for breakthrough
therapy designation will meet the FDA’s requirements. In any event, the receipt of a breakthrough therapy designation for
a product candidate may not result in a faster development process, review, or approval compared to conventional FDA procedures
and does not assure ultimate approval by the FDA. In addition, even if one or more product candidates qualifies as a breakthrough
therapy, the FDA may later decide that the product candidate no longer meets the conditions for qualification or may decide that
the time period for FDA review or approval will not be shortened.
Designation of a drug
or biologic as a rare pediatric disease therapy and/or as an orphan drug therapy may also come with accelerated approval rights.
In addition, drugs and biologics can also obtain pediatric and/or orphan drug market exclusivity in the United States. Pediatric
exclusivity, if granted, adds six months to existing exclusivity periods and patent terms and orphan drug designation may add additional
years of exclusivity. However, even if one or more product candidates qualifies for rare pediatric disease designation and/or orphan
drug designation, the FDA may later decide that the product candidate no longer meets the conditions for this designation or may
decide that the time period for FDA review or approval will not be accelerated.
Risks Related to the Company’s
Dependence on Third Parties
The Company expects to rely on collaborations
with third parties for the successful development and commercialization of its product candidates.
The Company expects
to rely upon the efforts of third parties for the successful development and commercialization of the Company’s current and
future product candidates. The clinical and commercial success of the Company’s product candidates may depend upon maintaining
successful relationships with third-party partners which are subject to a number of significant risks, including the following:
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the Company’s partners’ ability to execute their responsibilities in a timely, cost-efficient and compliant manner;
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reduced control over delivery and manufacturing schedules;
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price increases and product reliability;
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manufacturing deviations from internal or regulatory specifications;
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the failure of partners to perform their obligations for technical, market or other reasons;
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misappropriation of the Company’s current or future product candidates; and
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other risks in potentially meeting the Company’s current and future product commercialization schedule or satisfying the requirements of its end-users.
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the Company cannot assure you that it will be able to establish or maintain third-party relationships in order to successfully develop and commercialize its product candidates.
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The Company relies completely on
third-party contractors to supply, manufacture and distribute clinical drug supplies for its product candidates, which may include
sole-source suppliers and manufacturers; the Company intends to rely on third parties for commercial supply, manufacturing and
distribution if any of its product candidates receive regulatory approval; and the Company expects to rely on third parties for
supply, manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.
The Company does not
currently have, nor does it plan to acquire, the infrastructure or capability to supply, store, manufacture or distribute preclinical,
clinical or commercial quantities of drug substances or products. Additionally, the Company has not entered into a long-term commercial
supply agreement to provide it with such drug substances or products. As a result, the Company’s ability to develop its product
candidates is dependent, and the Company’s ability to supply its products commercially will depend, in part, on the Company’s
ability to obtain the active pharmaceutical ingredients (“APIs”) and other substances and materials used in its product
candidates successfully from third parties and to have finished products manufactured by third parties in accordance with regulatory
requirements and in sufficient quantities for preclinical and clinical testing and commercialization. If the Company fails to develop
and maintain supply and other technical relationships with these third parties, it may be unable to continue to develop or commercialize
its products and product candidates.
The Company does not have direct control over
whether its contract suppliers and manufacturers will maintain current pricing terms, be willing to continue supplying the Company
with APIs and finished products or maintain adequate capacity and capabilities to serve its needs, including quality control, quality
assurance and qualified personnel. The Company is dependent on its contract suppliers and manufacturers for day-to-day compliance
with applicable laws and cGMPs for production of both APIs and finished products. If the safety or quality of any product or product
candidate or component is compromised due to a failure to adhere to applicable laws or for other reasons, the Company may not be
able to commercialize or obtain regulatory approval for the affected product or product candidate successfully, and the Company
may be held liable for injuries sustained as a result.
In order to conduct
larger or late-stage clinical trials for its product candidates and supply sufficient commercial quantities of the resulting drug
product and its components, if that product candidate is approved for sale, the Company’s contract manufacturers and suppliers
will need to produce its drug substances and product candidates in larger quantities, more cost-effectively and, in certain cases,
at higher yields than they currently achieve. If the Company’s third-party contractors are unable to scale up the manufacture
of any of its product candidates successfully in sufficient quality and quantity and at commercially reasonable prices, or are
shut down or put on clinical hold by government regulators, and the Company is unable to find one or more replacement suppliers
or manufacturers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and
the Company is unable to transfer the processes successfully on a timely basis, the development of that product candidate and regulatory
approval or commercial launch for any resulting products may be delayed, or there may be a shortage in supply, either of which
could significantly harm its business, financial condition, operating results and prospects.
The Company expects to continue to depend on
third-party contract suppliers and manufacturers for the foreseeable future. the Company’s supply and manufacturing agreements,
if any, do not guarantee that a contract supplier or manufacturer will provide services adequate for its needs. Additionally, any
damage to or destruction of the Company’s third-party manufacturer’s or suppliers’ facilities or equipment, even
by force majeure, may significantly impair its ability to have its products and product candidates manufactured on a timely basis.
The Company’s reliance on contract manufacturers and suppliers further exposes it to the possibility that they, or third
parties with access to their facilities, will have access to and may misappropriate the Company’s trade secrets or other
proprietary information. In addition, the manufacturing facilities of certain of the Company’s suppliers may be located outside
of the United States. This may give rise to difficulties in importing the Company’s products or product candidates or their
components into the United States or other countries.
Risks Related to the Company’s
Financial Operations
The Company has expressed substantial
doubt about its ability to continue as a going concern.
Management has determined
that there is substantial doubt about the Company’s ability to continue as a going concern due to uncertainties that the
Company’s cash flows generated from its operations will be sufficient to meet its current operating costs and the Company’s
future financial statements may include a similar qualification about its ability to continue as a going concern. The Company’s
audited financial statements were prepared assuming that it will continue as a going concern and do not include any adjustments
that may result from the outcome of this uncertainty.
If the Company is
unable to meet its current operating costs, the Company would need to seek additional financing or modify its operational plans.
If the Company seeks additional financing to fund its business activities in the future and there remains substantial doubt about
its ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding
to the Company on commercially reasonable terms or at all.
The Company may be adversely affected
by natural disasters and other catastrophic events and by man-made problems such as terrorism that could disrupt its business operations,
and its business continuity and disaster recovery plans may not adequately protect it from a serious disaster.
The Company’s headquarters and main research
facility are located in the greater San Diego area, which in the past has experienced severe earthquakes and fires. If these earthquakes,
fires, other natural disasters, health pandemics or epidemics, terrorism and similar unforeseen events beyond its control, including
for example the ongoing COVID-19 pandemic, prevented it from using all or a significant portion of its headquarters or research
facility, it may be difficult or, in certain cases, impossible for the Company to continue its business for a substantial period
of time. The Company does not have a disaster recovery or business continuity plan in place and may incur substantial expenses
as a result of the absence or limited nature of the Company’s internal or third party service provider disaster recovery
and business continuity plans, which, particularly when taken together with its lack of earthquake insurance, could have a material
adverse effect on its business. Furthermore, integral parties in the Company’s supply chain are operating from single sites,
increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were
to affect its supply chain, it could have a material adverse effect on the Company’s ability to conduct clinical trials,
its development plans and its business.
The Company’s business and
operations would suffer in the event of system failures, cyber-attacks or a deficiency in its cyber-security.
Despite the implementation of security measures,
the Company’s internal computer systems and those of its current and future CROs and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer
hackers, foreign governments, and cyber-terrorists, has generally increased as the number, intensity and sophistication of attempted
attacks and intrusions from around the world have increased. While the Company has not experienced any such material system failure,
accident or security breach to date, if such an event were to occur and cause interruptions in the Company’s operations,
it could result in a material disruption of its development programs and its business operations. In addition, since the Company
sponsors clinical trials, any breach that compromises patient data and identities causing a breach of privacy could generate significant
reputational damage and legal liabilities and costs to recover and repair, including affecting trust in the Company to recruit
for future clinical trials. For example, the loss of clinical trial data from completed or future clinical trials could result
in delays in the Company’s regulatory approval efforts and significantly increase its costs to recover or reproduce the data.
To the extent that any disruption or security breach were to result in a loss of, or damage to, the Company’s data or applications
or inappropriate disclosure of confidential or proprietary information, the Company could incur liability and the further development
and commercialization of its products and product candidates could be delayed.
Failure to remediate a material weakness
in internal accounting controls could result in material misstatements in the Company’s financial statements.
The Company’s
management has identified a material weakness in its internal control over financial reporting. The material weakness was due to
a lack of controls in the financial closing and reporting process, including a lack of segregation of duties and the documentation
and design of formalized processes and procedures surrounding the creation and posting of journal entries and account reconciliations. If
not remediated, or if the Company identifies further material weaknesses in its internal controls, the Company’s failure
to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result
in material misstatements in its financial statements and a failure to meet its reporting and financial obligations.
Risks Related to the Company’s
Intellectual Property
The Company may not be able to obtain,
maintain or enforce global patent rights or other intellectual property rights that cover its product candidates and technologies
that are of sufficient breadth to prevent third parties from competing against the Company.
The Company’s success with respect to
its product candidates will depend, in part, on its ability to obtain and maintain patent protection in both the United States
and other countries, to preserve its trade secrets and to prevent third parties from infringing on its proprietary rights. The
Company’s ability to protect its product candidates from unauthorized or infringing use by third parties depends in substantial
part on its ability to obtain and maintain valid and enforceable patents around the world.
The patent application
process, also known as patent prosecution, is expensive and time-consuming, and the Company and its current or future licensors
and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost
or in a timely manner in all the countries that are desirable. It is also possible that the Company or its current licensors, or
any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and
commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of the Company’s
patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of its business. Moreover,
the Company’s competitors independently may develop equivalent knowledge, methods and know-how or discover workarounds to
the Company patents that would not constitute infringement. Any of these outcomes could impair the Company’s ability to enforce
the exclusivity of its patents effectively, which may have an adverse impact on its business, financial condition and operating
results.
Due to legal standards
relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, the Company’s
ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions especially across
countries. Accordingly, rights under any existing patents or any patents the Company might obtain or license may not cover its
product candidates or may not provide the Company with sufficient protection for its product candidates to afford a sustainable
commercial advantage against competitive products or processes, including those from branded, generic and over-the-counter pharmaceutical
companies. In addition, the Company cannot guarantee that any patents or other intellectual property rights will issue from any
pending or future patent or other similar applications owned by or licensed to the Company. Even if patents or other intellectual
property rights have issued or will issue, the Company cannot guarantee that the claims of these patents and other rights are or
will be held valid or enforceable by the courts, through injunction or otherwise, or will provide the Company with any significant
protection against competitive products or otherwise be commercially valuable to the Company in every country of commercial significance
that the Company may target.
The Company’s ability to obtain
and maintain valid and enforceable patents depends on whether the differences between its technology and the prior art allow its
technology to be patentable over the prior art. The Company does not have outstanding issued patents covering all of the recent
developments in its technology and is unsure of the patent protection that it will be successful in obtaining, if any. Even if
the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of such issued
patents or any other issued patents the Company owns or licenses, which may result in such patents being narrowed, invalidated
or held unenforceable. If the breadth or strength of protection provided by the patents the Company holds or pursues with respect
to its product candidates is challenged, it could dissuade companies from collaborating with the Company to develop or threaten
its ability to commercialize or finance its product candidates.
The laws of some foreign
jurisdictions do not provide intellectual property rights to the same extent or duration as in the United States, and many companies
have encountered significant difficulties in acquiring, maintaining, protecting, defending and especially enforcing such rights
in foreign jurisdictions. If the Company encounters such difficulties in protecting or are otherwise precluded from effectively
protecting its intellectual property in foreign jurisdictions, its business prospects could be substantially harmed, especially
internationally.
Proprietary trade
secrets and unpatented know-how are also very important to the Company’s business. Although the Company has taken steps to
protect its trade secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual
property protection agreements with officers, directors, employees, and certain consultants and advisors, there can be no assurance
that binding agreements will not be breached or enforced by courts, that the Company would have adequate remedies for any breach,
including injunctive and other equitable relief, or that its trade secrets and unpatented know-how will not otherwise become known,
inadvertently disclosed by the Company or its agents and representatives, or be independently discovered by its competitors. If
trade secrets are independently discovered, the Company would not be able to prevent their use and if the Company and its agents
or representatives inadvertently disclose trade secrets and/or unpatented know-how, the Company may not be allowed to retrieve
this and maintain the exclusivity it previously enjoyed.
The Company may not be able to protect
its intellectual property rights throughout the world.
Filing, prosecuting
and defending patents on the Company’s product candidates does not guarantee exclusivity. The requirements for patentability
differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as laws in the United States, especially when it comes to granting use and other
kinds of patents and what kind of enforcement rights will be allowed, especially injunctive relief in a civil infringement proceeding.
Consequently, the Company may not be able to prevent third parties from practicing its inventions in all countries outside the
United States and even in launching an identical version of the Company’s product notwithstanding the Company has a valid
patent in that country. Competitors may use the Company’s technologies in jurisdictions where it has not obtained patent
protection to develop their own products, or produce copy products, and, further, may export otherwise infringing products to territories
where the Company has patent protection but enforcement on infringing activities is inadequate or where the Company has no patents.
These products may compete with the Company’s products, and the Company’s patents or other intellectual property rights
may not be effective or sufficient to prevent them from competing.
Many companies have
encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual
property protection, particularly those relating to pharmaceuticals, and the judicial and government systems are often corrupt,
which could make it difficult for the Company to stop the infringement of its patents or marketing of competing products in violation
of its proprietary rights generally. Proceedings to enforce its patent rights in foreign jurisdictions could result in substantial
costs and divert its efforts and attention from other aspects of its business, could put its global patents at risk of being invalidated
or interpreted narrowly and its global patent applications at risk of not issuing, and could provoke third parties to assert claims
against it. The Company may not prevail in any lawsuits that the Company initiates or infringement actions brought against the
Company, and the damages or other remedies awarded, if any, may not be commercially meaningful when the Company is the plaintiff.
When the Company is the defendant it may be required to post large bonds to stay in the market while it defends itself from an
infringement action.
In addition, certain countries in Europe and
certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third
parties, especially if the patent owner does not enforce or use its patents over a protracted period of time. In some cases, the
courts will force compulsory licenses on the patent holder even when finding the patent holder’s patents are valid if the
court believes it is in the best interests of the country to have widespread access to an essential product covered by the patent.
In these situations, the royalty the court requires to be paid by the license holder receiving the compulsory license is not calculated
at fair market value and can be inconsequential, thereby disaffecting the patentholder’s business. In these countries, the
Company may have limited remedies if its patents are infringed or if the Company is compelled to grant a license to its patents
to a third party, which could also materially diminish the value of those patents. This would limit its potential revenue opportunities.
Accordingly, the Company’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that the Company owns or licenses, especially in comparison to
what it enjoys from enforcing its intellectual property rights in the Unites States. Finally, the Company’s ability to protect
and enforce its intellectual property rights may be adversely affected by unforeseen changes in both U.S. and foreign intellectual
property laws, or changes to the policies in various government agencies in these countries, including but not limited to the patent
office issuing patents and the health agency issuing pharmaceutical product approvals. Finally, many countries have large backlogs
in patent prosecution, and in some countries in Latin America it can take years, even decades, just to get a pharmaceutical patent
application reviewed notwithstanding the merits of the application.
Obtaining and maintaining the Company’s
patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed
by governmental patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity 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 just for failure to know about and/or timely pay a prosecution fee. Non-compliance events that could result
in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time
limits, non-payment of fees in prescribed time periods, and failure to properly legalize and submit formal documents in the format
and style the country requires. If the Company or its licensors fail to maintain the patents and patent applications covering its
product candidates for any reason, the Company’s competitors might be able to enter the market, which would have an adverse
effect on the Company’s business.
If the Company fails to comply with
its obligations under its intellectual property license agreements, it could lose license rights that are important to its business.
Additionally, these agreements may be subject to disagreement over contract interpretation, which could narrow the scope of its
rights to the relevant intellectual property or technology or increase its financial or other obligations to its licensors.
The Company has entered
into in-license arrangements with respect to certain of its product candidates. These license agreements impose various diligence,
milestone, royalty, insurance and other obligations on the Company. If the Company fails to comply with these obligations, the
respective licensors may have the right to terminate the license, in which event the Company may not be able to develop or market
the affected product candidate. The loss of such rights could materially adversely affect its business, financial condition, operating
results and prospects.
If the Company is sued for infringing
intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay it
from developing or commercializing its product candidates.
The Company’s commercial success depends
on its ability to develop, manufacture, market and sell its product candidates and use its proprietary technologies without infringing
the proprietary rights of third parties. The Company cannot assure that marketing and selling such candidates and using such technologies
will not infringe existing or future patents. Numerous U.S.- and foreign-issued patents and pending patent applications owned by
third parties exist in the fields relating to its product candidates. As the biotechnology and pharmaceutical industries expand
and more patents are issued, the risk increases that others may assert that its product candidates, technologies or methods of
delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents
and other intellectual property rights cover various drugs, biologics, drug delivery systems or their methods of use, and which
of these patents may be valid and enforceable. Thus, because of the large number of patents issued and patent applications filed
in the Company’s fields across many countries, there may be a risk that third parties may allege they have patent rights
encompassing the Company’s product candidates, technologies or methods.
In addition,
there may be issued patents of third parties that are infringed or are alleged to be infringed by the Company’s product candidates
or proprietary technologies notwithstanding patents the Company may possess. Because some patent applications in the United States
may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions
are typically not published until 18 months after filing and because publications in the scientific literature often lag behind
actual discoveries, the Company cannot be certain that others have not filed patent applications for technology covered by its
own and in-licensed issued patents or its pending applications. the Company’s competitors may have filed, and may in the
future file, patent applications covering the Company’s own product candidates or technology similar to the Company’s
technology. Any such patent application may have priority over the Company’s own and in-licensed patent applications or patents,
which could further require the Company to obtain rights to issued patents covering such technologies, which may mean paying significant
licensing fees or the like. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed
to us, the Company or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an
interference proceeding to determine priority of invention.
The Company may be
exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging
that its product candidates or proprietary technologies infringe such third parties’ intellectual property rights, including
litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act or other countries’ laws similar to the
Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug, and this type of litigation can
be costly and could adversely affect its operating results and divert the attention of managerial and technical personnel, even
if the Company does not infringe such patents or the patents asserted against the Company is ultimately established as invalid.
There is a risk that a court would decide that the Company is infringing the third party’s patents and would order the Company
to stop the activities covered by the patents. In addition, there is a risk that a court will order the Company to pay the other
party significant damages for having violated the other party’s patents.
Because the Company
relies on certain third-party licensors and partners and will continue to do so in the future, if one of its licensors or partners
is sued for infringing a third party’s intellectual property rights, the Company’s business, financial condition, operating
results and prospects could suffer in the same manner as if the Company were sued directly. In addition to facing litigation risks,
the Company has agreed to indemnify certain third-party licensors and partners against claims of infringement caused by the Company’s
proprietary technologies, and the Company has entered or may enter into cost-sharing agreements with some its licensors and partners
that could require the Company to pay some of the costs of patent litigation brought against those third parties whether or not
the alleged infringement is caused by its proprietary technologies. In certain instances, these cost-sharing agreements could also
require the Company to assume greater responsibility for infringement damages than would be assumed just on the basis of its technology.
The occurrence of
any of the foregoing could adversely affect the Company’s business, financial condition or operating results.
The Company may be subject to claims
that its officers, directors, employees, consultants or independent contractors have wrongfully used or disclosed to LBS alleged
trade secrets of their former employers or their former or current customers.
As is common in the
biotechnology and pharmaceutical industries, certain of the Company’s employees were formerly employed by other biotechnology
or pharmaceutical companies, including its competitors or potential competitors. Moreover, LBS engages the services of consultants
to assist LBS in the development of the Company’s products and product candidates, many of whom were previously employed
at, or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies,
including its competitors or potential competitors. LBS may be subject to claims that these employees and consultants or LBS has
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their
former or current customers. Although LBS has no knowledge of any such claims being alleged to date, if such claims were to arise,
litigation may be necessary to defend against any such claims. Even if LBS is successful in defending against any such claims,
any such litigation could be protracted, expensive, a distraction to its management team, not viewed favorably by investors and
other third parties, and may potentially result in an unfavorable outcome.
Risks Related to the Company post-Merger
The following risk factors relate to the Company subsequent to
the completion of the Merger which was consummated on April 27, 2021. All references to the Company refer to Palisade Bio, Inc.
subsequent to the Merger.
The Company will need to raise additional financing in the
future to fund its operations, which may not be available to it on favorable terms or at all.
The Company will require substantial additional
funds to conduct the costly and time-consuming clinical efficacy trials necessary to pursue regulatory approval of LB1148 and any
other product candidates. The Company’s future capital requirements will depend upon a number of factors, including: the
number and timing of future product candidates in the pipeline; progress with and results from preclinical testing and clinical
trials; the ability to manufacture sufficient drug supplies to complete preclinical and clinical trials; the costs involved in
preparing, filing, acquiring, prosecuting, maintaining and enforcing patent and other intellectual property claims; and the time
and costs involved in obtaining regulatory approvals and favorable reimbursement or formulary acceptance. Raising additional capital
may be costly or difficult to obtain and could significantly dilute stockholders’ ownership interests or inhibit the Company’s
ability to achieve its business objectives. If the Company raises additional funds through public or private equity offerings,
the terms of these securities may include liquidation or other preferences that adversely the rights of its common stockholders.
Further, to the extent that the combined company raises additional capital through the sale of common stock or securities convertible
or exchangeable into common stock, its stockholder’s ownership interest in the Company will be diluted. In addition, any
debt financing may subject the Company to fixed payment obligations and covenants limiting or restricting its ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the Company raises additional
capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements
with third parties, the Company may have to relinquish certain valuable intellectual property or other rights to its product candidates,
technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to it. Even if the
Company were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to the Company
or its stockholders.
The Company’s business could be adversely affected by
the effects of health pandemics or epidemics, including the recent COVID-19 pandemic, in regions where it or third parties on which
it relies have significant manufacturing facilities, concentrations of clinical trial sites or other business operations. The COVID-19
pandemic could materially affect the Company’s operations, including at its headquarters in California, which is currently
subject to a county-wide stay-at-home order, and at clinical trial sites, as well as the business or operations of manufacturers,
CROs or other third parties with whom the Company conducts business.
The Company’s business could be adversely
affected by the effects of health pandemics or epidemics in regions where it has concentrations of clinical trial sites or other
business operations, and could cause significant disruption in the operations of third-party manufacturers and CROs upon whom it
relies. For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was
reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to most countries, including the United States and many
other countries. The Company’s headquarters is located in San Diego County, California, and many of the Company’s raw
materials for manufacture of LB1148 are produced in foreign countries. In March 2020, the World Health Organization declared the
COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States and numerous
other countries. Further, the President of the United States declared the COVID-19 pandemic a national emergency, invoking powers
under the Stafford Act, the legislation that directs federal emergency disaster response. Similarly, the State of California declared
a state of emergency related to the spread of COVID-19. Further, on March 19, 2020 the State of California declared a statewide
stay at home order for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities)
to mitigate the impact of the COVID-19 pandemic, and the order is currently adjusted on a county-by-county basis based on numerous
pandemic measures. Due to the stay at home order, the Company has implemented work-from-home policies for all of its employees. The
effects of the stay at home order and work-from-home policies may negatively impact productivity, disrupt business and delay clinical
programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations
on its ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in operations
could negatively impact the Company’s business, operating results and financial condition.
Quarantines, stay
at home and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business
operations could occur, related to COVID-19 or other infectious diseases, may impact personnel at third-party manufacturing facilities
in the United States and other countries, or the availability or cost of materials, which could disrupt the Company’s supply
chain. In particular, some of the Company’s suppliers of certain materials used in the production of the Company’s
drug products are located in countries outside the United States, where there have been government-imposed quarantines. While many
of these materials may be obtained by more than one supplier, restrictions resulting from the COVID-19 pandemic may disrupt the
Company’s supply chain or limit its ability to obtain sufficient materials for its product candidates.
In addition, the Company’s
clinical trials may be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to
prioritization of hospital resources toward the COVID-19 pandemic. Some patients may not be able or willing to comply with clinical
trial protocols if quarantines interrupt healthcare services, particularly surgical services. Similarly, the Company’s ability
to recruit and retain patients, principal investigators and site staff (who as healthcare providers may have heightened exposure
to COVID-19) may be hindered, which would adversely affect clinical trial operations. In addition, the COVID-19 pandemic may cause
interruption or delays in the operation of the FDA or other regulatory authorities which could negatively affect the Company’s
planned clinical trials.
The spread of COVID-19,
which has caused a broad impact globally, may materially affect the Company economically. While the potential economic impact brought
by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, it is currently resulting in significant
disruption of global financial markets. This disruption, if sustained or recurrent, could make it more difficult for the Company
to access capital, which could in the future negatively affect its liquidity. In addition, a recession or market correction resulting
from the spread of COVID-19 could materially affect the Company’s business and the value of its common stock.
The global pandemic
of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or a similar health pandemic or epidemic
is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its
business, its clinical trials, healthcare systems or the global economy as a whole. These effects could have a material impact
on the Company’s operations, and it will continue to monitor the COVID-19 situation closely. To the extent the COVID-19 pandemic
adversely affects the Company’s operations, it may also have the effect of heightening many of the other risks described
in this “Risk Factors” section.
The stock price of the Company may be highly volatile.
The market price of shares of the Company could
be subject to significant fluctuations. Since the completion of the Merger on April 27, 2021, the Company’s stock price has
already been subject to significant fluctuation. Market prices for securities of biotechnology and other life sciences companies
historically have been particularly volatile subject even to large daily price swings. Some of the factors that may cause the market
price of shares of the Company to fluctuate include, but are not limited to:
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the ability of the Company to obtain timely regulatory approvals for LB1148 or future product
candidates, and delays or failures to obtain such approvals;
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failure of LB1148 if approved, to achieve commercial success;
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issues in manufacturing LB1148 or future product candidates;
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the results of current and any future clinical trials of LB1148;
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failure of other Company product candidates, if approved, to achieve commercial success;
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the entry into, or termination of, or breach by partners of key agreements, including key commercial partner agreements;
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the initiation of, material developments in, or conclusion of any litigation to enforce or defend any intellectual property rights or defend against the intellectual property rights of others;
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announcements of any dilutive equity financings;
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announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;
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failure to elicit meaningful stock analyst coverage and downgrades of the company’s stock by analysts; and
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the loss of key employees.
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Moreover, the stock markets in general have
experienced substantial volatility in the biotech industry that has often been unrelated to the operating performance of individual
companies or a certain industry segment. These broad market fluctuations may also adversely affect the trading price of the Company’s
shares.
In the past, following periods of volatility
in the market price of a company’s securities, shareholders have often instituted class action securities litigation against
those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources,
which could significantly harm the Company’s profitability and reputation. In addition, such securities litigation often
has ensued after a reverse merger or other merger and acquisition activity of the type that the Company recently completed with
Seneca. Such litigation if brought could impact negatively the Company’s business.
The former Seneca stockholders may sell their shares of the
Company.
Pursuant to the Merger Agreement, the stockholders
of Seneca are not required to agree to restrictions on selling their stock. As such, the former Seneca stockholders may sell their
stock of the Company at any time, subject to any securities laws restrictions, which could lead to a decline in the market value
of the Company’s stock and could negatively impact future issuances of the Company’s equity securities.
The Company is expected to take advantage of reduced disclosure
and governance requirements applicable to smaller reporting companies, which could result in its common stock being less attractive
to investors.
As of the date of this Quarterly Report, the
public float of the Company is less than $250 million and therefore qualifies as a smaller reporting company under the rules
of the SEC. As a smaller reporting company, the Company will be able to take advantage of reduced disclosure requirements, such
as simplified executive compensation disclosures and reduced financial statement disclosure requirements in its SEC filings. Decreased
disclosures in the Company’s SEC filings due to its status as a smaller reporting company may make it harder for investors
to analyze its results of operations and financial prospects. We cannot predict if investors will find the Company’s common
stock less attractive if it relies on these exemptions. If some investors find its common stock less attractive as a result, there
may be a less active trading market for its common stock and its stock price may be more volatile. The Company may take advantage
of the reporting exemptions applicable to a smaller reporting company until it is no longer a smaller reporting company, which
status would end once it has a public float greater than $250 million. In that event, the Company could still be a smaller
reporting company if its annual revenues were below $100 million and it has a public float of less than $700 million.
The Company does not anticipate paying any dividends in the
foreseeable future.
The current expectation is that the Company
will retain its future earnings to fund the development and growth of the company’s business. As a result, capital appreciation,
if any, of the shares of the Company will be your sole source of gain, if any, for the foreseeable future.
If the Company fails to attract and retain management and
other key personnel, it may be unable to successfully develop or commercialize its product candidates or otherwise implement its
business plan.
The biotech industry has experienced a high
rate of turnover in recent years. The Company’s ability to compete in the highly competitive biopharmaceuticals industry
depends upon the ability to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory,
manufacturing and management skills and experience. The Company will conduct its operations in the greater San Diego area, a region
that is home to many other biopharmaceutical companies as well as many academic and research institutions, resulting in fierce
competition for qualified personnel. The Company may not be able to attract or retain qualified personnel in the future due to
the intense competition for a limited number of qualified personnel among biopharmaceutical companies. Many of the other biopharmaceutical
companies against which the Company will compete have greater financial and other resources, different risk profiles and a longer
history in the industry. The Company’s competitors may provide higher compensation, more diverse opportunities and/or better
opportunities for career advancement. Any or all of these competing factors may limit the Company’s ability to continue to
attract and retain high quality personnel, which could negatively affect its ability to successfully develop and commercialize
our product candidates and to grow the business and operations as currently contemplated.
The Company’s ability to use NOL carryforwards and certain
other tax attributes may be limited.
The Company has incurred substantial losses
during its history and does not expect to become profitable in the near future, and it may never achieve profitability. Unused
losses for the tax year ended December 31, 2017 and prior tax years will carry forward to offset future taxable income, if
any, until such unused losses expire. Pursuant to U.S. federal tax legislation enacted in late 2017, informally referenced as the
Tax Cuts and Jobs Act, as modified under the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, unused federal losses
generated after December 31, 2017 will not expire and may be carried forward indefinitely but will be only deductible to the extent
of 80% of current year taxable income in any given year. However, the CARES Act temporarily repealed the 80% taxable income limitation
for tax years beginning before January 1, 2021; NOL carryforwards generated from 2018 or later and carried forward to taxable years
beginning after December 31, 2020 will be subject to the 80% limitation. Also, under the CARES Act, NOLs arising in 2018, 2019
and 2020 can be carried back five years. Many states have similar laws. In addition, both current and future unused losses and
other tax attributes may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended,
or the Code, if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by
value) in our equity ownership by certain stockholders over a three-year period. The Company has not completed a Section 382 study
to assess whether an ownership change has occurred or whether there have been multiple ownership changes since its formation due
to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the
future. As a result, if the Company earns net taxable income, its pre-2018 NOL carryforwards may expire prior to being used, its
NOL carryforwards generated in 2018 and thereafter will be subject to a percentage limitation after 2020 and, if the Company undergoes
an ownership change (or if it previously underwent such an ownership change), its ability to use all of the pre-change NOL carryforwards,
and other pre-change tax attributes (such as research tax credits) to offset post-change income or taxes may be limited. Similar
provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level,
there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase
state taxes owed. As a result, even if the Company or the Company attains profitability, it may be unable to use all or a material
portion of its NOLs and other tax attributes, which could adversely affect future cash flows.
Changes in tax law could adversely affect the Company’s
business.
The rules dealing with U.S. federal, state
and local income taxation are constantly under review by the Internal Revenue Service, the U.S. Treasury Department and other governmental
bodies. Changes to tax laws (which changes may have retroactive application) could adversely affect the Company or holders of its
common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future
changes in tax laws could have a material adverse effect on the Company’s business, cash flow, financial condition or results
of operations.
The Company will incur costs and demands upon management as
a result of complying with the laws and regulations affecting public companies.
The Company will incur significant legal, accounting
and other expenses that the Company did not incur as a private company prior to the Merger, including costs associated with public
company reporting requirements. The Company also incurs costs associated with corporate governance requirements, including requirements
under the Sarbanes-Oxley Act, as well as new implemented requirements by the SEC and Nasdaq. These rules and regulations are expected
to increase the Company’s legal and financial compliance costs and to make some activities more time consuming and costly.
For example, the Company’s management team consists of the executive officers of the Company prior to the Merger, some of
whom have not previously managed and operated a public company. These executive officers and other personnel need to devote substantial
time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules
and regulations also may make it difficult and expensive for the Company to obtain directors’ and officers’ liability
insurance. As a result, it may be more difficult for the Company to attract and retain qualified individuals to serve on the Company’s
board of directors or as executive officers of the Company, which may adversely affect investor confidence in the Company and could
cause its business or stock price to suffer.
Anti-takeover provisions in the Company’s charter documents
and under Delaware law could make an acquisition of the Company more difficult and may prevent attempts by the Company stockholders
to replace or remove the Company management.
Provisions in the Company’s certificate
of incorporation and bylaws may delay or prevent an acquisition or a change in management. In addition, because the Company is
incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning
in excess of 15% of the outstanding Company voting stock from merging or combining with the Company. Although the Company believes
these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate
with the Company’s board of directors, they would apply even if the offer may be considered beneficial by some stockholders.
In addition, these provisions may frustrate or prevent any attempts by the Company’s stockholders to replace or remove then
current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible
for appointing the members of management.
If equity research analysts do not publish research or reports,
or publish unfavorable research or reports, about the Company, its business or its market, its stock price and trading volume could
decline.
The trading market for the Company’s
common stock is and will be influenced by the research and reports that equity research analysts publish about it and its business.
Equity research analysts may elect not to provide research coverage of the Company’s common stock, and such lack of research
coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage,
the Company will not have any control over the analysts, or the content and opinions included in their reports. The price of the
Company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable
commentary or research. If one or more equity research analysts ceases coverage of the Company or fails to publish reports on it
regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.
The Company will have broad discretion in the use of proceeds
from the financing that closed concurrently with the Merger and may invest or spend the proceeds in ways with which its stockholders
do not agree and in ways that may not increase the value of their investments.
The Company will have broad discretion over
the use of gross proceeds from the financing of approximately $20.0 million that was completed concurrently with the Merger on April 27,
2021. Its stockholders may not agree with the Company’s decisions, and its use of the proceeds may not yield any return on
its stockholders’ investments. The Company’s failure to apply the net proceeds of such financing effectively could
compromise its ability to pursue its growth strategy and the Company might not be able to yield a significant return, if any, on
its investment of these net proceeds. The Company’s stockholders will not have the opportunity to influence its decisions
on how to use the net proceeds from the financing.
If the Company fails to maintain proper and effective internal
controls, its ability to produce accurate financial statements on a timely basis could be impaired.
The Company will be subject to the reporting
requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. The Sarbanes-Oxley Act requires,
among other things, that the Company maintain effective disclosure controls and procedures and internal control over financial
reporting. The Company must perform system and process evaluation and testing of its internal control over financial reporting
to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K
filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, the Company has never been
required to test its internal controls within a specified period. This will require that the Company incur substantial professional
fees and internal costs to expand its accounting and finance functions and that it expends significant management efforts. The
Company may experience difficulty in meeting these reporting requirements in a timely manner.
The Company may discover weaknesses in its
system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial
statements. The Company’s internal control over financial reporting will not prevent or detect all errors and all fraud.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of
fraud will be detected.
If the Company is not able to comply with
the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal
controls, the Company may not be able to produce timely and accurate financial statements. If that were to happen, the market
price of its common stock could decline and it could be subject to sanctions or investigations by Nasdaq, the SEC or other
regulatory authorities.
Risks Related to Ownership of the Company’s Common Stock
Certain of the Company’s outstanding common stock purchase
warrants contain price protection provisions (anti-dilution protection) in the event that we sell securities at prices lower than
the current exercise price of such warrants.
As of May 1, 2021, the Company had 23,127 common stock purchase
warrants outstanding that were issued in its May 2016 registered offering, May 2016 private placement and August 2017 registered
offering. All of such warrants contain price protection provisions in the event that the Company sells securities at a price per
share below their respective exercise prices (collectively “Price Protection Warrants”). As a result of the Reverse
Stock Split that occurred on April 27, 2021, the current price of the Price Protection Warrants is $5.40. In the event that the
Company sells securities at a price per share lower than the current exercise price of the Price Protection Warrants, their exercise
prices will be further reduced. Any future adjustments to the exercise prices of the Price Protection Warrants may have a negative
impact on the trading price of the Company’s common stock. Additionally, raising additional capital with new investors may
be difficult as a result of the adjustment feature.
Our board of directors
has broad discretion to issue additional securities, which might dilute the net tangible book value per share of our common stock
for existing stockholders.
The Company is entitled under its certificate of incorporation to
issue up to 300,000,000 shares of common stock and 7,000,000 “blank check” shares of preferred stock. Shares of the
Company’s blank check preferred stock provide its board of directors with broad authority to determine voting, dividend,
conversion, and other rights. The Company expects that significant additional capital may be needed in the future to continue
its planned operations. To the extent the Company raises additional capital by issuing equity securities, its existing shareholders may
experience substantial dilution. The Company may sell common stock, convertible securities or other equity securities in one or more transactions
at prices and in a manner the Company determines from time to time. If the Company sells common stock, convertible securities or other
equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in
material dilution to the Company’s existing shareholders, and new investors could gain rights superior to existing shareholders.
Pursuant to the Company’s equity incentive plans and employee stock purchase plan, management is authorized to grant stock options,
restricted stock units and other equity-based awards to employees, directors and consultants, and to sell common stock to employees, respectively.
Any increase in the number of shares outstanding as a result of the exercise of outstanding options, the vesting or settlement of outstanding
stock awards, or the purchase of shares pursuant to the employee stock purchase plan will cause shareholders to experience additional
dilution, which could cause the stock price to fall.