Item
1A. Risk Factors
The
following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with
our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our 2020 10-K,
as filed with the SEC on March 1, 2021. Our business, financial condition and operating results can be affected by a number of factors,
whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly,
cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition
and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition,
operating results and stock price.
The
following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other
statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements
and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
Risk
Factory Summary
Below
is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not
address all of the risk factors that we face. Additional discussion of risks summarized in this risk factory summary, and other
risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together
with other information in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended December
31, 2020, and our other filings with the SEC before making investment decisions regarding our common stock.
Risks
Related to the Company Following the Merger
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Our
stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they experienced in connection
with the Merger.
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The
market price of our common stock may be subject to significant fluctuations and volatility, and the stockholders of the Company
may be unable to resell their shares at a profit and may incur losses.
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We
may issue additional equity securities in the future, which may result in dilution to existing investors.
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The
concentration of the capital stock ownership with insiders of the Company following the Merger will likely limit the ability
of our stockholders to influence corporate matters.
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The
sale or availability for sale of a substantial number of shares of our common stock after expiration of the lock-up period
could adversely affect the market price of such shares.
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We
may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.
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An
active trading market for our common stock may not develop.
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The
intended benefits of the Contribution Transaction may not be realized.
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Risks
Related to our Product Development and Regulatory Approval
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If
we are unable to develop, obtain regulatory approval for and commercialize MyMD-1, Supera-CBD, or other future product candidates,
or if we experience significant delays in doing so, our business will be materially harmed.
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Success
in pre-clinical studies and earlier clinical trials for our product candidates may not be indicative of the results that may
be obtained in later clinical trials, including our Phase 2 clinical trial for MyMD-1, which may delay or prevent obtaining
regulatory approval.
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Even
if we complete the necessary pre-clinical studies and clinical trials, we cannot predict when, or if, we will obtain regulatory
approval to commercialize a product candidate and the approval may be for a narrower indication than we seek.
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The
COVID-19 pandemic, or similar public health crises, could have a material adverse impact the execution of our planned clinical
trials.
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Any
product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements
and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we
fail to comply with regulatory requirements or if it experiences unanticipated problems with our product candidates, when
and if any of them are approved.
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Our
development program for Supera-CBD, a synthetic derivative of CBD, is uncertain and may not yield commercial results and is
subject to significant regulatory risks.
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Risks
Related to Commercialization and Manufacturing
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The
commercial success of our product candidates, including MyMD-1 and Supera-CBD, will depend upon their degree of market acceptance
by providers, patients, patient advocacy groups, third-party payors, and the general medical community.
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The
pricing, insurance coverage, and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain
adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products
and decrease our ability to generate product revenue.
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If
third parties on which we depend to conduct our planned pre-clinical studies or clinical trials, do not perform as contractually
required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be delayed
with adverse effects on our business, financial condition, results of operations and prospects.
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We
face significant competition in an environment of rapid pharmacological change and it is possible that our competitors may
achieve regulatory approval before us or develop therapies that are more advanced or effective than our, which may harm our
business, financial condition and our ability to successfully market or commercialize MyMD-1, Supera-CBD and our other product
candidates.
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The
manufacture of drugs is complex, and our third-party manufacturers may encounter difficulties in production. If any of our
third-party manufacturers encounter such difficulties, our ability to provide supply of MyMD-1, Supera-CBD or our other product
candidates for clinical trials, our ability to obtain marketing approval, or our ability to provide supply of our product
candidates for patients, if approved, could be delayed or stopped.
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Risks
Related to Government Regulation
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Enacted
and future legislation may increase the difficulty and cost for us to commercialize and obtain marketing approval of our product
candidates and may affect the prices we may set.
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The
FDA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding
levels, ability to hire and retain key personnel, statutory, regulatory and policy changes and global health concerns.
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Our
operations and relationships with future customers, providers and third-party payors will be subject to applicable anti-kickback,
fraud and abuse and other healthcare laws and regulations, which could expose us to penalties including criminal sanctions,
civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
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Risks
Related to Our Intellectual Property
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Our
success depends in part on our ability to obtain, maintain and protect our intellectual property. It is difficult and costly
to protect our proprietary rights and technology, and we may not be able to ensure their adequate protection.
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Our
potential strategy of obtaining rights to key technologies through in-licenses may not be successful.
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Changes
in patent law in the U.S. and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing
our ability to protect our product candidates.
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In
addition, we face other business, financial, operational and legal risks and uncertainties set forth under “Risk Factors”
in Item 1A of this Quarterly Report on Form 10-Q and Item 1A of our Annual Report on Form 10-K for the fiscal year ended December
31, 2020.
Risks
Related to the Company Following the Merger
Our
stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection
with the Merger.
If
we are unable to realize the full strategic and financial benefits currently anticipated from the Merger, our stockholders will
have experienced substantial dilution of their ownership interests in their respective pre-Merger companies without receiving
any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to
realize only part of the strategic and financial benefits currently anticipated from the Merger. Furthermore, if the we fail to
realize the intended benefits of the merger, the market price of our common stock could decline to the extent that the market
price reflects those benefits.
The
market price of our common stock after the Merger may be subject to significant fluctuations and volatility, and the stockholders
of the Company may be unable to resell their shares at a profit and may incur losses.
Prior
to April 2021, there has not been a public market for the combined Company’s common stock. The market price of the combined
Company’s common stock could be subject to significant fluctuation following the Merger. The pre-Merger business of the
Company differs from its post-Merger business in important respects and, accordingly, the results of operations of the combined
Company and the market price of the combined Company’s common stock following the Merger may be affected by factors different
from those affecting the results of operations of the Company prior to the Merger. Market prices for securities of life sciences
and biopharmaceutical companies in particular have historically been particularly volatile and have shown extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market
and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes,
may seriously affect the market price of our common stock, regardless of the actual operating performance of the combined company.
Some of the factors that may cause the market price of our common stock to fluctuate include:
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investors
reacting negatively to the effect on our business and prospects from the Merger;
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the
announcement of new products, new developments, services or technological innovations by us or our competitors;
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actual
or anticipated quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations
or prospects;
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announcements
relating to strategic relationships, mergers, acquisitions, partnerships, collaborations, joint ventures, capital commitments,
or other events by the us or our competitors;
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conditions
or trends in the life sciences and biopharmaceutical industries;
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changes
in the economic performance or market valuations of other life sciences and biopharmaceutical companies;
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general
market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance or financial
condition;
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sale
of our common stock by stockholders, including executives and directors;
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volatility
and limitations in trading volumes of our common stock;
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volatility
in the market prices and trading volumes of the life sciences and biopharmaceutical stocks;
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our
ability to finance our business;
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ability
to secure resources and the necessary personnel to pursue our plans;
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failure
to meet external expectations or management guidance;
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changes
in our capital structure or dividend policy, future issuances of securities, sales or distributions of large blocks of common
stock by stockholders;
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our
cash position;
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announcements
and events surrounding financing efforts, including debt and equity securities;
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analyst
research reports, recommendations and changes in recommendations, price targets, and withdrawals of coverage;
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departures
and additions of key personnel;
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disputes
and litigation related to intellectual properties, proprietary rights, and contractual obligations;
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investigations
by regulators into our operations or those of our competitors;
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changes
in applicable laws, rules, regulations, or accounting practices and other dynamics; and
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other
events or factors, many of which may be out of our control.
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In
the past, following periods of volatility in the overall market and the market prices of particular companies’ securities,
securities class action litigation has often been instituted against these companies. Litigation of this type, if instituted against
us, could result in substantial costs and a diversion of management’s attention and resources of the Company. Any adverse
determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that
the we make significant payments.
Moreover,
the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent months. A continuation
or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability
to access capital, on our business, results of operations and financial condition, and on the market price of our common stock.
After
the Merger was consummated, the business operations, strategies and focus of the Company fundamentally changed, and these changes
may not result in an improvement in the value of our common stock.
Following
the Merger, our primary products are MyMD Florida’s therapeutic platforms: MyMD-1, a clinical-stage immunometabolic regulator
and Supera-CBD, a pre-clinical stage patented synthetic cannabidiol (“CBD”) derivative. We expect to incur losses
as we develop our product candidates, and our product candidates, may never get approved by the U.S. Food and Drug Administration
(“FDA”) or even if approved for marketing, may not be profitable. The failure to successfully develop product candidates
will significantly diminish the anticipated benefits of the Merger and have a material adverse effect on our business. There is
no assurance that our business operations, strategies or focus will be successful, which could depress the value of our common
stock.
We
may issue additional equity securities in the future, which may result in dilution to existing investors.
To
the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution.
The combined Company may, from time to time, sell additional equity securities in one or more transactions at prices and in a
manner it determines. If the we sell additional equity securities, existing stockholders may be materially diluted. In addition,
new investors could gain rights superior to existing stockholders, such as liquidation and other preferences. In addition, the
number of shares available for future grant under our equity compensation plans may be increased in the future. In addition,
the exercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders upon any such exercise or conversion.
All
of our outstanding shares of common stock are, and any Milestone Shares of our common stock that may be issued in the future,
will be, freely tradable without restrictions or further registration under the Securities Act, except for shares subject to lock-up
agreements, and any shares held by affiliates, as defined in Rule 144 under the Securities Act. Rule 144 defines an affiliate
as a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common
control with, the Company and would include persons such as our directors and executive officers and large shareholders. In turn,
resales, or the perception by the market that a substantial number of resales could occur, could have the effect of depressing
the market price of our common stock.
The
concentration of the capital stock ownership with insiders of the Company after the Merger will likely limit the ability of our
stockholders to influence corporate matters.
Following the Supera Purchase and the Merger,
the executive officers, directors, five percent or greater stockholders, and the respective affiliated entities of the Company, in the
aggregate, beneficially owned more than 20% of the Company’s outstanding common stock. As a result, these stockholders, acting
together, have control over matters that require approval by our stockholders, including the election of directors and approval of significant
corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might
also have the effect of delaying or preventing a corporate transaction that other stockholders may view as beneficial.
Certain
stockholders could attempt to influence changes within the Company, which could adversely affect our operations, financial condition
and the value of our common stock.
Our
stockholders may from time to time seek to acquire a controlling stake in the Company, engage in proxy solicitations, advance
stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly traded companies
are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring,
increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and
other actions by activist stockholders can be costly and time-consuming and could disrupt our operations and divert the attention
of our Board of Directors and senior management. These actions could adversely affect our operations, financial condition, and
the value of our common stock.
The
sale or availability for sale of a substantial number of shares of our common stock after expiration of the lock-up period could
adversely affect the market price of such shares.
Sales of a substantial number of shares of our
common stock in the public market after expiration of the lock-up period and other legal restrictions on resale, or the perception that
these sales could occur, could adversely affect the market price of such shares and could materially impair our ability to raise capital
through equity offerings in the future. Upon completion of the Merger and the transactions contemplated in the Merger Agreement, the
Company issued 28,553,307 post reverse stock split shares of Company Common Stock to the former stakeholders of pre-Merger MyMD Florida
at the Exchange Ratio. Shares that were issued to pre-Merger MyMD Florida stockholders as merger consideration may be resold in the public
market immediately without restriction, unless such stockholder is subject to a lock-up or other restriction on resale. All of the previous
executive officers, directors and principal stockholders of pre-Merger MyMD Florida, and all of our directors who continued to serve
on the Board of Directors of the combined Company after the Merger are subject to lock-up agreements pursuant to which such stockholders
have agreed, except in limited circumstances, not to transfer, grant an option with respect to, sell, exchange, pledge or otherwise dispose
of, or encumber, any shares of Company capital stock for 180 days following the effective time of the Merger. We may permit our officers,
directors, employees, and certain stockholders who are subject to the lock-up agreements to sell shares prior to the expiration of the
lock-up agreements. After the lock-up agreements expire, the shares of our common stock (excluding securities underlying options and
warrants) held by our directors, executive officers and principal stockholders will be subject to volume limitations under Rule 144 under
the Securities Act and various vesting agreements. We are unable to predict what effect, if any, market sales of securities held by our
significant stockholders, directors or officers or the availability of these securities for future sale will have on the market price
of our common stock in the future.
We
also assumed approximately 4,188,315 shares of common stock subject to outstanding options to purchase pre-Merger MyMD Florida
common stock. We registered all of the shares of common stock issuable upon exercise of outstanding options to purchase MyMD Florida
common stock, and therefore upon the exercise of any options or other equity incentives we may grant in the future, for public
resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as
permitted by any applicable vesting requirements, subject to the lock-up agreements described above.
If
securities analysts do not publish research or reports about our business, or if they publish negative evaluations, the price
of our common stock could decline.
The
trading market for our common stock relies in part on the availability of research and reports that third-party industry or financial
analysts publish about us. There are many large, publicly traded companies active in the life sciences and biopharmaceutical industries,
which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts
who do cover the Company (if any) downgrades our stock, our stock price would likely decline. If one or more of these analysts
cease coverage of the Company, we could lose visibility in the market, which in turn could cause our stock price to decline. Additionally,
if securities analysts publish negative evaluations of competitors in the life sciences and biopharmaceutical industries, the
comparative effect could cause our stock price to decline.
Anti-takeover
provisions under New Jersey corporate law may make it difficult for our stockholders to replace or remove our Board of Directors
and could deter or delay third parties from acquiring us, which may be beneficial to our stockholders.
We
are subject to the anti-takeover provisions of New Jersey law, including Section 14A-10A of the New Jersey Shareholders Protection
Act. These statutes prohibit an “interested stockholder” of the Company from effecting a business combination with
us for a period of five years unless our Board of Directors approved the combination or transaction or series of related transactions
that caused such person to become an interested stockholder prior to the stockholder becoming an interested stockholder or after
the stockholder becomes an interested stockholder if the subsequent business combination is approved by (i) our Board of Directors
(or a committee thereof consisting solely of persons independent from the interested stockholder), and (ii) the affirmative vote
of a majority of the voting stock not beneficially owned by such interested stockholder. In addition, but not in limitation of
the five-year restriction, we may not engage at any time in a business combination with any interested stockholder the Company
unless the combination is approved by our Board of Directors (or a committee thereof consisting solely of persons independent
from such interested stockholder) prior to the consummation of the business combination, and the combination receives the approval
of a majority of the voting stock of the Company not beneficially owned by the interested stockholder if the transaction or series
of related transactions which caused the interested stockholder to become an interested stockholder was approved by the Board
of Directors prior to the stockholder becoming an interested stockholder. These provisions could discourage a third party from
making a takeover offer and could delay or prevent a change of control. For purposes of Section 14A-10A of the New Jersey Shareholders
Protection Act, “interested stockholder” means, generally, any beneficial owner of 10% or more of the voting power
of the outstanding voting stock of the corporation and any affiliate or associate of the corporation who within the prior five
year period has at any time owned 10% or more of the voting power of the then outstanding stock of the corporation.
The
stockholder rights agreement adopted by our Board of Directors may impair an attempt to acquire control of the Company.
On
September 9, 2020, our Board of Directors entered into that certain Rights Agreement, dated as of September 9, 2020, between the
Company and VStock Transfer, LLC, as Rights Agent (the “Rights Agreement”) and declared a dividend of one preferred
share purchase right (a “Right”) for each outstanding share of our common stock to stockholders of record on September
21, 2020. Each Right is transferred with common stock and entitles the registered holder, subject to the terms of the Rights Agreement
to purchase from us one one-thousandth of a share of our Series E Junior Participating Preferred Stock at $15.00, subject to certain
adjustments. Each share of Series E Preferred Stock will be entitled to a preferential per share dividend rate equal to the greater
of (i) $0.001 and (ii) the sum of (1) 1,000 times the aggregate per share amount of all cash dividends, plus (2) 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than certain dividends or
subdivisions of the outstanding shares of common stock. Each share of Series E Preferred Stock will entitle the holder thereof
to a number of votes equal to 1,000 on all matters submitted to a vote of our stockholders. In the event of any merger, consolidation
or other transaction in which shares of common stock are exchanged, each share of Series E Preferred Stock will be entitled to
receive 1,000 times the amount received per one share of common stock, subject to certain adjustments. The Rights Agreement remained
in effect following the consummation of the Merger pursuant to the Merger Agreement, and the Rights Agreement could make it more
difficult for a third party to acquire control of the Company or a large block of our common stock without the approval of our
Board of Directors.
An
active trading market for our common stock may not develop.
The
listing of our common stock on The Nasdaq Capital Market does not assure that a meaningful, consistent and liquid trading market
exists. An active trading market for shares of our common stock may never develop or be sustained. If an active market for our
common stock does not develop, it may be difficult for investors to sell their shares either without depressing the market price
for the shares or at all.
We
expect that we will need to raise additional funding before we can expect to become profitable from any potential future sales
of our product candidates. This additional financing may not be available on acceptable terms or at all. Failure to obtain this
necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We
will require substantial future capital in order to complete planned and future pre-clinical and clinical development for MyMD-1
and Supera-CBD and potentially commercialize these product candidates. We expect increased spending levels in connection with
our clinical trials of our product candidates. In addition, if we obtains marketing approval for any of our product candidates,
we expect to incur significant expenses related to commercial launch, product sales, medical affairs, regulatory, marketing, manufacturing
and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly,
we will need to obtain substantial additional funding in connection with our continuing operations before any commercial revenue
may occur.
Additional
capital might not be available when we need it and our actual cash requirements might be greater than anticipated. If we require
additional capital at a time when investment in its industry or in the marketplace in general is limited, we might not be able
to raise funding on favorable terms, if at all. If we are not able to obtain financing when needed or on terms favorable to us,
we may need to delay, reduce or eliminate certain research and development programs or other operations, sell some or all of our
assets or merge with another entity.
We
must attract and retain highly skilled employees to succeed.
To
succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and
we face significant competition for experienced personnel. If we do not succeed in attracting and retaining qualified personnel,
particularly at the management level, it could adversely affect our ability to execute our business plan, harm our results of
operations and increase our capabilities to successfully commercialize MyMD-1, Supera-CBD and our other product candidates. The
competition for qualified personnel in the biotechnology field is intense and as a result, we may be unable to continue to attract
and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
Many
of the other biotechnology companies that we compete against for qualified personnel have greater financial and other resources,
different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and
better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what
we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we
can discover and develop product candidates and our business will be limited.
If
we fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could harm our business.
We
are subject to numerous environmental, health, and safety laws and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations will involve the use
of hazardous materials, including chemicals and biological materials. Our operations also may produce hazardous waste products.
We generally anticipate contracting with third parties for the disposal of these materials and wastes. We will not be able to
eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from any
use by us of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources.
We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws
and regulations.
Although
we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws and
regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure
to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
The
intended benefits of the Contribution Transaction may not be realized.
The
Contribution Transaction poses risks for our ongoing operations, including, among others:
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if
Oravax is not successful in developing the COVID-19 vaccine candidate, we may not realize any value out of our ownership
of Oravax shares; and
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costs
and expenses associated with any undisclosed or potential liabilities.
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As
a result of the foregoing, we may be unable to realize the full strategic and financial benefits currently anticipated from the
Contribution Transaction, and we cannot assure you that the Contribution Transaction will be accretive in the near term or at
all. Furthermore, if we fail to realize the intended benefits of the Contribution Transaction, the market price of our common
stock could decline to the extent that the market price reflects those benefits.
Risks
Related to our Product Development and Regulatory Approval
If
we are unable to develop, obtain regulatory approval for and commercialize MyMD-1, Supera-CBD or other future product candidates,
or if we experience significant delays in doing so, our business will be materially harmed.
We
have invested a substantial amount of efforts and financial resources in MyMD-1 and Supera-CBD. We plan to initiate Phase 2 clinical
trials for treatment of diabetes, rheumatoid arthritis, aging and multiple sclerosis with MyMD-1 and IND-enabling studies of Supera-CBD
to enable submission of an Investigational New Drug (“IND”) application for a Phase 1 in healthy volunteers followed
by clinical trials in epilepsy, addiction and anxiety disorders. In order to conduct human clinical trials, we are required obtain
approval from Institutional Review Boards (“IRBs”) or Ethics committees. IRBs are independent committee organizations
that operate in compliance with U.S. federal regulations (including, but not limited to 21 C.F.R. Parts 50 and 56, and 45 C.F.R.
Part 46) in order to help protect the rights of research subjects under the federal Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”). IRBs provide expertise in examining research for its ethical implications, including research
involving vulnerable populations, such as pediatrics, critically ill, and cognitively impaired participants. There is no guarantee
that an IRB will approve our current product candidates for human clinical trials. Without IRB approval, the Company would not
be able to perform clinical research on humans and our products would not be able to move through the regulatory approval process.
Our
ability to generate product revenue will depend heavily on the successful development and eventual commercialization of MyMD-1,
Supera-CBD and our other product candidates, which may never occur. We currently generate no revenue from sales of any product
and we may never be able to develop or commercialize a marketable product.
Each
of our programs and product candidates will require further clinical and/or pre-clinical development, regulatory approval in multiple
jurisdictions, obtaining pre-clinical, clinical and commercial manufacturing supply, capacity and expertise, building of a commercial
organization, substantial investment and significant marketing efforts before we generate any revenue from product sales. MyMD-1
and Supera-CBD and our other product candidates must be authorized for marketing by the FDA and certain other foreign regulatory
agencies before we may commercialize any of our product candidates.
The
success of our product candidates depends on multiple factors, including:
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successful
completion of pre-clinical studies, including those compliant with Good Laboratory Practices (“GLP”) or GLP toxicology
studies, biodistribution studies and minimum effective dose studies in animals, and successful enrollment and completion of
clinical trials compliant with current Good Clinical Practices (“GCPs”);
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effective
INDs and Clinical Trial Authorizations (“CTAs”) that allow commencement of our planned clinical trials or future
clinical trials for our product candidates in relevant territories;
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approval
from IRBs or Ethics committees to conduct human clinical trials;
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establishing
and maintaining relationships with contract research organizations (“CROs”), and clinical sites for the clinical
development of our product candidates;
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successful
clearance of products arriving from foreign countries, needed to perform clinical trials, through U.S. customs;
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maintenance
of arrangements with third-party contract manufacturing organizations (“CMOs”) for key materials used in our manufacturing
processes and to establish backup sources for clinical and large-scale commercial supply;
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positive
results from our clinical programs that are supportive of safety and efficacy and provide an acceptable risk-benefit profile
for our product candidates in the intended patient populations;
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receipt
of regulatory approvals from applicable regulatory authorities, including those necessary for pricing and reimbursement of
our product candidates;
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establishment
and maintenance of patent and trade secret protection and regulatory exclusivity for our product candidates;
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commercial
launch of our product candidates, if and when approved, whether alone or in collaboration with others;
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acceptance
of our product candidates, if and when approved, by patients, patient advocacy groups, third-party payors and the general
medical community;
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our
effective competition against other therapies available in the market;
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establishment
and maintenance of adequate reimbursement from third-party payors for our product candidates;
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our
ability to acquire or in-license additional product candidates;
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prosecution,
maintenance, enforcement and defense of intellectual property rights and claims;
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maintenance
of a continued acceptable safety profile of our product candidates following approval, including meeting any post-marketing
commitments or requirements imposed by or agreed to with applicable regulatory authorities; or
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political
factors surrounding the approval process, such as government shutdowns, political instability or global pandemics such as
the outbreak of the novel strain of coronavirus, COVID-19.
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If
we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory
approvals for our product candidates, we may not be able to continue our operations.
Success
in pre-clinical studies and earlier clinical trials for our product candidates may not be indicative of the results that may be
obtained in later clinical trials, including our Phase 2 clinical trial for MyMD-1, which may delay or prevent obtaining regulatory
approval.
Clinical
development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any
time during the clinical trial process. Success in pre-clinical studies and early clinical trials may not be predictive of results
in later-stage clinical trials, and successful results from early or small clinical trials may not be replicated or show as favorable
an outcome in later-stage or larger clinical trials, even if successful. We will be required to demonstrate through adequate and
well-controlled clinical trials that our product candidates are safe and effective for their intended uses before we can seek
regulatory approvals for their commercial sale. The conduct of Phase 2 and Phase 3 trials, and the submission of a New Drug Application
(“NDA”) is a complicated process. We have not previously conducted any clinical trials, and have limited experience
in preparing, submitting and supporting regulatory filings. Consequently, we may be unable to successfully and efficiently execute
and complete necessary clinical trials and other requirements in a way that leads to NDA submission and approval of any product
candidate we are developing.
Many
companies in the pharmaceutical industry have suffered significant setbacks in late-stage clinical trials after achieving positive
results in early-stage development, and there is a high failure rate for product candidates proceeding through clinical trials.
In addition, different methodologies, assumptions and applications we utilize to assess particular safety or efficacy parameters
may yield different statistical results. Even if we believe the data collected from clinical trials of our product candidates
are promising, these data may not be sufficient to support approval by the FDA or foreign regulatory authorities. Pre-clinical
and clinical data can be interpreted in different ways. Accordingly, the FDA or foreign regulatory authorities could interpret
these data in different ways from us or our partners, which could delay, limit or prevent regulatory approval. If our study data
do not consistently or sufficiently demonstrate the safety or efficacy of any of our product candidates, including MyMD-1 and
Supera-CBD, to the satisfaction of the FDA or foreign regulatory authorities, then the regulatory approvals for such product candidates
could be significantly delayed as we work to meet approval requirements, or, if we are not able to meet these requirements, such
approvals could be withheld or withdrawn.
Even
if we complete the necessary pre-clinical studies and clinical trials, we cannot predict when, or if, we will obtain regulatory
approval to commercialize a product candidate and the approval may be for a narrower indication than we seek.
Prior
to commercialization, MyMD-1, Supera-CBD and our other product candidates must be approved by the FDA pursuant to an NDA in the
U.S. The process of obtaining marketing approvals, both in the U.S. and abroad, is expensive and takes many years, if approval
is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of
the product candidates involved. Failure to obtain marketing approval for a product candidate will prevent us from commercializing
the product candidate. We have not received approval to market MyMD-1, Supera-CBD or any of our other product candidates from
regulatory authorities in any jurisdiction. We have limited experience in submitting and supporting the applications necessary
to gain marketing approvals, and, in the event regulatory authorities indicate that we may submit such applications, we may be
unable to do so as quickly and efficiently as desired. Securing marketing approval requires the submission of extensive pre-clinical
and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product
candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product
manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may
not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or
other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. Regulatory authorities
have substantial discretion in the approval process and may refuse to accept or file any application or may decide that our data
is insufficient for approval and require additional pre-clinical, clinical or other studies. In addition, varying interpretations
of the data obtained from pre-clinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.
Approval
of MyMD-1, Supera-CBD or our other product candidates may be delayed or refused for many reasons, including:
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the
FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we
may be unable to demonstrate, to the satisfaction of the FDA or comparable foreign regulatory authorities, that our product
candidates are safe and effective for any of their proposed indications;
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the
populations studied in clinical trials may not be sufficiently broad or representative to assure efficacy and safety in the
populations for which we seek approval;
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the
results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory
authorities for approval;
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we
may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;
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the
data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or
other comparable submission in foreign jurisdictions or to obtain regulatory approval in the U.S. or elsewhere;
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the
facilities of third-party manufacturers with which we contract or procure certain service or raw materials, may not be adequate
to support approval of our product candidates; and
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the
approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
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Even
if our product candidates meet their pre-specified safety and efficacy endpoints in clinical trials, the regulatory authorities
may not complete their review processes in a timely manner and may not consider such the clinical trial results sufficient to
grant, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other
regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections
based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority
policy during the period of product development, clinical trials and the review process.
Regulatory
authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations
in the form of narrow indications, warnings, contraindications or Risk Evaluation and Mitigation Strategies (“REMS”).
These regulatory authorities may also grant approval subject to the performance of costly post-marketing clinical trials. In addition,
regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization
of our product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates
and adversely affect our business, financial condition, results of operations and prospects.
The
COVID-19 pandemic, or similar public health crises, could have a material adverse impact the execution of our planned clinical
trials.
Our
planned Phase 2 clinical trial for MyMD-1 has been and may continue to be affected by the pandemic. Initial studies indicate that
MyMD-1 may have potential therapeutic effects on treatment of COVID-19. MYMD may not be successful in demonstrating the efficacy
of this treatment before another, more effective drug enters the market. Furthermore, site initiation, participant recruitment
and enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis for our planned
clinical trials may be delayed due to changes in hospital or university policies, federal, state or local regulations, prioritization
of hospital resources toward pandemic efforts, or other reasons related to the pandemic. Additionally, some participants and clinical
investigators may not be able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether
voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services,
and we may be unable to conduct our planned clinical trials. If the global effort to control the spread of COVID-19 and treat
COVID-19 patients continues on the current trajectory for an extended period of time, we risk a delay in activating sites and
enrolling subjects as previously projected. Any such delays to our planned Phase 2 and Phase 3 clinical trials for MyMD-1 could
impact the use and sufficiency of our existing cash reserves, and we may be required to raise additional capital earlier than
we had previously planned. We may be unable to raise additional capital if and when needed, which may result in further delays
or suspension of our development plans.
Further,
infections and deaths related to COVID-19 are disrupting certain healthcare and healthcare regulatory systems globally. Such disruptions
could divert healthcare resources away from, or materially delay review by, the FDA and comparable foreign regulatory agencies.
It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical
trials or delay in regulatory review resulting from such disruptions could materially adversely affect the development and study
of our product candidates.
We
currently utilize third parties to, among other things, manufacture raw materials and our product candidates, components, parts,
and consumables, and to perform quality testing. If either we or any third-party in the supply chain for materials used in the
production of its product candidates are adversely impacted by restrictions resulting from the COVID-19 pandemic, our supply chain
may be disrupted, limiting our ability to manufacture product candidates for our clinical trials.
The
ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet
know the full extent of potential delays or impacts on our business, our planned clinical trials, healthcare systems or the global
economy. However, these effects could have a material adverse impact on our business, financial condition and results of operations.
Any
product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and
could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to
comply with regulatory requirements or if it experiences unanticipated problems with our product candidates, when and if any of
them are approved.
Our
product candidates and the activities associated with their development and potential commercialization, including their testing,
manufacturing, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive
regulation by the FDA and other U.S. and international regulatory authorities. These requirements include submissions of safety
and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing,
including current Good Manufacturing Practices (“cGMPs”), quality control, quality assurance and corresponding maintenance
of records and documents, including periodic inspections by the FDA and other regulatory authorities and requirements regarding
the distribution of samples to providers and recordkeeping. In addition, manufacturers of drug products and their facilities are
subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with
cGMPs.
The
FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or
efficacy of any approved product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that
they are marketed in a manner consistent with the provisions of the approved labeling. The FDA imposes stringent restrictions
on manufacturers’ communications regarding use of their products. If we promote our product candidates in a manner inconsistent
with FDA-approved labeling or otherwise not in compliance with FDA regulations, we may be subject to enforcement action. Violations
of the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) relating to the promotion of prescription drugs may lead
to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection
laws and similar laws in international jurisdictions.
In
addition, later discovery of previously unknown adverse events or other problems with our product candidates, manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions
on such product candidates, manufacturers or manufacturing processes;
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restrictions
on the labeling or marketing of a product;
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restrictions
on product distribution or use;
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requirements
to conduct post-marketing studies or clinical trials;
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warning
or untitled letters;
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withdrawal
of any approved product from the market;
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refusal
to approve pending applications or supplements to approved applications that we submit;
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recall
of product candidates;
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fines,
restitution or disgorgement of profits or revenues;
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suspension
or withdrawal of marketing approvals;
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refusal
to permit the import or export of our product candidates;
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product
seizure; or
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injunctions
or the imposition of civil or criminal penalties.
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The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate
revenue and could require us to expend significant time and resources in response and could generate negative publicity. The FDA’s
and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent,
limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing
approval that we have obtained, and we may not achieve or sustain profitability.
Our
failure to obtain regulatory approval in international jurisdictions would prevent us from marketing our product candidates outside
the U.S.
To
market and sell MyMD-1, Supera-CBD or our other product candidates in other jurisdictions, we must obtain separate marketing approvals
and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional
testing. The time and data required to obtain approval may differ substantially from that required to obtain FDA approval. The
regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition,
in many countries outside the U.S., we must secure product reimbursement approvals before regulatory authorities will approve
the product for sale in that country. Failure to obtain foreign regulatory approvals or non-compliance with foreign regulatory
requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of
our product candidates in certain countries.
If
we fail to comply with the regulatory requirements in international markets and receive applicable marketing approvals, our target
market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business
will be adversely affected. We may not obtain foreign regulatory approvals on a timely basis, if at all. Our failure to obtain
approval of any of our product candidates by regulatory authorities in another country may significantly diminish the commercial
prospects of that product candidate and our business prospects could decline.
Our
development program for Supera-CBD, a synthetic derivative of CBD, is uncertain and may not yield commercial results and is subject
to significant regulatory risks.
There
can be no assurance that our development program for Supera-CBD, a synthetic derivative of CBD, will be successful, or that any
research and development and product testing efforts will result in commercially saleable products, or that the market will accept
or respond positively to products based on Supera-CBD.
Federal
Regulation of CBD. The market for cannabinoids is heavily regulated. Synthetic cannabinoids may be viewed as qualifying as
controlled substances under the federal Controlled Substances Act of 1970 (CSA), and may be subject to a high degree of regulation
including, among other things, certain registration, licensing, manufacturing, security, record keeping, reporting, import, export,
inspection by DEA clinical and non-clinical studies, insurance and other requirements administered by the U.S. Drug Enforcement
Administration (DEA) and/or the FDA.
State
Regulation of CBD. Individual states and countries have also established controlled substance laws and regulations, which
may differ from U.S. federal law. We or our business partners may be required to obtain separate state or country registrations,
permits or licenses in order to be able to develop produce, sell, store and transport cannabinoids.
Compliance
is Complex and Costly. Complying with laws and regulations relating to cannabinoids is evolving, complex and expensive, and
may divert management’s attention and resources from other aspects of our business. Failure to maintain compliance with
such laws and regulations may result in regulatory action that could have a material adverse effect on our business, results of
operations and financial condition. The DEA, FDA or state agencies may seek civil penalties, refuse to renew necessary registrations,
or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.
Clinical
trials. Because synthetic CBD products may be regulated as controlled substances in the U.S., to conduct clinical trials in
the U.S., each of our research sites must submit a research protocol to the DEA and obtain and maintain a DEA researcher registration
that will allow those sites to handle and dispense products based on Supera-CBD and to obtain product from our manufacturer. If
the DEA delays or denies the grant of a research registration to one or more research sites, the clinical trial could be significantly
delayed, and we could lose clinical trial sites.
Risks
Related to Commercialization and Manufacturing
The
commercial success of our product candidates, including MyMD-1 and Supera-CBD, will depend upon their degree of market acceptance
by providers, patients, patient advocacy groups, third-party payors and the general medical community.
Even
with the requisite approvals from the FDA and other regulatory authorities internationally, the commercial success of our product
candidates will depend, in part, on the acceptance of providers, patients and third-party payors of our product candidates, as
medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by providers, patients,
patient advocacy groups, third-party payors and the general medical community. If these products do not achieve an adequate level
of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance
of MyMD-1, Supera-CBD and our other product candidates, if approved for commercial sale, will depend on several factors, including:
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the
efficacy, durability and safety of such product candidates as demonstrated in clinical trials;
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the
potential and perceived advantages of product candidates over alternative treatments;
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the
cost of treatment relative to alternative treatments;
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the
clinical indications for which the product candidate is approved by the FDA or the European Commission;
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the
willingness of providers to prescribe new therapies;
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the
willingness of the target patient population to try new therapies;
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the
prevalence and severity of any side effects;
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product
labeling or product insert requirements of the FDA or other regulatory authorities, including any limitations or warnings
contained in a product’s approved labeling;
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the
strength of marketing and distribution support;
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the
timing of market introduction of competitive products;
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the
quality of our relationships with patient advocacy groups;
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publicity
concerning our product candidates or competing products and treatments; and
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sufficient
third-party payor coverage and adequate reimbursement.
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Even
if a potential product displays a favorable efficacy and safety profile in pre-clinical studies and clinical trials, market acceptance
of the product will not be fully known until after it is launched.
The
pricing, insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate
coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease
our ability to generate product revenue.
If
we are unable to establish or sustain coverage and adequate reimbursement for our product candidates from third-party payors,
the adoption of those product candidates and sales revenue will be adversely affected, which, in turn, could adversely affect
the ability to market or sell those product candidates, if approved.
We
expect that coverage and reimbursement by third-party payors will be essential for most patients to be able to afford these treatments.
Accordingly, sales of MyMD-1, Supera-CBD and our other product candidates will depend substantially, both domestically and internationally,
on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit
and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers
and other third-party payors. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow
us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the U.S., third-party
payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining
the extent to which new drugs will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older,
disabled or suffering from end-stage renal disease. The Medicaid program, which varies from state to state, covers certain individuals
and families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private
payors and other governmental payors develop their coverage and reimbursement policies for drugs. One payor’s determination
to provide coverage for a drug product, however, does not assure that other payors will also provide coverage for the drug product.
Further, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will
be approved.
In
addition to government and private payors, professional organizations such as the American Medical Association (“AMA”),
can influence decisions about coverage and reimbursement for new products by determining standards for care. In addition, many
private payors contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of,
and therefore reimbursement for, certain products deemed to provide limited benefit to existing alternatives. Such organizations
may set guidelines that limit reimbursement or utilization of our product candidates. Even if favorable coverage and reimbursement
status is attained for one or more product candidates for which our collaborators receive regulatory approval, less favorable
coverage policies and reimbursement rates may be implemented in the future.
Outside
the U.S., international operations are generally subject to extensive governmental price controls and other market regulations,
and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue
to put pressure on the pricing and usage of therapeutics such as our product candidates. In many countries, particularly the countries
of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health
systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of
marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct
a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general, the prices
of products under such systems are substantially lower than in the U.S. Other countries allow companies to fix their own prices
for products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation
could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the U.S., the
reimbursement for our product candidates may be reduced compared with the U.S. and may be insufficient to generate commercially
reasonable revenues and profits.
Moreover,
increasing efforts by governmental and third-party payors, in the U.S. and internationally, to cap or reduce healthcare costs
may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they
may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection
with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of certain
third-party payors, such as health maintenance organizations, and additional legislative changes. The downward pressure on healthcare
costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a
result, increasingly high barriers are being erected to the entry of new products into the healthcare market. Recently there have
been instances in which third-party payors have refused to reimburse treatments for patients for whom the treatment is indicated
in the FDA-approved product labeling. Even if we are successful in obtaining FDA approvals to commercialize our product candidates,
we cannot guarantee that we will be able to secure reimbursement for all patients for whom treatment with our product candidates
is indicated.
If
third parties on which we depend to conduct our planned pre-clinical studies or clinical trials, do not perform as contractually
required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be delayed
with adverse effects on our business, financial condition, results of operations and prospects.
We
rely on third party CROs, CMOs, consultants and others to design, conduct, supervise and monitor key activities relating to, discovery,
manufacturing, pre-clinical studies and clinical trials of our product candidates, and we intend to do the same for future activities
relating to existing and future programs. Because we rely on third parties and do not have the ability to conduct all required
testing, discovery, manufacturing, preclinical studies or clinical trials independently, we have less control over the timing,
quality and other aspects of discovery, manufacturing, pre-clinical studies and clinical trials than we would if we conducted
them on our own. These investigators, CROs, CMOs and consultants are not our employees, and we have limited control over the amount
of time and resources that they dedicate to our programs. These third parties may have contractual relationships with other entities,
some of which may be our competitors, which may draw time and resources from our programs. The third parties we contract with
might not be diligent or timely in conducting our discovery, manufacturing, pre-clinical studies or clinical trials, resulting
in discovery, manufacturing, pre-clinical studies or clinical trials being delayed or unsuccessful, in whole or in part.
If
we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not
carry out their contractual duties, satisfy legal and regulatory requirements for the conduct of pre-clinical studies or clinical
trials or meet expected deadlines, our clinical development programs could be delayed and otherwise adversely affected. In all
events, we are responsible for ensuring that each of our pre-clinical studies and clinical trials is conducted in accordance with
the general investigational plan and protocols for the trial, as well as in accordance with GLP, GCPs and other applicable laws,
regulations and standards. Our reliance on third parties that we do not control does not relieve us of these responsibilities
and requirements. The FDA and other regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal
investigators and trial sites. If we or any of these third parties fails to comply with applicable GCPs, the clinical data generated
in its clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform
additional clinical trials before approving its marketing applications. We cannot assure you that upon inspection by a given regulatory
authority, such regulatory authority will determine that any of our clinical trials have complied with GCPs. In addition, our
clinical trials must be conducted with product produced in accordance with cGMPs. Our failure to comply with these regulations
may require us to repeat clinical trials, which could delay or prevent the receipt of regulatory approvals. Any such event could
have an adverse effect on our business, financial condition, results of operations and prospects.
We
face significant competition in an environment of rapid pharmacological change and it is possible that our competitors may achieve
regulatory approval before us or develop therapies that are more advanced or effective than our, which may harm our business,
financial condition and our ability to successfully market or commercialize MyMD-1, Supera-CBD and our other product candidates.
The
biotechnology and pharmaceutical industries are characterized by rapidly changing technologies, competition and a strong emphasis
on intellectual property. We are aware of several companies focused on developing immunometabolic treatments in various indications
as well as several companies addressing other treatments for anti-aging, anxiety and depression. We may also face competition
from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public
and private research institutions that conduct research, seek patent protection, and establish collaborative arrangements for
research, development, manufacturing and commercialization.
Several
companies are focused on developing treatments for immunometabolic dysregulation in treatment of autoimmune disorders.
Many
of our potential competitors, alone or with their strategic partners, may have substantially greater financial, technical and
other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers
and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among
a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize
products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than
any product candidates that we may develop. Competitors also may obtain FDA or other regulatory approval for their products more
rapidly than we may obtain approval for our products, which could result in our competitors establishing a strong market position
before we are able to enter the market, if ever. Additionally, new or advanced technologies developed by our competitors may render
our current or future product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates
against competitors.
The
manufacture of drugs is complex, and our third-party manufacturers may encounter difficulties in production. If any of our third-party
manufacturers encounter such difficulties, our ability to provide supply of MyMD-1, Supera-CBD or our other product candidates
for clinical trials, our ability to obtain marketing approval, or our ability to provide supply of our product candidates for
patients, if approved, could be delayed or stopped.
We
intend to establish manufacturing relationships with a limited number of suppliers to manufacture raw materials, the drug substance
and finished product of any product candidate for which we are responsible for pre-clinical or clinical development. Each supplier
may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain. As
part of any marketing approval, a manufacturer and its processes are required to be qualified by the FDA prior to regulatory approval.
If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative
vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies
outside of the U.S. may also require additional studies if a new supplier is relied upon for commercial production. Switching
vendors may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
The
process of manufacturing drugs is complex, highly regulated and subject to multiple risks. Manufacturing drugs is highly susceptible
to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error,
inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor
deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions.
If microbial, viral or other contaminations are discovered at the facilities of our manufacturers, such facilities may need to
be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely
harm our business. Moreover, if the FDA determines that our CMOs are not in compliance with FDA laws and regulations, including
those governing cGMPs, the FDA may deny NDA approval until the deficiencies are corrected or we replace the manufacturer in our
NDA with a manufacturer that is in compliance. In addition, approved products and the facilities at which they are manufactured
are required to maintain ongoing compliance with extensive FDA requirements and the requirements of other similar agencies, including
ensuring that quality control and manufacturing procedures conform to cGMP requirements. As such, our CMOs are subject to continual
review and periodic inspections to assess compliance with cGMPs. Furthermore, although we do not have day-to-day control over
the operations of our CMOs, we are responsible for ensuring compliance with applicable laws and regulations, including cGMPs.
In
addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others,
cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing
practices, lot consistency and timely availability of raw materials. Even if our collaborators obtain regulatory approval for
any of our product candidates, there is no assurance that manufacturers will be able to manufacture the approved product to specifications
acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the
potential launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities
for clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect
on our business, financial condition, results of operations and prospects.
Risks
Related to Government Regulation
Enacted
and future legislation may increase the difficulty and cost for us to commercialize and obtain marketing approval of our product
candidates and may affect the prices we may set.
Existing
regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise
from future legislation or administrative action, either in the U.S. or abroad. If we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance,
we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
For
example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act of 2010, or collectively the Affordable Care Act (“ACA”), was enacted to broaden access to health insurance, reduce
or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for
health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy
reforms. As implementation of the ACA is ongoing, the law appears likely to continue the downward pressure on pharmaceutical pricing,
especially under the Medicare program, and may also increase MYMD’s regulatory burdens and operating costs.
The
current U.S. presidential administration and U.S. Congress have sought and may continue to seek to, modify, repeal or otherwise
replace certain aspects of the ACA. By way of example, the Tax Cuts and Jobs Act (the “TCJA”), was enacted, effective
January 1, 2019, and included, among other things, a provision repealing the tax-based shared responsibility payment imposed by
the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred
to as the “individual mandate.” There have been subsequent challenges to the constitutionality of the ACA following
the repeal of the individual mandate. A case is currently pending before the U.S. Supreme Court, although it is unclear when a
decision will be made or how the Supreme Court will rule. In addition, there may be other efforts to challenge, repeal or replace
the ACA. We are continuing to monitor any changes to the ACA that, in turn, may potentially impact our business in the future.
In
addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate
reductions to Medicare payments to providers of 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative
amendments, will stay in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31,
2020 implemented under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which was signed into
law on March 27, 2020, unless additional Congressional action is taken. In addition, in January 2013, the American Taxpayer Relief
Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws
may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers
for our product candidates, if approved, and accordingly, our financial operations.
We
expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in
reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The
implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain
profitability, or commercialize our product candidates.
Legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates,
if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay
or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
The
FDA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding levels,
ability to hire and retain key personnel, statutory, regulatory and policy changes and global health concerns.
The
ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and
funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept
the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. In
addition, government funding of other government agencies that fund research and development activities is subject to the political
process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary
for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For
example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down
several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities.
The
ability of the FDA and other government agencies to properly administer their functions is highly dependent on the levels of government
funding and the ability to fill key leadership appointments, among various factors. Delays in filling or replacing key positions
could significantly impact the ability of the FDA and other agencies to fulfill their functions and could greatly impact healthcare
and the pharmaceutical industry.
Separately,
in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone most foreign inspections
of manufacturing facilities and, subsequently, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections
of domestic manufacturing facilities. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures
in response to the COVID-19 pandemic. Subsequently, on July 10, 2020 the FDA announced its intention to resume certain on-site
inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based
assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from
mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the U.S. may adopt similar
restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global
health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews,
or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely
review and process our regulatory submissions, which could have a material adverse effect on our business.
Our
operations and relationships with future customers, providers and third-party payors will be subject to applicable anti-kickback,
fraud and abuse and other healthcare laws and regulations, which could expose us to penalties including criminal sanctions, civil
penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare
providers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for
which we obtain marketing approval. Our future arrangements with providers, third-party payors and customers will subject us to
broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute any product candidates for which we obtain marketing approval.
Restrictions
under applicable U.S. federal and state healthcare laws and regulations include the following:
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the
federal Anti-Kickback Statute (“AKS”) prohibits, among other things, persons and entities from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward
either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment
may be made under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual
knowledge of the AKS or specific intent to violate it in order to have committed a violation;
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federal
false claims laws, including the federal False Claims Act, imposes criminal and civil penalties, including through civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,
claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to
pay money to the federal government. In addition, the government may assert that a claim including items or services resulting
from a violation of the AKS constitutes a false or fraudulent claim for purposes of the civil False Claims Act;
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HIPAA
imposes criminal and civil liability for, among other things, knowingly and willfully executing or attempting to execute a
scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the
AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to
have committed a violation;
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the
federal Physician Payment Sunshine Act of 2010 (“PPSA”) requires applicable manufacturers of covered drugs, devices,
biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance
Program, with specific exceptions, to report payments and other transfers of value provided during the previous year to physicians,
as defined by such law, certain other healthcare providers starting in 2022 (for payments made in 2021), and teaching hospitals,
as well as certain ownership and investment interests held by such physicians and their immediate family, which includes annual
data collection and reporting obligations;
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including
private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require
drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures; and
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some
state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.
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Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us,
we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of product
candidates from government-funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational
harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. If any of the physicians
or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable
laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare
programs.
Risks
Related to Our Intellectual Property
Our
success depends in part on our ability to obtain, maintain and protect our intellectual property. It is difficult and costly to
protect our proprietary rights and technology, and we may not be able to ensure their adequate protection.
Our
commercial success will depend in large part on obtaining and maintaining patent, trademark, trade secret and other intellectual
property protection of our proprietary technologies and product candidates, which include MyMD-1, Supera-CBD and the other product
candidates we have in development, their respective components, formulations, combination therapies, methods used to manufacture
them and methods of treatment, as well as successfully defending our patents and other intellectual property rights against third-party
challenges. Our ability to stop unauthorized third parties from making, using, selling, offering to sell, importing or otherwise
commercializing our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents
or trade secrets that cover these activities. If we are unable to secure and maintain patent protection for any product or technology
we develop, or if the scope of the patent protection secured is not sufficiently broad, our competitors could develop and commercialize
products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop may
be adversely affected.
The
patenting process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant
markets. It is also possible that we will fail to identify patentable aspects of our research and development activities before
it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents, covering technology that we may license from or license
to third parties and may be reliant on our licensors or licensees to do so. Our pending and future patent applications may not
result in issued patents. Even if patent applications we license or own currently or in the future issue as patents, they may
not issue in a form that will provide us with adequate protection, prevent competitors or other third parties from competing with
us, or otherwise provide us with any competitive advantage. Any patents that we hold or in-license may be challenged, narrowed,
circumvented or invalidated by third parties. Consequently, we do not know whether any of our platform advances and product candidates
will be protectable or remain protected by valid and enforceable patents. In addition, our existing patents and any future patents
we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing products and
technologies.
We
may not be able to adequately protect or enforce our intellectual property rights, which could harm our competitive position.
Our
success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We will primarily
rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect
our proprietary technologies or processes. It is possible that competitors or other unauthorized third parties may obtain, copy,
use or disclose proprietary technologies and processes, despite efforts by the us to protect our proprietary technologies and
processes. While we hold rights in several patents, there can be no assurances that any additional patents will be issued, or
additional rights will be granted, to us. Even if new patents are issued, the claims allowed may not be sufficiently broad to
adequately protect our technology and processes. Our competitors may also be able to develop similar technology independently
or design around the patents to which we have rights.
Currently,
MyMD Florida has eleven issued U.S. patents, one foreign patent, six pending U.S. patent applications and 28 foreign patent applications
pending in such jurisdictions as Australia, Canada, China, European Union, Israel, Japan and South Korea, which if issued are
expected to expire between 2036 and 2041. Although we expect to obtain additional patents and in-licenses in the future, there
is no guarantee that we will be able to successfully obtain such patents or in-licenses in a timely manner or at all. Further,
any of our rights to existing patents, and any future patents issued to us, may be challenged, invalidated or circumvented. As
such, any rights granted under these patents may not provide us with meaningful protection. Even if foreign patents are granted,
effective enforcement in foreign countries may not be available. If our patents or rights to patents do not adequately protect
our technology or processes, competitors may be able to offer products similar to our products.
Our
potential strategy of obtaining rights to key technologies through in-licenses may not be successful.
The
future growth of our business may depend in part on our ability to in-license or otherwise acquire the rights to additional product
candidates and technologies. We cannot assure that we will be able to in-license or acquire the rights to any product candidates
or technologies from third parties on acceptable terms or at all.
For
example, our agreements with certain of our third-party research partners provide that improvements developed in the course of
its relationship may be owned solely by either us or our third-party research partner, or jointly between us and the third party.
If we determine that exclusive rights to such improvements owned solely by a research partner or other third party with whom we
collaborate are necessary to commercialize our drug candidates or maintain our competitive advantage, we may need to obtain an
exclusive license from such third party in order to use the improvements and continue developing, manufacturing or marketing our
drug candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all,
which could prevent us from commercializing our drug candidates or allow our competitors or others the opportunity to access technology
that is important to our business. We also may need the cooperation of any co-owners of our intellectual property in order to
enforce such intellectual property against third parties, and such cooperation may not be provided to us.
In
addition, the in-licensing and acquisition of these technologies is a highly competitive area, and a number of more established
companies are also pursuing strategies to license or acquire product candidates or technologies that we may consider attractive.
These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development
and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to license rights
to us. Furthermore, we may be unable to identify suitable product candidates or technologies within our area of focus. If we are
unable to successfully obtain rights to suitable product candidates or technologies, our business and prospects could be materially
and adversely affected.
If
we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In
addition to patent protection, we rely upon know-how and trade secret protection, as well as non-disclosure agreements and invention
assignment agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information,
especially where we do not believe patent protection is appropriate or obtainable.
It
is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors
to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements
provide that all confidential information concerning our business or financial affairs developed or made known to the individual
or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to third parties,
except in certain specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the
individual, and that are related to our current or planned business or research and development or made during normal working
hours, on our premises or using our equipment or proprietary information (or as otherwise permitted by applicable law), are our
exclusive property. In the case of consultants and other third parties, the agreements provide that all inventions conceived in
connection with the services provided are our exclusive property. However, we cannot guarantee that we have entered into such
agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We have
also adopted policies and conduct training that provides guidance on our expectations, and our advice for best practices, in protecting
our trade secrets. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information,
including our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
In
addition to contractual measures, we try to protect the confidential nature of our proprietary information through other appropriate
precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect.
These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized
access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant
from misappropriating our trade secrets and providing them to a competitor, and any recourse we might take against this type of
misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition,
trade secrets may be independently developed by others in a manner that could prevent us from receiving legal recourse. If any
of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, such as through
a data breach, or if any of that information was independently developed by a competitor, our competitive position could be harmed.
Additionally, certain trade secret and proprietary information may be required to be disclosed in submissions to regulatory authorities.
If such authorities do not maintain the confidential basis of such information or disclose it as part of the basis of regulatory
approval, our competitive position could be adversely affected.
Third-party
claims of intellectual property infringement may prevent, delay or otherwise interfere with our product discovery and development
efforts.
Our
commercial success depends in part on our ability to develop, manufacture, market and sell our product candidates and use our
proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property or other proprietary
rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights
in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference,
derivation, inter partes review, post grant review, and reexamination proceedings before the United States Patent and Trademark
Office (“USPTO”) or oppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or
threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product
candidates and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. Numerous
U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which we
are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued,
the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others. Moreover,
it is not always clear to industry participants, including us, which patents cover various types of drugs, products or their methods
of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in our field, third parties
may allege they have patent rights encompassing our product candidates, technologies or methods.
If
a third party claims that we infringe, misappropriate or otherwise violate its intellectual property rights, we may face a number
of issues, including, but not limited to:
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infringement
and other intellectual property claims that, regardless of merit, may be expensive and time-consuming to litigate and may
divert our management’s attention from our core business;
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substantial
damages for infringement, which we may have to pay if a court decides that the product candidate or technology at issue infringes
on or violates the third party’s rights, and, if the court finds that the infringement was willful, we could be ordered
to pay treble damages plus the patent owner’s attorneys’ fees;
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a
court prohibiting us from developing, manufacturing, marketing or selling our product candidates, or from using our proprietary
technologies, unless the third-party licenses its product rights or proprietary technology to us, which it is not required
to do, on commercially reasonable terms or at all;
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if
a license is available from a third party, we may have to pay substantial royalties, upfront fees and other amounts, and/or
grant cross-licenses to intellectual property rights for our product candidates;
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the
requirement that we redesign our product candidates or processes so they do not infringe, which may not be possible or may
require substantial monetary expenditures and time; and
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there
could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our
common stock.
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of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise
have a material adverse effect on our business, financial condition, results of operations and prospects.
Third
parties may assert that we are employing their proprietary technology without authorization, including by enforcing its patents
against us by filing a patent infringement lawsuit against us. In this regard, patents issued in the U.S. by law enjoy a presumption
of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof.
There
may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or
methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years
to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates
may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon
these patents.
If
any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates,
or materials used in or formed during the manufacturing process, or any final product itself, the holders of those patents may
be able to block our ability to commercialize our product candidates unless we obtain a license under the applicable patents,
or until those patents were to expire or those patents are finally determined to be invalid or unenforceable. Similarly, if any
third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture
or methods of use, including combination therapy or patient selection methods, the holders of that patent may be able to block
our ability to develop and commercialize a product candidate unless we obtain a license or until such patent expires or is finally
determined to be invalid or unenforceable. In either case, a license may not be available on commercially reasonable terms, or
at all, particularly if such patent is owned or controlled by one of our primary competitors. If we are unable to obtain a necessary
license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates
may be impaired or delayed, which could significantly harm our business. Even if we obtain a license, it may be non-exclusive,
thereby giving our competitors access to the same technologies licensed to us. In addition, if the breadth or strength of protection
provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license,
develop or commercialize current or future product candidates.
Parties
making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to
further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial
litigation expense and would be a substantial diversion of employee time and resources from our business. In the event of a successful
claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for
willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which
may be impossible or require substantial time and monetary expenditure. We cannot predict whether any license of this nature would
be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation,
we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates
and we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would
be unable to further develop and commercialize our product candidates, which could significantly harm our business.
We
may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming
and unsuccessful and could result in a finding that such patents are unenforceable or invalid.
Competitors
may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide
that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology
at issue on the grounds that our patents do not cover the technology in question.
In
patent litigation in the U.S., defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there
are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise
similar claims before administrative bodies in the U.S. or abroad, even outside the context of litigation. These types of mechanisms
include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent
proceedings in foreign jurisdictions (e.g., opposition proceedings). These types of proceedings could result in revocation or
amendment to our patents such that they no longer cover our product candidates. The outcome for any particular patent following
legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot
be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during
prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise
unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our product
candidates. Defense of these types of claims, regardless of their merit, would involve substantial litigation expense and would
be a substantial diversion of employee resources from our business.
Conversely,
we may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review
the patent claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings,
and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or we may choose to challenge a third party’s
patent in patent opposition proceedings in the Canadian Intellectual Property Office (“CIPO”) the European Patent
Office (“EPO”) or another foreign patent office. Even if successful, the costs of these opposition proceedings could
be substantial, and may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, CIPO, EPO or
other patent office then we may be exposed to litigation by a third party alleging that the patent may be infringed by our product
candidates or proprietary technologies.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, that perception could have a substantial adverse effect on the price of our
common stock. Any of the foregoing could have a material adverse effect on our business financial condition, results of operations
and prospects.
We
have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the
world.
We
currently have limited intellectual property rights outside the U.S. Filing, prosecuting and defending patents on product candidates
in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries
outside the U.S. can be less extensive than those in the U.S. In addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as federal and state laws in the U.S. For example, patents covering therapeutic methods-of-use
are not available in certain foreign countries. Consequently, we may not be able to prevent third parties from practicing our
inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and into the
U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we do not have or have not obtained patent
protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent
protection but where enforcement is not as strong as that in the U.S. These products may compete with our product candidates in
jurisdictions where we do not have any issued patents and our patent claims 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, trade
secrets and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make
it difficult for us to stop the infringement of our patents or marketing of competing products against third parties in violation
of our proprietary rights generally. The initiation of proceedings by third parties to challenge the scope or validity of our
patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects
of our business. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert
our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted
narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may
not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime
of the patent. The USPTO and various foreign patent agencies also require compliance with a number of procedural, documentary,
fee payment and other provisions during the patent application process and following the issuance of a patent. 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 laws and rules,
there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting
in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment
or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed
time limits, non-payment of fees and failure to properly legalize and submit formal documents. Were a noncompliance event to occur,
our competitors might be able to enter the market, which would have a material adverse effect on our business financial condition,
results of operations and prospects.
Changes
in patent law in the U.S. and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing our
ability to protect our product candidates.
As
is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity, and is therefore
costly, time-consuming and inherently uncertain.
Past
or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents. For example, in March 2013, under the Leahy-Smith America Invents Act (“America
Invents Act”), the U.S. moved from a “first to invent” to a “first-to-file” patent system. Under
a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a
patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the
invention earlier. The America Invents Act includes a number of other significant changes to U.S. patent law, including provisions
that affect the way patent applications are prosecuted, redefine prior art and establish a new post-grant review system. The effects
of these changes continue to evolve as the USPTO continues to promulgate new regulations and procedures in connection with the
America Invents Act and many of the substantive changes to patent law, including the “first-to-file” provisions, only
became effective in March 2013. In addition, the courts have yet to address many of these provisions and the applicability of
the act and new regulations on the specific patents discussed in this filing have not been determined and would need to be reviewed.
Moreover, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution
of our patent applications and the enforcement or defense of our issued patents.
Recent
cases by the U.S. Supreme Court have held that certain methods of treatment or diagnosis are not patent-eligible. U.S. law regarding
patent-eligibility continues to evolve. While we do not believe that any of our owned or in-licensed patents will be found invalid
based on these changes to US patent law, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO
may impact the value of our patents. Any similar adverse changes in the patent laws of other jurisdictions could also have a material
adverse effect on our business, financial condition, results of operations and prospects.
Patent
terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents
have a limited lifespan. In the U.S., if all maintenance fees are timely paid, the natural expiration of a patent is generally
20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and
the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has
expired, we may be open to competition from competitive products, including generics. Given the amount of time required for the
development, testing and regulatory review of new product candidates, patents protecting our product candidates might expire before
or shortly after our or our partners commercialize those candidates. As a result, our owned and licensed patent portfolio may
not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If
we do not obtain patent term extension for any product candidates we may develop, our business may be materially harmed.
Depending
upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of
our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration
Act of 1984, (the “Hatch-Waxman Amendments”). The Hatch-Waxman Amendments permit a patent extension term of up to
five years as compensation for patent term lost during clinical trials and the FDA regulatory review process. A patent term extension
cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per
product may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing
it may be extended. U.S. and ex-U.S. law concerning patent term extensions and foreign equivalents continue to evolve. Even if
we were to seek a patent term extension, it may not be granted because of, for example, the failure to exercise due diligence
during the testing phase or regulatory review process, the failure to apply within applicable deadlines, the failure to apply
prior to expiration of relevant patents, or any other failure to satisfy applicable requirements. Moreover, the applicable time
period of extension or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent
term extension or term of any such extension is less than we request, our competitors may obtain approval of competing products
following our patent expiration sooner than expected, and our business, financial condition, results of operations and prospects
could be materially harmed.