ITEM 1A. RISK FACTORS
The following information updates, and
should be read in conjunction with, the information disclosed in Part 1, Item 1A, “Risk Factors,” of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the Securities and
Exchange Commission on April 16, 2013.
RISKS RELATING TO OUR BUSINESS
We will need to raise additional capital to operate our
business.
With the exception of the three months
ended June 30, 2010, we have experienced significant losses since inception and have a significant accumulated deficit. We expect
to incur additional operating losses in the future and therefore our cumulative losses to increase. To date, other than the licensing
fee we received from Meda AB for the development and commercialization of Effirma (flupirtine) for fibromyalgia in the U.S., Canada
and Japan and limited laboratory revenues from Adeona Clinical Laboratory, which we sold in March 2012, we have generated very
minimal revenues. Inasmuch as our sole source of revenue (with the exception of the Meda licensing fee) has been our laboratory
revenue and our laboratory was sold recently, we do not expect to derive revenue from any source in the near future until we or
our partners successfully commercialize our products. As of March 31, 2013, our accumulated deficit totaled approximately $71.2
million on a consolidated basis. Until such time as we receive approval from the FDA and other regulatory authorities for our
product candidates, we will not be permitted to sell our products and therefore will not have product revenues from the sale of
products. For the foreseeable future we will have to fund all of our operations and capital expenditures from equity and debt
offerings, cash on hand, licensing fees and grants. If our current cash, cash equivalents and short-term investments are not sufficient
to sustain our operations, we will need to seek additional sources of financing and such additional financing may not be available
on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete
planned preclinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities.
In addition, we could be forced to delay, discontinue or curtail product development, forego sales and marketing efforts, and
forego licensing in attractive business opportunities. Any additional sources of financing will likely involve the issuance of
our equity or debt securities, which will have a dilutive effect on our stockholders.
We have not been able to sustain
profitability.
Other than with respect to the three months
ended June 30, 2010, we have a history of losses and we have incurred and continue to incur substantial losses and negative
operating cash flow. Even if we succeed in developing and commercializing one or more of our product candidates, we may still
incur substantial losses for the foreseeable future and may not sustain profitability. We also expect to continue to incur significant
operating and capital expenditures and anticipate that our expenses will substantially increase in the foreseeable future as we
do the following:
|
●
|
continue to undertake preclinical
development and clinical trials for our product candidates;
|
|
●
|
expand our research activities with
Intrexon relating to monoclonal antibodies for infectious diseases;
|
|
●
|
seek regulatory approvals for our product
candidates;
|
|
●
|
develop our product candidates for
commercialization;
|
|
●
|
implement additional internal systems
and infrastructure;
|
|
●
|
lease additional or alternative office
facilities; and
|
|
●
|
hire additional personnel, including
members of our management team.
|
We may experience negative cash flow for
the foreseeable future as we fund our technology development with capital expenditures. As a result, we will need to generate
significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve
profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common
stock and underlying securities.
Our research and development efforts
may not succeed in developing commercially successful products and technologies, which may limit our ability to achieve profitability.
We must continue to explore opportunities
that may lead to new products and technologies. To accomplish this, we must commit substantial efforts, funds, and other resources
to research and development. A high rate of failure is inherent in the research and development of new products and technologies.
Any such expenditures that we make will be made without any assurance that our efforts will be successful. Failure can occur at
any point in the process, including after significant funds have been invested.
Regardless of whether our clinical trials
are deemed to be successful, promising new product candidates may fail to reach the market or may only have limited commercial
success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory
approvals or satisfy regulatory criteria, limited scope of approved uses, excessive costs to manufacture, the failure to establish
or maintain intellectual property rights, or infringement of the intellectual property rights of others. Even if we successfully
develop new products or enhancements, they may be quickly rendered obsolete by changing customer preferences, changing industry
standards, or competitors' innovations. Innovations may not be quickly accepted in the marketplace because of, among other things,
entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or
whether any of our products under development will be launched, whether we will be able to develop, license, or otherwise acquire
drug candidates or products, or whether any products will be commercially successful. Failure to launch successful new products
or new indications for existing products may cause our products to become obsolete, which may limit our ability to achieve profitability.
The technology on which our channel
partnering arrangement with Intrexon is based on early stage technology.
On August 8, 2012, we announced an exclusive
channel collaboration with Intrexon relating to the design, production, testing and commercialization of monoclonal antibodies
for the treatment of certain infectious diseases. Although monoclonal antibody therapeutics are well established in the biotechnology
and pharmaceutical sectors, their use for the treatment of infectious disease is extremely limited. In order for monoclonal antibodies
to be effective for infectious diseases, they must not only properly target the organism of interest (or its toxins), but may
also need to overcome defenses and forms of resistance of such organisms. To accomplish this may require the use of more than
one specific monoclonal antibody, and mixtures of different monoclonal antibodies, which may create additional unforeseen complications,
including increased manufacturing complexity and expense. In order to be competitive, monoclonal antibodies will be required to
be produced at a low enough cost of goods in order to be profitably marketed. We have very limited development and manufacturing
experience in the field of monoclonal antibodies and infectious disease. We cannot assure that any monoclonal antibody candidates
will provide satisfactory in vitro and in vivo nonclinical results sufficient to warrant the expense of cGMP manufacture and clinical
testing in human clinical trials.
We may not generate additional revenue
from our relationships with our corporate collaborators.
On May 6, 2010,
we entered into a sublicense agreement with Meda AB whereby we may receive milestone payments totaling $17.5 million (including
an upfront payment of $2.5 million that has already been received), plus royalties on our flupirtine program. There can be no
assurance that Meda AB will successfully develop flupirtine for fibromyalgia in the U.S., Canada or Japan that would allow us
to receive such additional $15 million in milestone payments and royalties on sales in connection with such agreement. The successful
achievement of the various milestones set forth in the sublicense agreement is not within our control and we will be dependent
upon Meda AB for achievement of such milestones.
According to Meda’s 2012 Year-End Report filed in February 2013,
Meda has received the go-ahead from the FDA to conduct a Phase II proof of concept study for the treatment of fibromyalgia. There
can be no assurance that Meda will initiate or successfully complete such planned study.
We have experienced several management
changes.
We have had significant changes in management
in the past few years. Jeffrey Riley was appointed Chief Executive Officer and President on February 3, 2012. Effective February
6, 2012, C. Evan Ballantyne was appointed Chief Financial Officer. James S. Kuo, M.D., served as Chief Executive Officer and President
from February 6, 2010 until February 3, 2012. Changes in our key positions, as well as additions of new personnel and departures
of existing personnel, can be disruptive, might lead to additional departures of existing personnel and could have a material
adverse effect on our business, operating results, financial results and internal controls over financial reporting.
We may not be able to retain rights
licensed to us by others to commercialize key products and may not be able to establish or maintain the relationships we need
to develop, manufacture, and market our products.
In addition to our own patent applications,
we also currently rely on licensing agreements with third party patent holders/licensors for our products. We have an exclusive
license agreement with the McLean Hospital relating to the use of flupirtine to treat fibromyalgia which was sublicensed to Meda
AB and an exclusive license agreement with the Regents of the University of California relating to our Trimesta technology. Each
of these agreements requires us or our sublicensee to use our best efforts to commercialize each of the technologies as well as
meet certain diligence requirements and timelines in order to keep the license agreement in effect. In the event we or our sublicensee
are not able to meet our diligence requirements, we may not be able to retain the rights granted under our agreements or renegotiate
our arrangement with these institutions on reasonable terms, or at all. Furthermore, we currently have very limited product development
capabilities, and limited marketing or sales capabilities. For us to research, develop, and test our product candidates, we would
need to contract with outside researchers, in most cases those parties that did the original research and from whom we have licensed
the technologies. Our exclusive channel collaboration agreement with Intrexon provides that Intrexon may terminate each such agreement
if we do not perform certain specified requirements, including developing therapies considered superior. Our agreement with The
University of Texas allows the University to terminate its agreement if we fail to comply with the terms of the agreement. Our
agreement with Prev provides Prev with the right to the return of the assets if we do not perform certain requirements.
We can give no assurances that any of
our issued patents licensed to us or any of our other patent applications will provide us with significant proprietary protection
or be of commercial benefit to us. Furthermore, the issuance of a patent is not conclusive as to its validity or enforceability,
nor does the issuance of a patent provide the patent holder with freedom to operate without infringing the patent rights of others.
We will incur additional expenses
in connection with our exclusive channel collaboration arrangement with Intrexon and our agreement with Prev.
Pursuant to our exclusive channel collaboration
with Intrexon, we are responsible for future research and development expenses of product candidates developed under each such
collaboration, the effect of which has and will continue to increase the level of our overall research and development expenses
going forward. Our agreement with Prev requires that we initiate certain studies and file an NDA within a certain amount of time,
each of which are costly and will require additional expenditures. Although all manufacturing, preclinical studies and human clinical
trials are expensive and difficult to design and implement, costs associated with the manufacturing, research and development
of biologic product candidates are generally greater in comparison to small molecule product candidates. We have added additional
personnel and expect to add additional personnel to support our exclusive channel collaboration with Intrexon, and research and
development of our biologic candidate, SYN-004.
Because our biologic programs are
relatively new, we have only recently assumed development responsibility and costs associated with such programs. In
addition, because development activities in collaboration with Intrexon are determined pursuant to a joint steering
committees comprised of Intrexon and ourselves and we have limited experience, future development costs associated with this
program may be difficult to anticipate and exceed our expectations. Our actual cash requirements may vary materially from our
current expectations for a number of other factors that may include, but are not limited to, unanticipated technical
challenges, changes in the focus and direction of our development activities or adjustments necessitated by changes in the
competitive landscape in which we operate. If we are unable to continue to financially support such collaborations due to our
own working capital constraints, we may be forced to delay our activities. If we are unable to obtain additional financing on
terms acceptable to us or at all, we may be forced to seek licensing partners or discontinue development.
Developments by competitors may
render our products or technologies obsolete or non-competitive.
Companies that currently sell or are developing
both generic and proprietary products to treat multiple sclerosis include: Abbott Biotherapeutics Corporation, Bayer Health Care,
Biogen Idec, Genzyme, GlaxoSmithKline Pharmaceuticals, Merck & Co., Pfizer, Novartis, Sanofi and Teva Pharmaceuticals. Companies
that currently sell or are developing both generic and proprietary products to treat infectious diseases include: MedImmune, Pfizer,
Cubist, Optimer Pharmaceuticals, Symphogen, Merus, GlaxoSmithKline Pharmaceuticals and Merck & Co. Many of our competitors
have significant financial and human resources. The infectious disease market is highly competitive with many generic and proprietary
intravenous and oral formulations available to physicians and their patients. For our monoclonal antibodies, we currently do not
expect to be able to deliver our infectious disease candidates via the oral route and may thus be limited to the in-patient and/or
acute treatment setting. In addition, academic research centers may develop technologies that compete with our Trimesta and flupirtine
technologies. Should clinicians or regulatory authorities view these therapeutic regiments as more effective than our products,
this might delay or prevent us from obtaining regulatory approval for our products, or it might prevent us from obtaining favorable
reimbursement rates from payers, such as Medicare, Medicaid, hospitals and private insurers.
We operate in a highly competitive
environment
.
The pharmaceutical and biotechnology industries,
including the monoclonal antibody industry, are characterized by rapidly evolving technology and intense competition. Our competitors
include major multi-national pharmaceutical companies and biotechnology companies developing both generic and proprietary therapies
to treat serious diseases. Many of these companies are well-established and possess technical, human, research and development,
financial, and sales and marketing resources significantly greater than ours. In addition, many of our potential competitors have
formed strategic collaborations, partnerships and other types of joint ventures with larger, well established industry competitors
that afford these companies potential research and development and commercialization advantages in the therapeutic areas we are
currently pursuing.
Academic research centers, governmental
agencies and other public and private research organizations are also conducting and financing research activities which may produce
products directly competitive to those being developed by us. In addition, many of these competitors may be able to obtain patent
protection, obtain FDA and other regulatory approvals and begin commercial sales of their products before us.
Competitors could develop and/or
gain FDA approval of our product candidates for a different indication.
Since we do not have composition of matter
patent claims for flupirtine and estriol, others may obtain approvals for other uses of these products that are not covered by
our issued or pending patents. For example, the active ingredients in both Effirma (flurpirtine) and Trimesta (oral estriol) have
been approved for marketing in overseas countries for different uses. Other companies, including the original developers or licensees
or affiliates may seek to develop Effirma or Trimesta or their respective active ingredient(s) for other uses in the U.S. or any
country we are seeking approval for. We cannot provide any assurances that any other company may obtain FDA approval for products
that contain flupirtine and estriol in various formulations or delivery systems that might adversely affect our ability or the
ability of Meda to develop and market these products in the U.S. We are aware that other companies have intellectual property
protection using the active ingredients and have conducted clinical trials of flupirtine and estriol for different applications
than what we are developing. Many of these companies may have more resources than us. We cannot provide any assurances that our
products will be FDA-approved prior to our competitors.
If a product containing our active ingredients
is already marketed or if the FDA approves other products containing our active ingredients in the future to treat indications,
physicians may elect to prescribe and substitute a competitor’s products to treat the diseases for which we are intending
to commercialize; this is commonly referred to as “off-label” use. While under FDA regulations a competitor is not
allowed to promote off-label uses of its product, the FDA does not regulate the practice of medicine and, as a result, cannot
direct physicians to select certain products for their patients. Consequently, we might be limited in our ability to prevent off-label
use of a competitor’s product to treat the diseases we are intending to commercialize, even if we have issued method of
use patents for that indication. If we are not able to obtain and enforce our patents, if any, or otherwise receive orphan drug
protection in the case of ALS, a competitor could develop and commercialize similar products for the same indications that we
are pursuing. We cannot provide any assurances that a competitor will not obtain FDA approval for a product that contains the
same active ingredients as our products.
We rely on method patents and patent
applications and various regulatory exclusivities to protect some of our product candidates and our ability to compete may be
limited or eliminated if we are not able to protect our products.
Our competitiveness may be adversely affected
if we are unable to protect our proprietary technologies. We do not have composition of matter patents for Trimesta or Effirma,
or their respective active ingredients estriol and flupirtine. We rely on issued patent and pending patent applications for use
of Trimesta to treat MS (issued U.S. Patent Nos. 6,936,599 and 8,372,826) and various other therapeutic indications, which have
been exclusively licensed to us. We have exclusively licensed an issued patent for the treatment of fibromyalgia with flupirtine,
which we have sublicensed to Meda AB.
Our AEN-100 drug candidate (gastroretentive
zinc acetate) is the subject of U.S. and international pending patent applications, such as published U.S. patent application
Ser. No. 11/621,962 and corresponding international applications that claim priority to January 10, 2006 as well as additional
patent applications. On October 26, 2011, we received a final rejection letter with regard to U.S. patent application Ser. No.
11/621,962. On February 15, 2012, we filed a Request for Continued Examination. Our inability to obtain patent protection could
hinder our partnering efforts.
The patent positions of pharmaceutical
companies are uncertain and may involve complex legal and factual questions. We may incur significant expense in protecting our
intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other
infringement litigation by or against us could cause us to incur significant expense and divert the attention of our management.
Others may file patent applications or
obtain patents on similar technologies or compounds that compete with our products. We cannot predict how broad the claims in
any such patents or applications will be, and whether they will be allowed. Once claims have been issued, we cannot predict how
they will be construed or enforced. We may infringe intellectual property rights of others without being aware of it. If another
party claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large
sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign
our product, which may not be possible.
We also rely on trade secrets and proprietary
know-how to develop and maintain our competitive position. Some of our current or former employees, consultants, scientific advisors,
current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors
or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade
secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop
similar knowledge, methods, and know-how or gain access to our proprietary information through some other means.
We may fail to retain or recruit
necessary personnel, and we may be unable to secure the services of consultants.
As of May 14, 2013, we employed approximately
fourteen individuals, eight of whom are full-time employees.
We have also engaged clinical consultants
to advise us on our clinical programs and regulatory consultants to advise us on our dealings with the FDA and other foreign regulatory
authorities. We have been and will be required to retain additional consultants and employees in order to fulfill our obligations
under our exclusive channel collaborations with Intrexon and our development obligations under our agreement with Prev. Our future
performance will depend in part on our ability to successfully integrate newly hired officers into our management team and our
ability to develop an effective working relationship among senior management.
Certain of our directors, scientific
advisors, and consultants serve as officers, directors, scientific advisors, or consultants of other biopharmaceutical or biotechnology
companies that might be developing competitive products to ours. Other than corporate opportunities, none of our directors are
obligated under any agreement or understanding with us to make any additional products or technologies available to us. Similarly,
we can give no assurances, and we do not expect and stockholders should not expect, that any biomedical or pharmaceutical product
or technology identified by any of our directors or affiliates in the future would be made available to us other than corporate
opportunities. We can give no assurances that any such other companies will not have interests that are in conflict with our interests.
Losing key personnel or failing to recruit
necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for
qualified personnel in the drug and biologic development areas, and we may not be able to attract and retain the qualified personnel
we would need to develop our business.
We rely on independent organizations,
advisors, and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval,
clinical management, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may
not always be available to us on a timely basis when we need them.
If the parties we depend on for
supplying substance raw materials for our product candidates and certain manufacturing-related services do not timely supply these
products and services in sufficient quality or quantity, it may delay or impair our ability to develop, manufacture and market
our product candidates.
We rely on suppliers for the substance
raw materials of our product candidates and third parties for certain manufacturing-related services to produce material that
meets appropriate content, quality and stability standards and use in clinical trials of our products and, after approval, for
commercial distribution. We have not yet established cGMP manufacturers for our biologic and drug candidates. To succeed, clinical
trials require adequate supplies of study material, which may be difficult or uneconomical to procure or manufacture. We and our
suppliers and vendors may not be able to (i) produce our study material to appropriate standards for use in clinical studies,
(ii) perform under any definitive manufacturing, supply or service agreements with us, or (iii) remain in business for a sufficient
time to successfully produce and market our product candidates. If we do not maintain important manufacturing and service relationships,
we may fail to find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay
or impair our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins,
if any. If we do find replacement manufacturers and vendors, we may not be able to enter into agreements with them on terms and
conditions favorable to us and, there could be a substantial delay before a new facility could be qualified and registered with
the FDA and foreign regulatory authorities.
Clinical trials are very expensive,
time-consuming, and difficult to design and implement.
Human clinical trials are very expensive
and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial
process is also time-consuming. We estimate that clinical trials of our product candidates would take at least several years to
complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon
or repeat clinical trials. Commencement and completion of clinical trials may be delayed by several factors, including:
|
●
|
obtaining an IND application
with the FDA to commence clinical trials;
|
|
●
|
identification of, and acceptable arrangements
with, one or more clinical sites;
|
|
●
|
obtaining IRB approval to commence
clinical trials;
|
|
●
|
unforeseen safety issues;
|
|
●
|
determination of dosing;
|
|
●
|
lack of effectiveness during clinical
trials;
|
|
●
|
slower than expected rates of patient
recruitment;
|
|
●
|
inability to monitor patients adequately
during or after treatment;
|
|
●
|
inability or unwillingness of medical
investigators to follow our clinical protocols; and
|
|
●
|
unwillingness of the FDA or IRBs to
permit the clinical trials to be initiated.
|
In addition, we, IRBs or the FDA may suspend our clinical trials
at any time if it appears that we are exposing participants to unacceptable health risks or if IRBs or the FDA finds deficiencies
in our submissions or conduct of our trials.
The results of our clinical trials
may not support our product candidate claims and the results of preclinical studies and completed clinical trials are not necessarily
predictive of future results.
To date, long-term safety and efficacy
have not yet been demonstrated in clinical trials for any of our product candidates. Favorable results in our early studies or
trials may not be repeated in later studies or trials. Even if our clinical trials are initiated and completed as planned, we
cannot be certain that the results will support our product candidate claims. Success in preclinical testing and early clinical
trials does not ensure that later clinical trials will be successful. Furthermore, success of our predecessor with P1A, does not
ensure success of SYN-004. We cannot be sure that the results of later clinical trials would replicate the results of prior clinical
trials and preclinical testing nor that they would satisfy the requirements of the FDA or other regulatory agencies. Clinical
trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Any such failure
could cause us or our sublicensee to abandon a product candidate and might delay development of other product candidates. Preclinical
and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals
or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining FDA approval for the affected
product candidate and, ultimately, our ability to commercialize that product candidate.
We depend on third parties, including
researchers and sublicensees, who are not under our control.
Since we have in-licensed some of our
product candidates, have sublicensed a product candidate and have collaboration agreements for the development of other product
candidates, we depend upon our sublicensee and independent investigators and scientific collaborators, such as universities and
medical institutions or private physician scientists, to advise us and to conduct our preclinical and clinical trials under agreements
with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to
our programs or the timing of their procurement of clinical-trial data or their compliance with applicable regulatory guidelines.
Should any of these scientific inventors/advisors or those of our sublicensee become disabled or die unexpectedly, or should they
fail to comply with applicable regulatory guidelines, we or our sublicensee may be forced to scale back or terminate development
of that program. They may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking
those programs ourselves. Failing to devote sufficient time and resources to our drug-development programs, or substandard performance
and failure to comply with regulatory guidelines, could result in delay of any FDA applications and our commercialization of the
drug candidate involved.
These collaborators may also have relationships
with other commercial entities, some of which may compete with us. Our collaborators assisting our competitors could harm our
competitive position. For example, we are highly dependent on scientific collaborators for our Trimesta development program. Specifically,
all of the clinical trials have been conducted under investigator-sponsored IND applications, not corporate-sponsored INDs. We
have sometimes experienced difficulty in collecting data generated from these investigator-sponsored clinical trials for our programs.
We cannot provide any assurances that we will not experience any additional delays in the future.
We are also highly dependent on government
and private grants to fund certain of our clinical trials for our product candidates. For example, Trimesta (oral estriol) has
received grants totaling over $8 million, predominantly from the Southern California Chapter of the NMSS and the National
Institutes of Health which funds a majority of the ongoing clinical trial in relapsing-remitting MS for women. Although we believe
that the grant funding received to date is sufficient to complete the current clinical trial based upon current cost estimates,
if we experience any additional unanticipated costs or require further clinical trials, and our scientific collaborator is unable
to maintain or receive additional grants, we might be forced to scale back or terminate the development of this product candidate.
We will also need to cross reference our IND with the inventor/IND holder for this program should we elect to file our own corporate
IND for our Trimesta (oral estriol) program. The on-going and future development and commercialization of Effirma (flupirtine)
for fibromyalgia is the responsibility of Meda AB and no assurance can be given that Meda will gain the FDA’s acceptance
of the NDA or obtain NDA approval from the FDA of flupirtine for fibromyalgia.
With respect to our product candidates
in collaboration with Intrexon, we are dependent upon Intrexon’s synthetic biology facilities and capabilities as we have
no such facilities and capabilities of our own. We are also reliant on their vectors, monoclonal antibody discovery, production
cell line development and know-how. If any of the foregoing were to become inaccessible or terminated, it would be difficult for
us to develop and commercialize our synthetic biologic product candidates.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated
with lawsuits.
If any other person files patent applications,
or is issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference
proceedings in the U.S. Patent and Trademark Office to determine priority of invention. We, or our licensors, may also need to
participate in interference proceedings involving our issued patents and pending applications of another entity.
The intellectual property environment
in the monoclonal antibody field is particularly complex, constantly evolving and highly fragmented. We have not conducted freedom-to-use
patent searches on all aspects of our product candidates or potential product candidates, and we may be unaware of relevant patents
and patent applications of third parties. In addition, the freedom-to-use patent searches that have been conducted may not have
identified all relevant issued patents or pending patents. We cannot provide assurance that our proposed products in this area
will not ultimately be held to infringe one or more valid claims owned by third parties which may exist or come to exist in the
future or that in such case we will be able to obtain a license from such parties on acceptable terms.
We cannot guarantee that the practice
of our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition
proceedings, either by opposing the validity of another’s foreign patent or by persons opposing the validity of our foreign
patents.
We may also face frivolous litigation
or lawsuits from various competitors or from litigious securities attorneys. The cost to us of any litigation or other proceeding
relating to these areas, even if deemed frivolous or resolved in our favor, could be substantial and could distract management
from our business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect
on our ability to continue our operations.
If we infringe the rights of others
we could be prevented from selling products or forced to pay damages.
If our products, methods, processes, and
other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or we may
be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling
to offer us a license on commercially acceptable terms.
RISKS RELATING TO OUR STOCK
We will seek to raise additional
funds in the future, which may be dilutive to stockholders or impose operational restrictions.
We expect to seek to raise additional
capital in the future to help fund development of our proposed products. If we raise additional capital through the issuance of
equity or of debt securities, the percentage ownership of our current stockholders will be reduced. We may also enter into strategic
transactions, issue equity as part of license issue fees to our licensors, compensate consultants or settle outstanding payables
using equity that may be dilutive. Our stockholders may experience additional dilution in net book value per share and any additional
equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.
We are substantially controlled
by our current officers, directors, and principal stockholders.
Currently, our directors, executive officers,
and principal stockholders beneficially own a substantial number of shares of our common stock. As a result, they will be able
to exert substantial influence over the election of our Board of Directors and the vote on issues submitted to our stockholders.
Our executive officers and directors beneficially owned approximately 9.0 million shares of our common stock, including stock
options and warrants exercisable within 60 days of May 14, 2013. Randal J. Kirk indirectly beneficially owns approximately 9.8
million shares of our common stock. Our executive officers, directors and principal stockholders together beneficially owned approximately
18.8 million shares of our common stock, including the stock options and warrants exercisable within 60 days of May 14, 2013. Because
our common stock has from time to time been “thinly traded”, the sale of a substantial number of shares by our executive
officers, directors and principal stockholders would have an adverse effect on the market for our stock and our share price.
Our shares of common stock are from
time to time thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares
to raise money or otherwise desire to liquidate their shares.
Our common stock has from time to time
been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask
prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including
the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend
the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several
days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We
cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop
or be sustained, or that current trading levels will be sustained.
We cannot assure you that the common stock will be liquid
or that it will remain listed on the NYSE MKT.
We cannot assure you that we will be able
to maintain the continued listing standards of the NYSE MKT (formerly the NYSE Amex and the American Stock Exchange). The NYSE
MKT requires companies to meet certain continued listing criteria including certain minimum stockholders' equity and equity
prices per share as outlined in the NYSE MKT Exchange Company Guide. We may not be able to maintain such minimum stockholders'
equity or prices per share or may be required to effect a reverse stock split to maintain such minimum prices and/or issue additional
equity securities in exchange for cash or other assets, if available, to maintain certain minimum stockholders' equity required
by the NYSE MKT. If we are delisted from the NYSE MKT then our common stock will trade, if at all, only on the over-the-counter
market, such as the OTC Bulletin Board securities market, and then only if one or more registered broker-dealer market makers
comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit
liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.
Delisting from the NYSE MKT could also have other negative results, including the potential loss of confidence by suppliers and
employees, the loss of institutional investor interest and fewer business development opportunities. In order to remain listed
on NYSE MKT, we are required to maintain a minimum stockholders’ equity of $6 million.
There may be issuances of shares
of preferred stock in the future.
Although we currently do not have preferred
shares outstanding, the Board of Directors could authorize the issuance of a series of preferred stock that would grant holders
preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to common stockholders,
and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock.
To the extent that we do issue preferred stock, the rights of holders of common stock could be impaired thereby, including without
limitation, with respect to liquidation.
Our failure to fulfill all of our registration requirements
may cause us to suffer liquidated damages, which may be very costly.
Pursuant to the terms of the registration
rights agreement that we entered into with Intrexon and an affiliated entity, we are required to file a registration statement
with respect to securities issued to them within a certain time period and maintain the effectiveness of such registration statement.
The failure to do so could result in the payment of damages by us. There can be no assurance that we will be able to maintain
the effectiveness of any registration statement, and therefore there can be no assurance that we will not incur damages with respect
to such agreements.
RISKS RELATED TO OUR INDUSTRY
We are subject to government regulation,
compliance with which can be costly and difficult.
In the U.S., the formulation, manufacturing,
packaging, storing, labeling, promotion, advertising, distribution and sale of our products are subject to regulation by various
governmental agencies, including (1) the FDA, (2) the Federal Trade Commission, or FTC, (3) the Consumer Product Safety Commission,
or CPSC, (4) the U.S. Department of Agriculture, or USDA. Our proposed activities may also be regulated by various agencies of
the states, localities and foreign countries in which our proposed products may be manufactured, distributed and sold. The FDA,
in particular, regulates the formulation, manufacture and labeling of over-the-counter, or OTC drugs, prescription drugs, conventional
foods, dietary supplements, and cosmetics such as those that we intend to distribute. FDA regulations require us and our suppliers
to meet relevant cGMP regulations for the preparation, packing, labeling, and storage of all drugs and foods.
Any products manufactured or distributed
by us pursuant to FDA approvals are subject to pervasive and continuing FDA regulation, including record-keeping requirements,
reporting of adverse experiences, submitting periodic reports, drug sampling and distribution requirements, manufacturing or labeling
changes, record-keeping requirements, and compliance with FDA promotion and advertising requirements. Drug manufacturers and their
subcontractors are required to register their facilities with the FDA and state agencies, and are subject to periodic unannounced
inspections for GMP compliance, imposing procedural and documentation requirements upon us and third-party manufacturers. Failure
to comply with these regulations could result, among other things, in suspension of regulatory approval, recalls, suspension of
production or injunctions, seizures, or civil or criminal sanctions. We cannot be certain that we or our present or future subcontractors
will be able to comply with these regulations.
The FDA regulates prescription drug labeling
and promotion activities. The FDA actively enforces regulations prohibiting the marketing of products for unapproved uses. The
FDA permits the promotion of drugs for unapproved uses in certain circumstances, subject to stringent requirements. We and our
product candidates are subject to a variety of state laws and regulations which may hinder our ability to market our products.
Whether or not FDA approval has been obtained, approval by foreign regulatory authorities must be obtained prior to commencing
clinical trials, and sales and marketing efforts in those countries. These approval procedures vary in complexity from country
to country, and the processes may be longer or shorter than that required for FDA approval. We may incur significant costs to
comply with these laws and regulations now or in the future.
The FDA, comparable foreign regulators
and state and local pharmacy regulators impose substantial requirements upon clinical development, manufacture and marketing of
pharmaceutical products. These and other entities regulate research and development and the testing, manufacture, quality control,
safety, effectiveness, labeling, storage, record keeping, approval, advertising, and promotion of our products. The drug approval
process required by the FDA under the Food, Drug, and Cosmetic Act generally involves:
|
●
|
preclinical laboratory
and animal tests;
|
|
●
|
submission of an IND, prior to commencing
human clinical trials;
|
|
●
|
adequate and well-controlled human
clinical trials to establish safety and efficacy for intended use;
|
|
●
|
submission to the FDA of an NDA or
Biologics License Application (BLA); and
|
|
●
|
FDA review and approval of an NDA or
BLA.
|
The testing and approval process requires substantial time,
effort, and financial resources, and we cannot be certain that any approval will be granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation
of the product candidate, its chemistry, formulation and stability, and animal studies to assess potential safety and efficacy.
Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulations
can, in some cases, lead to invalidation of the studies, requiring them to be replicated. In some cases, long-term preclinical
studies are conducted concurrently with clinical studies.
We will submit the preclinical test results,
together with manufacturing information and analytical data, to the FDA as part of an IND, which must become effective before
we begin human clinical trials. The IND automatically becomes effective 30 days after filing, unless the FDA raises questions
about conduct of the trials outlined in the IND and imposes a clinical hold, in which case, the IND sponsor and FDA must resolve
the matters before clinical trials can begin. It is possible that our submission may not result in FDA authorization to commence
clinical trials.
Clinical trials must be supervised by
qualified investigators in accordance with good clinical practice (GCP) regulations, which include informed consent requirements.
Each study must be approved and monitored by the appropriate IRBs which are periodically informed of the study’s progress,
adverse events and changes in research. Annual updates are submitted to the FDA and more frequently if certain serious adverse
events occur.
Human clinical trials of drug candidates
typically have three sequential phases that may overlap:
Phase I: The drug is initially tested
in healthy human subjects or patients for safety, dosage tolerance, absorption, metabolism, distribution, and excretion.
Phase II: The drug is studied in
a limited patient population to identify possible adverse effects and safety risks, determine efficacy for specific diseases and
establish dosage tolerance and optimal dosage.
Phase III: When Phase II evaluations
demonstrate that a dosage range is effective with an acceptable safety profile, Phase III trials to further evaluate dosage,
clinical efficacy and safety, are undertaken in an expanded patient population, often at geographically dispersed sites.
We cannot be certain that we will successfully
complete Phase I, Phase II, or Phase III testing of our product candidates within any specific time period, if at all. Furthermore,
the FDA, an IRB or the IND sponsor may suspend clinical trials at any time on various grounds, including a finding that subjects
or patients are exposed to unacceptable health risk. Concurrent with these trials and studies, we also develop chemistry and physical
characteristics data and finalize a manufacturing process in accordance with good manufacturing practice (GMP) requirements. The
manufacturing process must conform to consistency and quality standards, and we must develop methods for testing the quality,
purity, and potency of the final products. Appropriate packaging is selected and tested, and chemistry stability studies are conducted
to demonstrate that the product does not undergo unacceptable deterioration over its shelf-life. Results of the foregoing are
submitted to the FDA as part of a NDA (or BLA in case of biologic products) for marketing and commercial shipment approval. The
FDA reviews each NDA or BLA submitted and may request additional information.
Once the FDA accepts the NDA or BLA for
filing, it begins its in-depth review. The FDA has substantial discretion in the approval process and may disagree with our interpretation
of the data submitted or identify new concerns. The process may be significantly extended by requests for new information or clarification
of information already submitted. As part of this review, the FDA may refer the application to an advisory committee, typically
a panel of clinicians. Manufacturing establishments often are inspected prior to NDA or BLA approval to assure compliance with
GMPs and with manufacturing commitments made in the application.
Submission of an NDA or BLA with clinical
data requires payment of a fee. In return, the FDA assigns a goal of ten months for issuing its “complete response,”
in which the FDA may approve or deny the NDA or BLA, or require additional clinical data. Even if these data are submitted, the
FDA may ultimately decide the NDA or BLA does not satisfy approval criteria. If the FDA approves the NDA or BLA, the product becomes
available for marketing. Product approval may be withdrawn if regulatory compliance is not maintained or safety problems occur.
The FDA may require post-marketing studies, also known as phase IV studies, as a condition of approval, and requires surveillance
programs to monitor approved products that have been commercialized. The agency has the power to require changes in labeling or
prohibit further marketing based on the results of post-marketing surveillance.
Satisfaction of these and other regulatory
requirements typically takes several years, and the actual time required may vary substantially based upon the type, complexity
and novelty of the product. Government regulation may delay or prevent marketing of potential products for a considerable period
of time and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies will approve
any of our products on a timely basis, if at all. Success in preclinical or early-stage clinical trials does not assure success
in later-stage clinical trials. Data obtained from preclinical and clinical activities are not always conclusive and may be susceptible
to varying interpretations that could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval,
the approval may be significantly limited to specific indications or uses.
Even after regulatory approval is obtained,
later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal
of the product from the market. Delays in obtaining, or failures to obtain regulatory approvals would have a material adverse
effect on our business.
The FDA’s policies may change, and
additional government regulations may be enacted which could prevent or delay regulatory approval of our potential products. Increased
attention to the containment of health care costs worldwide could result in new government regulations materially adverse to our
business. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative
or administrative action, either in the U.S. or abroad.
We do not have a guarantee of patent
term restoration and marketing exclusivity of the ingredients for our drugs even if we are granted FDA approval of our products.
The U.S. Drug Price Competition and Patent
Term Restoration Act of 1984 (Hatch-Waxman) permits the FDA to approve Abbreviated New Drug Applications (ANDAs) for generic versions
of innovator drugs, as well as NDAs with less original clinical data, and provides patent restoration and exclusivity protections
to innovator drug manufacturers. The ANDA process permits competitor companies to obtain marketing approval for drugs with the
same active ingredient and for the same uses as innovator drugs, but does not require the conduct and submission of clinical studies
demonstrating safety and efficacy. As a result, a competitor could copy any of our drugs and only need to submit data demonstrating
that the copy is bioequivalent to gain marketing approval from the FDA. Hatch-Waxman requires a competitor that submits an ANDA,
or otherwise relies on safety and efficacy data for one of our drugs, to notify us and/or our business partners of potential infringement
of our patent rights. We and/or our business partners may sue the company for patent infringement, which would result in a 30-month
stay of approval of the competitor’s application. The discovery, trial and appeals process in such suits can take several
years. If the litigation is resolved in favor of the generic applicant or the challenged patent expires during the 30-month period,
the stay is lifted and the FDA may approve the application. Hatch-Waxman also allows competitors to market copies of innovator
products by submitting significantly less clinical data outside the ANDA context. Such applications, known as “505(b)(2)
NDAs” or “paper NDAs,” may rely on clinical investigations not conducted by or for the applicant and for which
the applicant has not obtained a right of reference or use and are subject to the ANDA notification procedures described above.
The law also permits restoration of a
portion of a product’s patent term that is lost during clinical development and NDA review, and provides statutory protection,
known as exclusivity, against FDA approval or acceptance of certain competitor applications. Restoration can return up to five
years of patent term for a patent covering a new product or its use to compensate for time lost during product development and
regulatory review. The restoration period is generally one-half the time between the effective date of an IND and submission of
an NDA, plus the time between NDA submission and its approval (subject to the five-year limit), and no extension can extend total
patent life beyond 14 years after the drug approval date. Applications for patent term extension are subject to U.S. Patent and
Trademark Office (USPTO) approval, in conjunction with FDA. Approval of these applications takes at least nine months, and there
can be no guarantee that it will be given at all.
Hatch-Waxman also provides for differing
periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a “new
molecular entity” and those for a new formulation or indication for a previously-approved drug. If granted, marketing exclusivity
for the types of products that we are developing, which include only drugs with innovative changes to previously-approved products
using the same active ingredient, would prohibit the FDA from approving an ANDA or 505(b)(2) NDA relying on our safety and efficacy
data for three years. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does
not prohibit the FDA from approving applications for drugs with the same active ingredient but without our new innovative change.
These marketing exclusivity protections do not prohibit the FDA from approving a full NDA, even if it contains the innovative
change.