Item
1.
BUSINESS
COMPANY
OVERVIEW
We
are a biopharmaceutical research and development company specializing in oncology. Our focus has been on the discovery, research
and clinical development of novel anti-cancer drug candidates that employ novel linker technologies to enhance the accumulation
and release of cytotoxic anti-cancer agents at the tumor. During 2017, CytRx’s discovery laboratory, located in Freiburg,
Germany, synthesized and tested over 75 rationally designed drug conjugates with highly potent payloads, culminating in the creation
of two distinct classes of compounds. Four lead candidates (LADR-7, LADR-8, LADR-9 and LADR-10) were selected based on
in vitro
and animal preclinical studies, including stability and manufacturing feasibility. In 2018, additional animal efficacy and
toxicology testing of these lead candidates was conducted. In addition, a novel albumin companion diagnostic, ACDx™, was
developed to identify patients with cancer who are most likely to benefit from treatment with these drug candidates.
On
June 1, 2018, CytRx launched Centurion BioPharma Corporation (“Centurion”), a wholly owned subsidiary, and transferred
all of its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In connection with
said transfer, the Company and Centurion entered into a Management Services Agreement whereby the Company agreed to render advisory,
consulting, financial and administrative services to Centurion, for which Centurion shall reimburse the Company for the cost of
such services plus a 5% service charge. The Management Services Agreement may be terminated by either party at any time. Centurion
is focused on the development of personalized medicine for solid tumor treatment. On December 21, 2018, CytRx announced that Centurion
had concluded the pre-clinical phase of development for its four LADR drug candidates, and for its albumin companion diagnostic
(ACDx™). As a result of completing this work, operations taking place at the pre-clinical laboratory in Freiburg, Germany
would no longer be needed and, accordingly, the laboratory was closed at the end of January 2019.
We
are a Delaware corporation, incorporated in 1985. Our corporate offices are located at 11726 San Vicente Boulevard, Suite 650,
Los Angeles, California 90049, and our telephone number is (310) 826-5648. Our web site is located at http://www.cytrx.com. We
do not incorporate by reference into this Annual Report the information on, or accessible through, our website, and you should
not consider it as part of this Annual Report.
LADR
Drug Discovery Platform and Centurion
Centurion’s
LADR™ (Linker Activated Drug Release) technology platform is a discovery engine combining our expertise in linker chemistry
and albumin biology to create a pipeline of anti-cancer molecules that will avoid unacceptable systemic toxicity while delivering
highly potent agents directly to the tumor. They have created a “toolbox” of linker technologies that have the ability
to significantly increase the therapeutic index of ultra-high potency drugs (10-1,000 times more potent than traditional chemotherapies)
by controlling the release of the drug payloads and improving drug-like properties.
Their
efforts were focused on two classes of ultra-high potency albumin-binding drug conjugates. These drug conjugates combine the proprietary
LADR™ linkers with novel derivatives of the auristatin and maytansinoid drug classes. These payloads historically have required
a targeting antibody for successful administration to humans. Their drug conjugates eliminate the need for a targeting antibody
and provide a small molecule therapeutic option with potential broader applicability.
Centurion’s
postulated mechanism of action for the albumin-binding drug conjugates is as follows:
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after
administration, the linker portion of the drug conjugate forms a rapid and specific covalent bond to the cysteine-34 position
of circulating albumin;
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circulating
albumin preferentially accumulates at the tumors, bypassing concentration in other non-tumor sites, including the heart, liver
and gastrointestinal tract due to a mechanism called “Enhanced Permeability and Retention”;
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once
localized at the tumor, the acid-sensitive linker is cleaved due to the specific conditions within the tumor and in the tumor
microenvironment; and
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free
active drug is then released into the tumor.
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Centurion’s
novel companion diagnostic, ACDx™ (albumin companion diagnostic), was developed to identify patients with cancer who are
most likely to benefit from treatment with the four LADR lead assets.
Current
Business Strategy
Currently,
the Company is
working
on identifying partnership opportunities for LADR™ ultra-high potency drug conjugates and their albumin companion
diagnostic.
We have concluded all research and development on LADR and its companion diagnostic
and are now focused solely on identifying these partnership opportunities
In addition, the Company is investigating new
opportunities and lines of business.
Aldoxorubicin
Until
July 2017, we were focused on the research and clinical development of aldoxorubicin, our modified version of the widely-used
chemotherapeutic agent, doxorubicin. Aldoxorubicin combines the chemotherapeutic agent doxorubicin with a novel linker-molecule
that binds specifically to albumin in the blood to allow for delivery of higher amounts of doxorubicin (3½ to 4 times)
without several of the major dose-limiting toxicities seen with administration of doxorubicin alone.
On
July 27, 2017, we entered into an exclusive worldwide license with NantCell, Inc. (“NantCell”), granting to NantCell
the exclusive rights to develop, manufacture and commercialize aldoxorubicin in all indications, and our company is no longer
directly working on development of aldoxorubicin. As part of the license, NantCell made a strategic investment of $13 million
in CytRx common stock at $6.60 per share (adjusted to reflect our 2017 reverse stock split), a premium of 92% to the market price
on that date. We also issued NantCell a warrant to purchase up to 500,000 shares of common stock at $6.60, which expired on January
26, 2019. We are entitled to receive up to an aggregate of $343 million in potential milestone payments contingent upon achievement
of certain regulatory approvals and commercial milestones. We are also entitled to receive ascending double-digit royalties for
net sales for soft tissue sarcomas and mid to high single digit royalties for other indications.
Aldoxorubicin
is a conjugate of the commonly prescribed chemotherapeutic agent doxorubicin that binds to circulating albumin in the bloodstream
and is believed to concentrate the drug at the site of the tumor. Aldoxorubicin, our lead clinical candidate, has been tested
in over 600 patients with various types of cancer. Specifically, it is comprised of (6-maleimidocaproyl) hydrazine, an acid-sensitive
molecule that is conjugated to doxorubicin. The initial indication for aldoxorubicin is for patients with advanced soft tissue
sarcomas (STS).
Aldoxorubicin
has received Orphan Drug Designation (ODD) by the U.S. FDA for the treatment of STS. ODD provides several benefits including seven
years of market exclusivity after approval, certain R&D related tax credits, and protocol assistance by the FDA. European
regulators granted aldoxorubicin Orphan designation for STS which confers ten years of market exclusivity among other benefits.
During
2018, we announced that NantCell was expanding aldoxorubicin’s use by combining it with immunotherapies and cell-based treatments,
in metastatic pancreatic cancer, in advanced squamous cell carcinoma of the head, in neck and in advanced pancreatic cancer. In
January 2019, we announced NantCell expanded aldoxorubicin’s use combining it in patients with relapsed or refractory colorectal
cancer.
Disposition
of Molecular Chaperone Assets
In
2011, CytRx sold the rights to arimoclomol and iroxanadine, based on molecular chaperone regulation technology, to Orphazyme A/S
(formerly Orphazyme ApS) in exchange for a one-time, upfront payment and the right to receive up to a total of $120 million (USD)
in milestone payments upon the achievement of certain pre-specified regulatory and business milestones, as well as royalty payments
based on a specified percentage of any net sales of products derived from arimoclomol. Orphazyme is testing arimoclomol in three
additional indications beyond ALS, including Niemann-Pick disease Type C (NPC), Gaucher disease and sporadic Inclusion Body Myositis
(sIBM). CytRx received a milestone payment of $250,000 in September 2018. Orphazyme has highlighted positive Phase2/3 clinical
trial data in patients with NPC and in February 2019 announced they will initiate filing preparations and seek to meet with the
U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA) mid-2019 to discuss the path to approval. Orphazyme
communicated their plan to submit the regulatory filing to the FDA and EMA during the first half of 2020, with potential action
expected during the second half of 2020. CytRx will be entitled to a milestone payment of $4 million upon EMA approval and $6
million upon FDA approval, with royalties from potential sales and potential additional milestone payments.
Innovive
Acquisition Agreement
On
September 19, 2008, we completed our merger acquisition of Innovive Pharmaceuticals, Inc., or Innovive, and its clinical-stage
cancer product candidates, including aldoxorubicin and tamibarotene. Under the merger agreement by which we acquired Innovive,
we agreed to pay the former Innovive stockholders up to approximately $18.3 million of future earnout merger consideration, subject
to our achievement of specified net sales under the Innovive license agreements. The earnout merger consideration, if any, will
be payable in shares of our common stock, subject to specified conditions, or, at our election, in cash or by a combination of
shares of our common stock and cash. Our common stock will be valued for purposes of any future earnout merger consideration based
upon the trading price of our common stock at the time the earnout merger consideration is paid. The earnout will be accrued if
and when earned.
Research
and Development
Expenditures
for research and development activities related to continuing operations were $0.4 million in 2018 and $19.8 million for the year
ended December 31, 2017, or approximately 5% and 60%, respectively, of our total expenses. For further information regarding our
research and development activities, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” below.
Manufacturing
We
do not have the facilities or expertise to manufacture clinical supplies of aldoxorubicin or any of our other product candidates,
and we lack the resources and capability to manufacture any of our product candidates on a commercial scale. Accordingly, we are
dependent upon third-party manufactures, or potential future strategic alliance partners, to manufacture these supplies. Currently,
we are no longer responsible for manufacturing aldoxorubicin, having entered into an exclusive licensing agreement with NantCell,
Inc.
Commercialization
and Marketing
We
currently have no sales, marketing or commercial product distribution capabilities or experience in marketing products.
We
are searching for a development and commercialization partner for our LADR drug candidates and do not currently plan on commercializing
them ourselves.
Patents
and Proprietary Technology
We
actively seek patent protection for our technologies, processes, uses, and ongoing improvements and consider our patents and other
intellectual property to be critical to our business. We regularly evaluate the patentability of new inventions and improvements
developed by us or our collaborators, and, whenever appropriate, will endeavor to file U.S. and international patent applications
to protect these new inventions and improvements. We cannot be certain that any of the current pending patent applications we
have filed or licensed, or any new patent applications we may file or license, will ever be issued in the U.S. or any other country.
There also is no assurance that any issued patents will be effective to prevent others from using our products or processes. It
is also possible that any patents issued to us, as well as those we have licensed or may license in the future, may be held invalid
or unenforceable by a court, or third parties could obtain patents that we would need to either license or to design around, which
we may be unable to do. Current and future competitors may have licensed or filed patent applications or received patents, and
may acquire additional patents and proprietary rights relating to compounds, products or processes that may be competitive with
ours.
In
addition to patent protection, we attempt to protect our proprietary products, processes and other information by relying on trade
secrets and non-disclosure agreements with our employees, consultants and certain other persons who have access to such products,
processes and information. Under the agreements, all inventions conceived by employees are our exclusive property, but there is
no assurance that these agreements will afford significant protection against misappropriation or unauthorized disclosure of our
trade secrets and confidential information.
As
of December 31, 2018, we have one pending U.S. patent application, fourteen pending foreign patent applications and two pending
international applications covering our LADR
TM
-related technology including LADR-7, LADR-8, LADR-9 and LADR-10. The
un-extended patent term of patents that issue covering our LADR
TM
-related technology is between June 2036 and November
2038. We also have one pending provisional U.S. patent application covering our albumin companion diagnostic (ACDx
TM
).
The un-extended patent term of patents that issue covering our ACDx
TM
is July 2039. The patents and patent applications
covering our LADR
TM
-related technology, and ACDx
TM
are assigned to Centurion BioPharma Corporation. In conjunction
with our July 27, 2017 NantCell licensing agreement, we granted NantCell an exclusive license to all our aldoxorubicin-related
patents, including the rights in four granted U.S. patents, forty-eight granted foreign patents, three pending U.S. patent applications,
and eleven pending foreign patent applications covering aldoxorubicin and related technologies. Our intellectual property holdings
relating to aldoxorubicin and related technologies include an exclusive license from Vergell Medical, S.A. or Vergell, to U.S.
and foreign patents and patent applications. Patents and applications that cover pharmaceutical compositions of aldoxorubicin,
processes for their production, and their use in treatment methods (e.g., cancer (including glioblastoma), viral diseases, autoimmune
diseases, and acute or chronic inflammatory diseases) have un-extended patent terms expiring between June 2020 and June 2034.
LICENSE
AGREEMENTS
Aldoxorubicin
We
are the licensee of patent rights held by KTB for the worldwide development and commercialization of aldoxorubicin under a license
agreement dated April 17, 2006. In February 2017, we received notice that KTB had transferred and assigned its rights and obligations
under the license to Vergell Medical, S.A. The license is exclusive and applies to all products that may be subject to the licensed
intellectual property in all fields of use. We may sublicense the intellectual property in our sole discretion. Pursuant to an
amendment to the license agreement entered into in March 2014, we also have a non-exclusive worldwide license to any additional
technology that is claimed or disclosed in the licensed patents and patent applications for use in the field of oncology.
Under
the agreement, we must make payments to Vergell in the aggregate of up to $7.5 million upon meeting clinical and regulatory milestones,
and up to and including the product’s second final marketing approval. We also agreed to pay:
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commercially
reasonable royalties based on a percentage of net sales (as defined in the agreement);
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a
percentage of any non-royalty sub-licensing income (as defined in the agreement); and
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milestones
of $1 million for each additional final marketing approval that we obtain.
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In
the event that we must pay a third party in order to exercise our rights to the intellectual property under the agreement, we
are entitled to deduct a percentage of those payments from the royalties due Vergell, up to an agreed upon cap.
Under
the agreement with Vergell, we must use commercially reasonable efforts to conduct the research and development activities we
determine are necessary to obtain regulatory approval to market aldoxorubicin in those countries that we determine are commercially
feasible. Under the agreement, Vergell is to use its commercially reasonable efforts to provide us with access to suppliers of
the active pharmaceutical ingredient, or API, of aldoxorubicin, on the same terms and conditions as may be provided to Vergell
by those suppliers.
The
agreement will expire on a product-by-product basis upon the expiration of the subject patent rights. We have the right to terminate
the agreement on 30 days’ notice, provided we pay a cash penalty to Vergell. Vergell may terminate the agreement if we are
in breach and the breach is not cured within a specified cure period, or if we fail to use diligent and commercial efforts to
meet specified clinical milestones.
Competition
The
biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products. While we believe that our LADR™ technology platform and ultra-high potency albumin-bind
drug conjugates provide us with competitive advantages, we face potential competition from many different sources, including major
pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public
and private research institutions. Any drug candidates that we successfully develop and commercialize will compete with existing
therapies and new therapies that may become available in the future.
Many
competitors and potential competitors have substantially greater scientific, research and product development capabilities, as
well as greater financial, marketing and human resources than we do. In addition, many specialized biotechnology firms have formed
collaborations with large, established companies to support the research, development and commercialization of products that may
be competitive with ours.
There
are many companies developing antibody-drug conjugates (ADC) for the treatment of cancer that use the same classes of cytotoxic
payloads as we are currently using. These include Takeda Pharmaceutical Co. Ltd. and Seattle Genetics Inc. who market Adcetris®,
and F. Hoffmann-LaRoche Ltd./Genentech who market Kadcyla®. According to www.clinicaltrials.gov, there are approximately 75
clinical trials testing an ADC that are either on-going or currently enrolling. Other companies have created or have programs
to create potent cell-killing agents for attachment to antibodies or other targeting agents. These companies may compete with
us for technology out-license arrangements.
In
addition to ADCs, we face competition from other nanomedicine platforms developing targeted therapies, including platforms focused
on nanoparticles and liposomes. Non-ADC therapies may be in development for the cancer types we or our partners elect to pursue.
Further, these companies may also compete with us for technology out-license arrangements.
Continuing
development of conventional and targeted chemotherapeutics by large pharmaceutical companies and biotechnology companies may result
in new compounds that may compete with our product candidates. More recently, immuno-oncology therapies that stimulate the body’s
own defense system to attack cancers are being developed by certain of these companies and some have been approved for use as
cancer therapeutics. In the future, immuno-oncology agents including cell therapies, targeted therapies or cytotoxic treatments
may compete with our product candidates. Other companies have created or have programs to create potent cell-killing agents for
attachment to tumor targeting agents. These companies may compete with us for technology out-license arrangements.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective,
have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors
also may obtain FDA or other regulatory approval for their products more rapidly than we obtain approval for ours. In addition,
our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic
products. If our drug candidates achieve marketing approval, we expect that they will be priced at a significant premium over
competitive generic products.
Many
companies, including large pharmaceutical and biotechnology firms with financial resources, research and development staffs, and
facilities that may be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research
and development of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire,
through license or otherwise, existing or potential new products, we will be competing with numerous other companies, many of
which will have substantially greater financial resources, large acquisition and research and development staffs that may give
those companies a competitive advantage over us in identifying and evaluating these drug acquisition opportunities. Any products
that we acquire will be competing with products marketed by companies that in many cases will have substantially greater marketing
resources than we have. The industry is characterized by rapid technological advances and competitors may develop their products
more rapidly and such products may be more effective than those currently under development or that may be developed in the future
by our strategic partners or licensees. Competitive products for a number of the disease indications that we have targeted are
currently being marketed by other parties, and additional competitive products are under development and may also include products
currently under development that we are not aware of or products that may be developed in the future.
Government
Regulation
The
U.S. and other developed countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage,
record-keeping, advertising, promotion, export, marketing and distribution of drugs and biologic products. The FDA, under the
Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations, regulates pharmaceutical
and biologic products.
To
obtain approval of our product candidates from the FDA, we must, among other requirements, submit data supporting safety and efficacy
for the intended indication as well as detailed information on the manufacture and composition of the product candidate. In most
cases, this will require extensive laboratory tests and preclinical and clinical trials. The collection of these data, as well
as the preparation of applications for review by the FDA involve significant time and expense. The FDA also may require post-marketing
testing to monitor the safety and efficacy of approved products or place conditions on any approvals that could restrict the therapeutic
claims and commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply
with regulatory standards or if we encounter problems at any time following initial marketing of our products.
The
first stage of the FDA approval process for a new drug involves completion of preclinical studies and the submission of the results
of these studies to the FDA. These data, together with proposed clinical protocols, manufacturing information, analytical data
and other information submitted to the FDA, in an investigational new drug application, or IND, must become effective before human
clinical trials may commence. Preclinical studies generally involve FDA regulated laboratory evaluation of product characteristics
and animal studies to assess the efficacy and safety of the product candidate.
After
the IND becomes effective, a company may commence human clinical trials. These are typically conducted in three sequential phases,
but the phases may overlap. Phase 1 trials consist of testing of the product candidate in a small number of patients or healthy
volunteers, primarily for safety at one or more doses. Phase 2 trials, in addition to safety, evaluate the efficacy of the product
candidate in a patient population somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for
safety and clinical efficacy in an expanded population at multiple test sites. A company must submit to the FDA a clinical protocol,
accompanied by the approval of the Institutional Review Boards at the institutions participating in the trial, prior to commencement
of each clinical trial.
To
obtain FDA marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together
with, among other things, detailed information on the manufacture and composition of the product candidate, in the form of a new
drug application, or NDA.
The
amount of time taken by the FDA for approval of an NDA will depend upon a number of factors, including whether the product candidate
has received priority review, the quality of the submission and studies presented, the potential contribution that the compound
will make in improving the treatment of the disease in question, and the workload at the FDA.
The
FDA may, in some cases, confer upon an investigational product the status of a fast-track product. A fast-track product is defined
as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential
to address unmet medical needs for this condition. The FDA can base approval of an NDA for a fast-track product on an effect on
a surrogate endpoint, or on another endpoint that is reasonably likely to predict clinical benefit. If a preliminary review of
clinical data suggests that a fast-track product may be effective, the FDA may initiate review of entire sections of a marketing
application for a fast-track product before the sponsor completes the application.
We
anticipate that our products will be manufactured by our strategic partners, licensees or other third parties. Before approving
an NDA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing
facilities are in compliance with the FDA’s cGMP, which are regulations that govern the manufacture, holding and distribution
of a product. Our manufacturers also will be subject to regulation under the Occupational Safety and Health Act, the National
Environmental Policy Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act and the Resource Conservation
and Recovery Act. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued
compliance with the good manufacturing practices regulations. Our manufacturers will have to continue to comply with those requirements.
Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension
of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the FDA and
could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be
withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product
occur following approval.
The
labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA
and Federal Trade Commission requirements which include, among others, standards and regulations for off-label promotion, industry
sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising.
We also will be subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal
of hazardous materials, including chemicals and radioactive and biological materials. In addition, we will be subject to various
laws and regulations governing laboratory practices and the experimental use of animals. In each of these areas, as above, the
FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance
of product approvals, seize or recall products, and deny or withdraw approvals.
We
will also be subject to a variety of regulations governing clinical trials and sales of our products outside the U.S. Whether
or not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries
and regions must be obtained prior to the commencement of marketing the product in those countries. The approval process varies
from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval. In the European
Union, Canada and Australia, regulatory requirements and approval processes are similar, in principle, to those in the U.S.
Employees
As
of March 29, 2019, we had six employees.
Available
Information
We
maintain a website at www.cytrx.com and make available there, free of charge, our periodic reports filed with the Securities and
Exchange Commission, or SEC, as soon as is reasonably practicable after filing. The public may read and copy any materials we
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http://www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers such as us that file electronically
with the SEC. Among other things, we post on our website our Code of Business Conduct and Ethics.
Potential
Strategic Alternatives
From
time to time, we may consider strategic alternatives available to us to enhance shareholder value. Strategic alternatives could
include the acquisition of or strategic partnership with one or more parties or the licensing of some of our proprietary technologies.
See “Item 1A – Risk Factors – The impact and results of our exploration of strategic alternatives are uncertain
and may not be successful.”
Item
1A. RISK FACTORS
You
should carefully consider the risks and uncertainties facing our business. The risks described below are not the only ones facing
us. Our business is also subject to the risks that affect many other companies, such as employment relations, general economic
conditions and geopolitical events. Further, additional risks not currently known to us or that we currently believe are immaterial
may in the future materially and adversely affect our business, operations, liquidity and stock price.
Risks
Associated With Our Business
We
have operated at a loss and will likely continue to operate at a loss for the foreseeable future.
We
have operated at a loss due to our ongoing expenditures for research and development of our product candidates and for general
and administrative purposes, and lack of significant recurring revenues. We incurred a net loss of $12.7 million for the year
ended December 31, 2018 and $35.0 million for the year ended December 31, 2017 and had an accumulated deficit as of December 31,
2018 of $456.9 million. We are likely to continue to incur losses unless and until we are able to earn milestones and royalties
from our existing licensing agreements and/or conclude a successful strategic partnership for our LADR technology. These losses,
among other things, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when
we may become profitable, if at all. If we do not become profitable or are unable to maintain future profitability, the market
value of our common stock will be adversely affected.
Because
we have no source of significant recurring revenue, we must depend on capital raising to sustain our operations, and our ability
to raise capital may be severely limited.
Developing
products and conducting clinical trials require substantial amounts of capital. To date, we have relied primarily upon proceeds
from sales of our equity securities under our “shelf” registration statements on Form S-3 filed with the SEC and proceeds
from the exercise of options and warrants to generate funds needed to finance our business and operations. We will need to raise
additional capital to, among other things:
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fund
development of product candidates based on our LADR™ technology;
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finance
our general and administrative expenses;
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acquire
or license new technologies;
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prepare,
file, prosecute, maintain, enforce and defend our patent and other proprietary rights; and
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develop
and implement sales, marketing and distribution capabilities to successfully commercialize any product for which we obtain
marketing approval and choose to market ourselves.
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The
depressed market price of our common stock may severely limit our ability to continue to raise capital, because the aggregate
or market value of our common stock held by non-affiliates, referred to as our “public float,” as of the filing date
of this Annual Report is less than $75 million. As a result, under Instruction I.B.6 to Form S-3 the aggregate amount of securities
that we can offer and sell under our “shelf” registration statements in any 12-month period cannot exceed one-third
of our public float. Furthermore, as of March 29, 2019, we only have approximately 5.3 million shares of common stock that
are authorized and unissued or unreserved. We would need approval of our stockholders to increase our authorized shares of our
common stock in order to raise additional capital in excess of this amount.
At
December 31, 2018, we had cash and cash equivalents of approximately $21.4 million. Management believes that our current resources
will be sufficient to fund our operations for the foreseeable future. This estimate is based, in part, upon our currently projected
expenditures for 2019 and the first three months of 2020 of approximately $7.5 million (unaudited)
,
which includes approximately
$0.8 million (unaudited) for payments related to our Freiburg lab, and approximately $6.7 million (unaudited) for other general
and administrative expenses. These projected expenditures are also based upon numerous other assumptions and subject to many uncertainties,
and actual expenditures may be significantly different from these projections. We will ultimately be required to obtain additional
funding in order to execute our long-term business plans, although we do not currently have commitments from any third parties
to provide us with long term debt or capital. We cannot assure that additional funding will be available on favorable terms, or
at all. If we fail to obtain additional funding when needed, we may not be able to execute our business plans and our business
may suffer, which would have a material adverse effect on our financial position, results of operations and cash flows.
If
we raise additional funds by issuing equity securities, dilution to stockholders may result and new investors could have rights
superior to holders of the shares issued in this offering. In addition, debt financing, if available, may include restrictive
covenants. If adequate funds are not available to us, we may have to liquidate some or all of our assets or delay or reduce the
scope of or eliminate some portion or all of our development programs. We also may have to license to other companies our product
candidates or technologies that we would prefer to develop and commercialize ourselves.
If
NantCell fails to successfully develop aldoxorubicin or our exclusive licensing arrangement with NantCell is otherwise unsuccessful,
our business prospects will be materially adversely affected.
In
July 2017, we entered into an exclusive licensing agreement with NantCell to complete the clinical development of and commercialization
of aldoxorubicin. Under this agreement, NantCell has committed to provide substantial funding, as well as significant capabilities
in clinical development, regulatory affairs, marketing and sales.
If,
for any reason, NantCell does not devote sufficient time and resources to the development and commercialization of aldoxorubicin,
we will not realize the potential commercial benefits of the arrangement, and our results of operations will be adversely affected.
In addition, if NantCell were to breach or terminate its arrangement with us, the development and commercialization of aldoxorubicin
could be delayed, curtailed or terminated, and we may not have sufficient financial resources or capabilities to continue development
and commercialization of aldoxorubicin on our own.
Under
our agreement with NantCell, they may opt out of a project by giving us twelve months’ prior written notice. If NantCell
were to exercise its right to opt out of a program or to terminate the licensing agreement, the development and commercialization
of aldoxorubicin would be adversely affected, our potential for generating revenue from this program would be adversely affected
and attracting new partners would be made more difficult.
Much
of the potential revenue from our existing and future arrangement with NantCell will consist of contingent payments, such as payments
for achieving development and commercialization milestones and royalties payable on commercial sales of successfully developed
aldoxorubicin. The milestone, royalty and other revenue that we may receive under this arrangement will depend upon our, and NantCell’s
ability to successfully develop, introduce, market and sell aldoxorubicin. We will not be directly involved in this process and
will depend entirely on NantCell, which may fail to develop or effectively commercialize aldoxorubicin because they:
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decide
not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific
expertise, limited cash resources or specialized equipment limitations, or the belief that other drug development programs
may have a higher likelihood of obtaining regulatory approval or may potentially generate a greater return on investment;
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do
not have sufficient resources necessary to carry aldoxorubicin through clinical development, regulatory approval and commercialization;
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cannot
obtain the necessary regulatory approvals for aldoxorubicin; or
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decide
to pursue a competitive drug candidate.
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If
NantCell fails to develop or effectively commercialize aldoxorubicin or for any of the other reasons described above, we may not
be able to develop and commercialize that drug independently, or replace NantCell with another suitable partner in a reasonable
period of time and on commercially reasonable terms, if at all.
If
we do not achieve our projected development goals in the time frames we estimate, the commercialization of our products may be
delayed and our business prospects may suffer. Our financial projections also may prove to be materially inaccurate.
From
time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development
goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies
and clinical trials and the submission of regulatory filings.
We
also may disclose projected expenditures or other forecasts for future periods. These and other financial projections are based
on management’s current expectations and do not contain any margin of error or cushion for any specific uncertainties, or
for the uncertainties inherent in all financial forecasting.
The
actual timing of milestones and actual expenditures or other financial results can vary dramatically compared to our estimates,
in some cases for reasons beyond our control. If we do not meet milestones or financial projections as announced from time to
time, the development and commercialization of our products may be delayed and our business prospects may suffer. The assumptions
management has used to produce these projections may significantly change or prove to be inaccurate. Accordingly, you should not
unduly rely on any of these financial projections.
The
regulatory approval process is lengthy, time consuming and inherently unpredictable, and if our products are not successfully
developed and approved by the FDA or foreign regulatory authorities, we may be forced to reduce or curtail our operations.
All
of our product candidates in development must be approved by the FDA or corresponding foreign governmental agencies before they
can be marketed. The process for obtaining FDA and foreign government approvals is both time-consuming and costly, with no certainty
of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, including
post-approval testing, which may take longer or cost more than we or our licensees, if any, anticipate, and may prove unsuccessful
due to numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations,
or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate.
Numerous
factors could affect the timing, cost or outcome of our product development efforts, including the following:
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difficulty
in enrolling patients in conformity with required protocols or projected timelines;
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requirements
for clinical trial design imposed by the FDA;
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unexpected
adverse reactions by patients in trials;
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difficulty
in obtaining clinical supplies of the product;
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changes
in or our inability to comply with FDA or foreign governmental product testing, manufacturing or marketing requirements;
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regulatory
inspections of clinical trials or manufacturing facilities, which may, among other things, require us or our manufacturers
or licensees to undertake corrective action or suspend or terminate the affected clinical trials if investigators find them
not to be in compliance with applicable regulatory requirements;
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inability
to generate statistically significant data confirming the safety and efficacy of the product being tested;
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modification
of the product during testing; and
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reallocation
of our limited financial and other resources to other clinical programs.
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It
is possible that none of the product candidates we develop will obtain the regulatory approvals necessary for us to begin selling
them. The time required to obtain FDA and foreign governmental approvals is unpredictable, but often can take years following
the commencement of clinical trials, depending upon the complexity of the product candidate. Any analysis we perform on data from
clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent
regulatory approval. In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates
for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant
approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label
that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.
Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
Furthermore,
even if we obtain regulatory approvals, the manufacturing processes, labeling, packaging, distribution, adverse event reporting,
storage, import, export, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory
requirements. These requirements include submissions of safety and other post-marketing information and reports, registration,
as well as continued compliance with current good manufacturing practices, or cGMPs, and good clinical practices, or cGCPs, for
any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse
events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to
comply with regulatory requirements, may result in, among other things:
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restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
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fines,
warning letters or holds on clinical trials;
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refusal
by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners,
or suspension or revocation of product license approvals;
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product
seizure or detention, or refusal to permit the import or export of products; and
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injunctions
or the imposition of civil or criminal penalties.
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The
FDA’s 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 United States 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, which
would adversely affect our business. We will also be subject to periodic inspections and the potential for mandatory post- approval
clinical trials required by the FDA and other U.S. and foreign regulatory authorities. Any delay or failure in obtaining required
approvals or to comply with post-approval regulatory requirements could have a material adverse effect on our ability to generate
revenue from the particular product candidate. The failure to comply with any post-approval regulatory requirements also could
result in the rescission of the related regulatory approvals or the suspension of sales of the offending product.
Clinical
drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials
may not be predictive of future trial results.
Clinical
testing 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. The results of preclinical studies and early clinical trials of our product candidates may
not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical development may
fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical
trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials
due to lack of efficacy or safety profiles, notwithstanding promising results in earlier trials. For example, aldoxorubicin has
shown encouraging preliminary clinical results in our Phase 2b clinical trial as a treatment for STS; however, these conclusions
may not be reproduced in future clinical trial results; for instance, the Phase 3 pivotal clinical trial testing aldoxorubicin
as a treatment for STS narrowly missed statistical significance although it demonstrated a statistically significant improvement
in PFS over investigator’s choice in 312 patients treated in North America plus Australia . Accordingly, our development
partner may ultimately be unable to provide the FDA with satisfactory data on clinical safety and efficacy sufficient to obtain
FDA approval of aldoxorubicin for any indication.
Further,
we may experience delays in clinical trials of our product candidates. We do not know whether ongoing clinical trials will be
completed on schedule or at all, or whether planned clinical trials will begin on time, need to be redesigned, enroll patients
on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related
to:
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obtaining
regulatory approval to commence a trial;
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reaching
agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms
of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
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obtaining
institutional review board approval at each clinical trial site;
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recruiting
suitable patients to participate in a trial;
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having
patients complete a trial or return for post-treatment follow-up;
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clinical
trial sites deviating from trial protocol or dropping out of a trial;
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adding
new clinical trial sites; or
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manufacturing
sufficient quantities of product candidate for use in clinical trials.
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We
rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their
contractual duties or meet expected deadlines, we and our collaborators may not be able to obtain regulatory approval for or commercialize
our product candidates and our business could be substantially harmed.
We
have agreements with third-party CROs to monitor and manage data for our preclinical and clinical programs. We rely heavily on
these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless,
we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory
and scientific standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are
required to comply with cGCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities
for products in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors,
principal investigators and trial sites. If we or any of these CROs fails to comply with applicable cGCP regulations, the clinical
data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require
us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection,
such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our
clinical trials must be conducted with product produced under cGMP regulations, and will require a large number of test subjects.
Our or our CROs’ failure to comply with these regulations may require us to repeat clinical trials, which would delay the
regulatory approval process.
If
any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative
CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available
to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing
preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended,
delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.
As a result, our financial results and the commercial prospects for aldoxorubicin would be harmed, our costs could increase and
our ability to generate revenues could be delayed.
Switching
or adding additional CROs involves substantial cost and requires extensive management time and focus. In addition, there is a
natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to
meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance
that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material
adverse impact on our business, financial condition and prospects.
We
may be unable to protect our intellectual property rights, which could adversely affect our ability to compete effectively.
We
will be able to protect our technologies from unauthorized use by third parties only to the extent that we have rights to valid
and enforceable patents or other proprietary rights that cover them. Although we have rights to patents and patent applications
directed to our product candidates, these patents and applications may not prevent third parties from developing or commercializing
similar or identical technologies. In addition, our patents may be held to be invalid if challenged by third parties, and our
patent applications may not result in the issuance of patents.
The
patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date in the United States and in many foreign countries. The application and enforcement of patent laws
and regulations in foreign countries is even more uncertain. Accordingly, we may not be able to effectively file, protect or defend
our proprietary rights on a consistent basis. Many of the patents and patent applications on which we rely were issued or filed
by third parties prior to the time we acquired rights to them. The validity, enforceability and ownership of those patents and
patent applications may be challenged, and if a court decides that our patents are not valid, we will not have the right to stop
others from using our inventions. There is also the risk that, even if the validity of our patents is upheld, a court may refuse
to stop others on the ground that their activities do not infringe our patents.
Any
litigation brought by us to protect our intellectual property rights could be costly and have a material adverse effect on our
operating results or financial condition, make it more difficult for us to enter into strategic alliances with third parties to
develop our products, or discourage our existing licensees from continuing their development work on our potential products. If
our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies,
the value of our assets is likely to be materially and adversely affected.
We
also rely on certain proprietary trade secrets and know-how, especially where we believe patent protection is not appropriate
or obtainable. However, trade secrets and know-how are difficult to protect. Although we have taken measures to protect our unpatented
trade secrets and know-how, including the use of confidentiality and invention assignment agreements with our employees, consultants
and some of our contractors, it is possible that these persons may disclose our trade secrets or know-how or that our competitors
may independently develop or otherwise discover our trade secrets and know-how.
If
our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses
from others to develop or market them.
Our
competitors or others may have patent rights that they choose to assert against us or our licensees, suppliers, customers or potential
collaborators. Moreover, we may not know about patents or patent applications that our products would infringe. For example, because
patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently
pending applications unknown to us that may later result in issued patents that our product candidates would infringe. In addition,
if third parties file patent applications or obtain patents claiming technology also claimed by us or our licensors in issued
patents or pending applications, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office
to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in
opposition proceedings in foreign tribunals to defend the patentability of our foreign patent applications.
If
a third-party claims that we are infringing on its proprietary rights, any of the following may occur:
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we
may become involved in time-consuming and expensive litigation, even if the claim is without merit;
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we
may become liable for substantial damages for past infringement if a court decides that our technology infringes a competitor’s
patent;
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a
court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available
on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses
to our patents; and
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we
may have to redesign our product candidates or technology so that it does not infringe patent rights of others, which may
not be possible or commercially feasible.
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If
any of these events occurs, our business and prospects will suffer and the market price of our common stock will likely decline
substantially.
The
results of pre-clinical studies or early clinical trials are not necessarily predictive of future results, and our ultra-high
potency albumin-binding drug conjugates may not have favorable results in later clinical trials or receive regulatory approval.
Success
in pre-clinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate
the efficacy and safety of our ultra-high potency albumin-binding drug conjugates. A number of companies in the pharmaceutical
and biotechnology industries, including those with greater resources and experience than we have, have suffered significant setbacks
in clinical trials, even after seeing promising results in earlier clinical trials. Despite the results reported in earlier preclinical
trials for our ultra-high potency albumin-binding drug conjugates, we do not know whether the clinical trials we may conduct will
demonstrate adequate efficacy and safety to result in regulatory approval to market them in any particular jurisdiction. If our
clinical trials do not produce favorable results, our ability to achieve regulatory approval for these drug candidates will be
adversely impacted and the value of our stock may decline.
Any
products we develop may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies,
which could have a material adverse effect on our business.
We
intend to sell our products that may be approved for marketing primarily to hospitals, which generally receive reimbursement for
the health care services they provide to their patients from third-party payors, such as Medicare, Medicaid and other domestic
and international government programs, private insurance plans and managed care programs.
We
currently expect that any drugs we develop may need to be administered under the supervision of a physician. Under currently applicable
law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if:
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they
are “incidental” to a physician’s services;
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they
are “reasonable and necessary” for the diagnosis or treatment of the illness or injury for which they are administered
according to accepted standard of medical practice;
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they
are not excluded as immunizations; and
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they
have been approved by the FDA.
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There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States,
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 and biologics 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
and biologics. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement
for our product candidates.
Most
third-party payors may deny coverage or reimbursement if they determine that a medical product was not used in accordance with
cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party
payors also may refuse to cover and reimburse for experimental procedures and devices. Furthermore, because our programs are in
the early stages of development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement.
Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices,
and are challenging the prices charged for medical products. If the price we are able to charge for any products we develop is
inadequate in light of our development and other costs, our profitability could be adversely affected.
Healthcare
legislative reform measures could hinder or prevent the commercial success of our products and product candidates.
In
the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to
the healthcare system that could affect our future revenues and profitability. Federal and state lawmakers regularly propose and,
at times, enact legislation that results in significant changes to the healthcare system, some of which are intended to contain
or reduce the costs of medical products and services. For example, in March 2010, the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, became law in the United
States It contains a number of provisions, including those governing enrollments in federal healthcare programs, reimbursement
changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the
development of new programs. The Affordable Care Act, among other things, (i) increases the minimum Medicaid rebates owed by manufacturers
under the Medicaid Drug Rebate Program, extends the rebate program to individuals enrolled in Medicaid managed care organizations,
and addresses new methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for
drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line extension products; (ii) establishes
annual fees and taxes on manufacturers of certain branded prescription drugs, and (iii) enacts a new Medicare Part D coverage
gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable
brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient
drugs to be covered under Medicare Part D.
Since
its enactment, there have been judicial and Congressional challenges to certain aspects of the PPACA. As a result, there have
been delays in the implementation of, and action taken to repeal or replace, certain aspects of the PPACA. In January 2017, President
Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer,
grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden
on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October
13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the ACA.
Further, on December 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required
to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. In addition, CMS
has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual
and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans
sold through such marketplaces. Further, each chamber of Congress has put forth multiple bills this year designed to repeal or
repeal and replace portions of the ACA. While Congress has not passed repeal legislation, the Tax Reform Act includes a provision
repealing, effective January 1, 2019, 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.”
Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to increase
from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare
Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress
may consider other legislation to repeal and replace elements of the ACA. Litigation and legislation over the ACA are likely to
continue, with unpredictable and uncertain results.
Additionally,
in the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biologic
products that are demonstrated to be “highly similar” or “biosimilar or interchangeable” with an FDA-approved
biologic product. This new pathway could allow competitors to reference data from biologic products already approved after 12
years from the time of approval. This could expose us to potential competition by lower-cost biosimilars even if we commercialize
a product candidate faster than our competitors. Moreover, the creation of this abbreviated approval pathway does not preclude
or delay a third party from pursuing approval of a competitive product candidate via the traditional approval pathway based on
their own clinical trial data. Other legislative changes have been proposed and adopted in the United States since the PPACA was
enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions
by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least
$1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s
automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up
to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2027 unless additional Congressional
action is taken. In January 2013, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments
to certain providers, and increased the time for Medicare contractors to recoup Medicare overpayments to providers from three
to five years. Additionally, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among
other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.
Further,
there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products,
which have resulted in several recent Congressional inquiries and proposed and enacted bills designed to, among other things,
bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform
government program reimbursement methodologies for products. In addition, the United States government, state legislatures, and
foreign governments have shown significant interest in implementing cost containment programs, including price-controls, restrictions
on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of government
paid health care costs. For example, the United States government has passed legislation requiring pharmaceutical manufacturers
to provide rebates and discounts to certain entities and governmental payors to participate in federal healthcare programs. Further,
Congress and the current administration have each indicated that it will continue to seek new legislative and/or administrative
measures to control drug costs, and the current administration recently released a “Blueprint”, or plan, to reduce
the cost of drugs. The current administration’s Blueprint contains certain measures that the U.S. Department of Health and
Human Services is already working to implement. Individual states in the United States have also been increasingly passing legislation
and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
Additional
changes that may affect our business include those governing enrollment in federal healthcare programs, reimbursement changes,
fraud and abuse enforcement, and expansion of new programs, such as Medicare payment for performance initiatives.
We
may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect
our business, operations and financial condition.
If
we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations
may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without
limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These
laws may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to
patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect
our ability to operate include:
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the
federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting,
receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or
service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs
such as the Medicare and Medicaid programs;
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the
federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing
to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which
may apply to entities that provide coding and billing advice to customers;
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federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating
to healthcare matters;
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the
federal physician sunshine requirements under the Affordable Care Act, which requires manufacturers of drugs, devices, biologics,
and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments
and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment
interests held by physicians and other healthcare providers and their immediate family members;
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the
federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security
and privacy of protected health information; and
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance
promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential
referral sources; state laws that require drug manufacturers to report information related to payments and other transfers
of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and
security of health information in certain circumstances, many of which differ from each other in significant ways and may
not have the same effect, thus complicating compliance efforts.
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Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform
legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amends the
intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs
to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the
government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the False Claims Act.
Achieving
and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even
if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention
from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines,
the exclusion from participation in federal and state healthcare programs, imprisonment, or the curtailment or restructuring of
our operations, any of which could adversely affect our ability to operate our business and our financial results.
We
are subject to intense competition, and we may not compete successfully.
Many
companies, including large pharmaceutical and biotechnology firms with financial resources, research and development staffs, and
facilities that may be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research
and development of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire,
through license or otherwise, existing or potential new products, we will be competing with numerous other companies, many of
which will have substantially greater financial resources, large acquisition and research and development staffs that may give
those companies a competitive advantage over us in identifying and evaluating these drug acquisition opportunities. Any products
that we acquire will be competing with products marketed by companies that in many cases will have substantially greater marketing
resources than we have. The industry is characterized by rapid technological advances and competitors may develop their products
more rapidly and such products may be more effective than those currently under development or that may be developed in the future
by our strategic partners or licensees. Competitive products for a number of the disease indications that we have targeted are
currently being marketed by other parties, and additional competitive products are under development and may also include products
currently under development that we are not aware of or products that may be developed in the future.
As
a result, these competitors may:
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succeed
in developing competitive products sooner than us or our strategic partners or licensees;
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obtain
FDA or foreign governmental approvals for their products before we can obtain approval of any of our products;
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obtain
patents that block or otherwise inhibit the development and commercialization of our product candidate candidates;
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develop
products that are safer or more effective than our products;
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devote
greater resources than us to marketing or selling products;
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introduce
or adapt more quickly than us to new technologies and other scientific advances;
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introduce
products that render our products obsolete;
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withstand
price competition more successfully than us or our strategic partners or licensees;
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negotiate
third-party strategic alliances or licensing arrangements more effectively than us; and
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take
better advantage than us of other opportunities.
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We
will be required to pay substantial milestone and other payments relating to the commercialization of our products.
The
agreement relating to our worldwide rights to aldoxorubicin provides for our payment of up to an aggregate of $7.5 million upon
meeting specified clinical and regulatory milestones up to and including the product’s second, final marketing approval.
We also will be obliged to pay:
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commercially
reasonable royalties based on a percentage of net sales (as defined in the agreement);
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a
percentage of any non-royalty sub-licensing income (as defined in the agreement); and
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milestones
of $1,000,000 for each additional final marketing approval that we might obtain.
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Under
the merger agreement by which we acquired Innovive, we agreed to pay the former Innovive stockholders a total of up to approximately
$18.3 million of future earnout merger consideration, subject to our achievement of specified net sales under the Innovive license
agreements. The earnout merger consideration, if any, will be payable in shares of our common stock, subject to specified conditions,
or, at our election, in cash or by a combination of shares of our common stock and cash. Our common stock will be valued for purposes
of any future earnout merger consideration based upon the trading price of our common stock at the time the earnout merger consideration
is paid.
We
rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including
any cybersecurity incidents, could harm our ability to operate our business effectively.
We
rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including
any cybersecurity incidents, could harm our ability to operate our business effectively. We maintain sensitive data pertaining
to our Company on our computer networks, including information about our development activities, our intellectual property and
other proprietary business information. Our internal computer systems and those of third parties with which we contract may be
vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures, despite the implementation of security measures. System failures, accidents or security breaches could
cause interruptions to our operations, including material disruption of our development activities, result in significant data
losses or theft of our intellectual property or proprietary business information, and could require substantial expenditures to
remedy. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications
or inappropriate disclosure of confidential or proprietary information, we could incur liability and our development programs
could be delayed, any of which would harm our business and operations.
Our
business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural
disasters could severely disrupt our operations or the operations of manufacturing facilities and have a material adverse effect
on our business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event
occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure,
such as manufacturing facilities, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible
for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have
in place currently are limited and may not prove adequate in the event of a serious disaster or similar event. We may incur substantial
expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material
adverse effect on our business, financial condition, results of operations and prospects.
We
are subject to potential liabilities from clinical testing and future product liability claims.
If
any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials
of our products or, if we obtain marketing approval and commercialize our products, by patients using our commercially marketed
products. Even if one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse
effects. We maintain clinical trial insurance for our ongoing clinical trials, and we plan to seek to obtain similar insurance
for any other clinical trials that we conduct. We also would seek to obtain product liability insurance covering the commercial
marketing of our product candidates. We may not be able to obtain additional insurance, however, and any insurance obtained by
us may prove inadequate in the event of a claim against us. Any claims asserted against us also may divert management’s
attention from our operations, and we may have to incur substantial costs to defend such claims even if they are unsuccessful.
We
may be unable to successfully acquire additional technologies or products. If we require additional technologies or products,
our product development plans may change and the ownership interests of our shareholders could be diluted.
We
may seek to acquire additional technologies by licensing or purchasing such technologies, or through a merger or acquisition of
one or more companies that own such technologies. We have no current understanding or agreement to acquire any technologies, however,
and we may not be able to identify or successfully acquire any additional technologies. We also may seek to acquire products from
third parties that already are being marketed or have been approved for marketing, although we have not currently identified any
of these products. We do not have any prior experience in acquiring or marketing products approved for marketing and may need
to find third parties to market any products that we might acquire.
We
have focused our product development efforts on our oncology drug candidates, which we believe have the greatest revenue potential.
If we acquire additional technologies or product candidates, we may determine to make further changes to our product development
plans and business strategy to capitalize on opportunities presented by the new technologies and product candidates.
We
may determine to issue shares of our common stock to acquire additional technologies or products or in connection with a merger
or acquisition of another company. To the extent we do so, the ownership interest of our stockholders will be diluted accordingly.
The
impact and results of our exploration of any strategic alternatives are uncertain and may not be successful.
From
time to time, we may consider strategic alternatives available to us to enhance shareholder value. Strategic alternatives could
include acquisition transactions and/or strategic partnerships with one or more parties, the licensing of some of our proprietary
technologies, or other possible transactions. Any strategic transaction that is completed ultimately may not deliver the anticipated
benefits or enhance shareholder value. Further, we may devote a significant amount of our management resources to such a transaction,
which could negatively impact our operations. We may incur significant costs in connection with seeking certain acquisitions or
other strategic opportunities regardless of whether the transaction is completed, which could materially and adversely affect
our liquidity and capital resources. In the event that we consummate an acquisition or strategic alternative in the future, there
is no assurance that we would fully realize the potential benefits of such a transaction. Integration may be difficult and unpredictable,
and acquisition-related integration costs, including certain non-recurring charges, could materially and adversely affect our
results of operations. Moreover, integrating assets and businesses may significantly burden management and internal resources,
including the potential loss or unavailability of key personnel. If we fail to successfully integrate any assets and businesses
we acquire, we may not fully realize the potential benefits we expect, and our operating results could be adversely affected.
If we pay for an acquisition in cash, it would reduce our cash available for operations or cause us to incur additional debt,
and if we pay with our stock it could be dilutive to our stockholders.
In
the event of a dispute regarding our international drug development, it may be necessary for us to resolve the dispute in the
foreign country of dispute, where we would be faced with unfamiliar laws and procedures.
The
resolution of disputes in foreign countries can be costly and time consuming, similar to the situation in the United States. However,
in a foreign country, we face the additional burden of understanding unfamiliar laws and procedures. We may not be entitled to
a jury trial, as we might be in the United States. Further, to litigate in any foreign country, we would be faced with the necessity
of hiring lawyers and other professionals who are familiar with the foreign laws. For these reasons, we may incur unforeseen expenses
if we are forced to resolve a dispute in a foreign country.
Drug
discovery is a complex, time-consuming and expensive process, and we may not succeed in creating new product candidates.
Conducting
drug discovery and pre-clinical development of our albumin-binding technology is a complex and expensive process that will take
many years. Accordingly, we cannot be sure whether or when our drug discovery and pre-clinical development activities will succeed
in developing any new product candidates. In addition, any product candidates that we develop in pre-clinical testing may not
demonstrate success in clinical trials required for marketing approval.
Any
deficiency in the design, implementation or oversight of our drug discovery and pre-clinical testing programs could cause us to
incur significant additional costs, experience significant delays, prevent us from obtaining marketing approval for any product
candidate that may result from these programs or abandon development of certain product candidates. If any of these risks materializes,
it could harm our business and cause our stock price to decline.
We
have a limited operating history in drug discovery, which is inherently risky, and we may not succeed in addressing these risks.
We
have operated our drug discovery laboratory and LADR™ development program since October 2014. Accordingly, we have a limited
operating history in conducting our own drug discovery programs. Consequently, there is limited information for investors to use
as basis for assessing the viability of our drug discovery efforts. Investors must consider the risks and difficulties inherent
in drug discovery and pre-clinical activities, including the following:
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difficulties,
complications, delays and other unanticipated factors in connection with the development of new drugs;
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competition
from companies that have substantially greater assets and financial resources than we have;
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our
ability to anticipate and adapt to a competitive market and rapid technological developments; and
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our
need to rely on multiple levels of complex financing agreements with outside funding due to the length of drug development
cycles and governmental approved protocols associated with the pharmaceutical industry.
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We
cannot be certain that we will successfully address these risks or that our drug discovery efforts will be successful. In
the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations
could be materially and adversely affected. We also may be required to reduce or discontinue altogether our drug discovery
and pre-clinical programs.
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Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under
Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the
corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as
research and development tax credits) to offset its post-change income and taxes may be limited. In general, an “ownership
change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage
points over a rolling three-year period. Similar rules may apply under state tax laws. As a result of a previous ownership change,
our annual utilization of approximately $136.8 million in federal net operating loss carryforwards will be substantially limited.
If we experience ownership changes as a result of future transactions in our stock, we may be further limited in our ability to
use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any
such limitations on the ability to use our net operating loss carryforwards and other tax assets could potentially result in increased
future tax liability to us on any net income that we may earn in the future.
Risks
Associated with Our Common Stock
If
we fail to meet the requirements for continued listing on the NASDAQ Stock Market, our common stock would likely be delisted from
trading on NASDAQ, which would likely reduce the liquidity of our common stock and could cause our trading price to decline.
Our
common stock is currently listed for quotation on the NASDAQ Stock Market. We are required to meet specified financial and trading
requirements in order to maintain our listing on NASDAQ, including maintaining a trading price of our common stock of at least
$1.00 per share. On November 23, 2018, we received notice from Nasdaq that the closing bid for our common stock had been below
$1.00 for the previous 30 consecutive business days, and that we are therefore not in compliance with the minimum bid price requirement
for continued inclusion on NASDAQ under Nasdaq Listing Rule 5550(a)(2). The notice indicates that we will have 180 calendar days,
or until May 23, 2019, to regain compliance with this requirement.
We
can regain compliance with the $1.00 minimum bid listing requirement if the closing bid price of our common stock is at least
$1.00 for a minimum of ten consecutive business days during the 180-day compliance period. If we do not regain compliance during
the initial compliance period, we may be eligible for additional time to regain compliance. To qualify, we will be required to
meet the continued listing requirement for market value of our publicly held shares and all other NASDAQ initial listing standards,
except the bid price requirement, and will need to provide written notice to NASDAQ of our intention to cure the deficiency during
the second compliance period. If we meet these requirements, we expect that NASDAQ will grant us an additional 180 calendar days
to regain compliance with the minimum bid price requirement. If it appears to NASDAQ that we will not be able to cure the deficiency,
or if we are otherwise not eligible, we expect that Nasdaq will notify us that our common stock will be subject to delisting.
If
we fail to satisfy NASDAQ’s continued listing requirements, our common stock would likely be delisted from NASDAQ and our
common stock would instead trade on the OTC Markets, such as OTCQX. Any potential delisting of our common stock from NASDAQ would
likely result in decreased liquidity and increased volatility of our common stock, and would likely cause our trading price to
decline.
You
may experience future dilution as a result of future equity offerings or other equity issuances.
To
raise additional capital, we may in the future offer additional shares of our common stock, preferred stock or other securities
convertible into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities
in any other offering at a price per share that is equal to or greater than the price per share that you may pay for the shares
of our common stock offered hereby. The price per share at which we sell additional shares of our common stock or other securities
convertible into or exchangeable for our common stock in future transactions may be higher or lower than the price per share that
you may pay for the shares of our common stock.
We
may experience volatility in our stock price, which may adversely affect the trading price of our common stock.
The
market price of our common stock in 2018 ranged from $0.33 to $2.35 per share, and it may continue to experience significant volatility
from time to time. Factors that may affect the market price of our common stock include the following:
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announcements
of interim or final results of our clinical trials or our drug discovery activities;
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announcements
of regulatory developments or technological innovations by us or our competitors;
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changes
in our relationship with our licensors and other strategic partners;
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our
quarterly operating results;
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litigation
involving or affecting us;
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shortfalls
in our actual financial results compared to our guidance or the forecasts of stock market analysts;
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developments
in patent or other technology ownership rights;
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acquisitions
or strategic alliances by us or our competitors;
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public
concern regarding the safety of our products; and
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government
regulation of drug pricing.
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Our
outstanding options and warrants and the availability for resale of the underlying shares may adversely affect the trading price
of our common stock.
As
of December 31, 2018, we had outstanding stock options to purchase 2,555,835 shares of our common stock at a weighted-average
exercise price of $10.69 per share and outstanding warrants to purchase 693,196 shares of common stock at a weighted-average exercise
price of $7.16 per share. Our outstanding options and warrants could adversely affect our ability to obtain future financing or
engage in certain mergers or other transactions, since the holders of options and warrants can be expected to exercise them at
a time when we may be able to obtain additional capital through a new offering of securities on terms more favorable to us than
the terms of outstanding options and warrants. For the life of the options and warrants, the holders have the opportunity to profit
from a rise in the market price of our common stock without assuming the risk of ownership. The issuance of shares upon the exercise
of outstanding options and warrants will also dilute the ownership interests of our existing stockholders. Many of our outstanding
warrants contain anti-dilution provisions pertaining to dividends with respect to our common stock. In the event that these anti-dilution
provisions are triggered by us in the future, we would likewise be required to reduce the exercise price, and increase the number
of shares underlying, those warrants, which would have a dilutive effect on our stockholders.
We
have registered with the SEC the resale by the holders of all or substantially all shares of our common stock issuable upon exercise
of our outstanding options and warrants. The availability of these shares for public resale, as well as actual resales of these
shares, could adversely affect the trading price of our common stock.
We
cannot assure investors that our internal controls will prevent future material weaknesses.
Section
404 of the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting
and disclosure controls and procedures. We are required to furnish a report by management on, among other things, the effectiveness
of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified
by our management in our internal control over financial reporting.
There
can be no assurance that we will not suffer from material weaknesses in the future. If we fail to remediate these material weaknesses
or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could result in
a material misstatement of our annual or quarterly consolidated financial statements that would not be prevented or detected on
a timely basis and which could cause investors and other users to lose confidence in our consolidated financial statements, limit
our ability to raise capital and have a negative effect on the trading price of our common stock. Additionally, failure to remediate
the material weaknesses or otherwise failing to maintain effective internal controls over financial reporting may also negatively
impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the
SEC, subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods
relating to the implementation of remedial measures.
We
are subject to legal actions that could adversely affect our financial condition.
From
time to time, we are involved in legal proceedings that arise in ordinary course of business. Securities-related class action
and derivative lawsuits have often been brought against companies, including many biotechnology companies, which experience volatility
in the market price of their securities. This risk is especially relevant for biotechnology and biopharmaceutical companies such
as ours, which often experience significant stock price volatility in connection with their product development programs.
Although
we carry director’s and officer’s and other liability insurance, we must pay the first legal fees and other litigation
expenses incurred up to the application retention, or deductible, amounts under our insurance policies, and the insurance may
not be sufficient to cover all of the liabilities that we may incur in connection with the pending or possible future legal actions.
As a result, any future legal actions may adversely affect out financial condition.
Our
anti-takeover measures may make it more difficult to change our management, or may discourage others from acquiring us, and thereby
adversely affect stockholder value.
We
have a stockholder rights plan and provisions in our restated by-laws, as amended, that are intended to protect our stockholders’
interests by encouraging anyone seeking control of our company to negotiate with our board of directors. These provisions may
discourage or prevent a person or group from acquiring us without the approval of our board of directors, even if the acquisition
would be beneficial to our stockholders.
We
have a classified board of directors, which means that at least two stockholder meetings, instead of one, will be required to
effect a change in the majority control of our board of directors. This applies to every election of directors, not just an election
occurring after a change in control. The classification of our board increases the amount of time it takes to change majority
control of our board of directors and may cause potential acquirers to lose interest in a potential purchase of us, regardless
of whether our purchase would be beneficial to us or our stockholders. The additional time and cost to change a majority of the
members of our board of directors makes it more difficult and may discourage our existing stockholders from seeking to change
our existing management in order to change the strategic direction or operational performance of our company.
Our
by-laws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of
the outstanding shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders
from removing any incumbent director without cause. Our by-laws also provide that a stockholder must give us at least 120 days
notice of a proposal or director nomination that such stockholder desires to present at any annual meeting or special meeting
of stockholders. Such provision prevents a stockholder from making a proposal or director nomination at a stockholder meeting
without us having advance notice of that proposal or director nomination. This could make a change in control more difficult by
providing our directors with more time to prepare an opposition to a proposed change in control. By making it more difficult to
remove or install new directors, these bylaw provisions may also make our existing management less responsive to the views of
our stockholders with respect to our operations and other issues such as management selection and management compensation.
We
are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which may also prevent or
delay a takeover of us that may be beneficial to our stockholders.
Our
restated by-laws, as amended, designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain
types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability
to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our
by-laws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will
be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a
claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action
asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim
that is governed by the internal affairs doctrine. Any person purchasing or otherwise acquiring any interest in any shares of
our capital stock shall be deemed to have notice of and to have consented to this provision of our by-laws. This choice-of-forum
provision may limit our stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find
this provision of our amended and restated by-laws inapplicable or unenforceable with respect to one or more of the specified
types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions,
which could adversely affect our business and financial condition.
We
may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock.
We
are authorized to issue shares of preferred stock in one or more series. Our board of directors may determine the terms of future
preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect your rights
or reduce the value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock
may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions,
and restrictions on our ability to merge with or sell our assets to a third party.
We
do not expect to pay any cash dividends on our common stock.
We
have not declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying
any cash dividends in the foreseeable future. Because we do not anticipate paying cash dividends for the foreseeable future, our
stockholders will not realize a return on their investment in our common stock except to the extent of any appreciation in the
value of our common stock. Our common stock may not appreciate in value, or may decline in value.