Registration No. 333-
Dr. Dietrich Stephan
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Risk Factors
Investing in any securities
offered pursuant to this prospectus, the applicable prospectus supplement and any related free writing prospectus involves a high degree
of risk. Before making an investment decision, you should carefully consider the risks described below, under “Risk Factors”
in the applicable prospectus supplement, any related free writing prospectus and in our most recent Annual Report on Form 10-K, or in
any updates in our Quarterly Reports on Form 10-Q, together with all of the other information appearing in or incorporated by reference
into this prospectus, the applicable prospectus supplement and any related free writing prospectus, before deciding whether to purchase
any of the securities being offered. Our business, financial condition or results of operations could be materially adversely affected
by any of these risks. The occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities.
Risks Related to the Company
We are a preclinical-stage company, have
a very limited operating history, are not currently profitable, do not expect to become profitable in the near future and may never become
profitable.
We are a preclinical-stage biotechnology company
specializing in the discovery and development of a class of deoxy-ribonucleic acid and ribonucleic acid-targeting drugs called peptide
nucleic acids or anti-genes, which did not change as a result of the merger between Ohr Pharmaceutical, Inc., a Delaware corporation (“Ohr”),
and NeuBase Therapeutics, Inc., a Delaware corporation (“Legacy NeuBase”), in accordance with the terms of the Agreement and
Plan of Merger Reorganization entered into on January 2, 2019 (the “Merger Agreement”). Since our incorporation, we have focused
primarily on the development of our proprietary Peptide-nucleic acid AnTisense OLigo (“PATrOL™”)
platform and preclinical-stage therapeutic candidates. Our platform technology and all of our therapeutic candidates are in the preclinical
development stage, and we have not initiated clinical trials for any of our product candidates, nor have any products been approved for
commercial sale and we have not generated any revenue. To date, we have not completed a clinical trial (including a pivotal clinical trial),
obtained marketing approval for any product candidates, manufactured a commercial scale product or arranged for a third party to do so
on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Drug development is also
a highly uncertain undertaking and involves a substantial degree of risk.
As a result, we have no meaningful historical
operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for
any of our product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the pharmaceutical
industry. We also have not generated any revenues from collaboration and licensing agreements or product sales to date and continue to
incur research and development and other expenses. Our prior losses, combined with expected future losses, have had and will continue
to have an adverse effect on our stockholders’ equity and working capital, and our future success is subject to significant uncertainty.
For the foreseeable future, we expect to
continue to incur losses, which we expect will increase significantly from recent historical levels as we expand our drug
development activities, seek regulatory approvals for our product candidates and begin to commercialize them if they are approved by
the U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the “EMA”) or comparable
foreign authorities. Even if we succeed in developing and commercializing one or more product candidates, we may never become
profitable.
The approach we are taking to discover and
develop nucleic acid therapeutics is novel and may never lead to marketable products.
We have concentrated our efforts and research
and development activities on nucleic acid therapeutics and our synthetic chemistry drug discovery and development platform comprised
of peptide nucleic acids with natural and engineered nucleotides and targeting technology. Our future success depends on the successful
development and manufacturing of such therapeutics and the effectiveness of our platform. The scientific discoveries that form the basis
for our efforts to discover and develop new drugs, including our discoveries about the relationships between oligonucleotide stereochemistry
and pharmacology, are relatively new. The scientific evidence to support the feasibility of developing drugs based on these discoveries
or peptide nucleic acids (“PNAs”) in general is limited. Skepticism as to the feasibility of developing nucleic acid therapeutics
and PNAs generally has been, and may continue to be, expressed in scientific literature. In addition, decisions by, and negative results
of, other companies with respect to their oligonucleotide development efforts may increase skepticism in the marketplace regarding the
potential for oligonucleotides and PNAs.
Relatively few nucleic acid therapeutic product
candidates have been tested in humans, and a number of clinical trials for such therapeutics conducted by other companies have not been
successful. Few nucleic acid therapeutics have received regulatory approval. The pharmacological properties ascribed to the investigational
compounds we are testing in laboratory studies may not be positively demonstrated in clinical trials in patients, and they may interact
with human biological systems in unforeseen, ineffective or harmful ways. If our nucleic acid product candidates prove to be ineffective,
unsafe or commercially unviable, our entire platform and pipeline would have little, if any, value, which would substantially harm our
business, financial condition, results of operations and prospects.
In addition, our approach, which focuses on using
nucleic acid therapeutics for drug development, as opposed to multiple or other, more advanced proven technologies, may expose us to additional
development and financial risks and make it more difficult to raise additional capital if we are not successful in developing a nucleic
acid therapeutic that is timely and cost effective to manufacture and achieves proof of concept in animal models, desired tissue distribution,
selectivity for the target, and/or regulatory approval. Because our programs are all in the preclinical stage, we have not yet been able
to assess safety in humans, and there may be long-term effects from treatment with any product candidates that we develop using our platform
that we cannot predict at this time. Any product candidates the Company may develop will act at the level of deoxyribonucleic acid (“DNA”)
or ribonucleic acid (“RNA”), and because animal DNA and RNA often differs from human DNA or RNA at the sequence level, in
its regulation and degradation, secondary and tertiary structural conformations and ultimately in being translated into proteins with
varying amino acid sequences conformations and functions, testing of our product candidates in animal models may not be predictive of
the results we observe in human clinical trials of our product candidates for either safety or efficacy. Also, animal models may not exist
for some of the diseases we choose to pursue in our programs. As a result of these factors, it is more difficult for us to predict the
time and cost of product candidate development, and we cannot predict whether the application of our gene silencing technology, or any
similar or competitive gene silencing technologies, will result in the identification, development and regulatory approval of any products.
There can be no assurance that any development problems we experience in the future related to our gene silencing technology or any of
our research programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. Should
we encounter development problems, including unfavorable preclinical or clinical trial results, the FDA and foreign regulatory authorities
may refuse to approve our product candidates, or may require additional information, tests or trials, which could significantly delay
product development and significantly increase our development costs. Moreover, even if we are able to provide the requested information
or trials to the FDA, there would be no guarantee that the FDA would accept them or approve our product candidates. We may also experience
delays in developing a sustainable, reproducible and scalable manufacturing process or developing or qualifying and validating product
release assays, other testing and manufacturing methods, and our equipment and facilities in a timely manner, which may prevent us from
completing our clinical trials or commercializing our product candidates on a timely or profitable basis, if at all. Any of these factors
may prevent us from completing our preclinical studies or any clinical trials that we may initiate or from commercializing any product
candidates we may develop on a timely or profitable basis, if at all.
We are highly dependent on the success of
our initial product candidates targeting rare genetic diseases and our platform technology in general, and we cannot be certain that any
of them will receive regulatory approval or be commercialized.
We have spent time, money and effort on the licensing
and development of our core asset: our PATrOL™ platform. To date, we have not submitted an Investigational New Drug application
(“IND”) to the FDA, and no clinical trials have commenced for any of our product candidates. All of our product candidates
will require additional development, including further preclinical studies and bioanalytic method development as well as clinical trials
to evaluate their toxicology, carcinogenicity and pharmacokinetics, efficacy, and optimize their formulation, and receive regulatory clearances
before they can be commercialized. Positive results obtained during early development do not necessarily mean later development will succeed
or that regulatory clearances will be obtained. Our drug development efforts may not lead to commercial drugs, either because our product
candidates or our PATrOL™ platform are not deemed safe and effective, because of competitive or market forces, intellectual property
issues or because we have inadequate financial or other resources to advance our product candidates through the clinical development and
approval processes. If any of our product candidates, or our PATrOL™ platform, fail to demonstrate safety or efficacy at any time
or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development of the
product candidate.
We do not anticipate that any of our current product
candidates will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization
for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our potential
future partners, if any, may be unable to commercialize them successfully for a variety of reasons. These include, for example, the availability
of alternative treatments, lack of cost-effectiveness, the cost of manufacturing the product on a commercial scale and competition with
other drugs. The success of our product candidates and our PATrOL™ platform may also be limited by the prevalence and severity of
any adverse side effects. If we fail to commercialize one or more of our current product candidates, we may be unable to generate sufficient
revenues to attain or maintain profitability, and our financial condition may decline.
If development of our candidates does not
produce favorable results, we and our collaborators, if any, may be unable to commercialize these products.
To receive regulatory approval for the commercialization
of the PATrOL™ platform, or any product candidates that we may develop, adequate and well-controlled clinical trials must be conducted
to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA and comparable foreign authorities. In order to support
marketing approval, these agencies typically require successful results in one or more Phase III clinical trials, which our current product
candidates have not yet reached and may never reach. The development process is expensive, can take many years and has an uncertain outcome.
Failure can occur at any stage of the process. We may experience numerous unforeseen events during, or as a result of, the development
process that could delay or prevent commercialization of our current or future product candidates, including the following:
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preclinical studies conducted with product candidates for potential clinical development to evaluate their
toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, among other things, may produce unfavorable results;
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patient recruitment and enrollment in clinical trials may be slower than we anticipate;
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clinical trials may produce negative or inconclusive results;
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costs of development may be greater than we anticipate;
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the potential advantages of the PATrOL™-enabled anti-gene drug candidates may not materialize and
thus would confer no benefits to patients over other parties’ products that may emerge;
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our product candidates or our PATrOL™ platform may cause undesirable side effects that delay or
preclude regulatory approval or limit their commercial use or market acceptance, if approved;
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collaborators who may be responsible for the development of our product candidates may not devote sufficient
resources to these clinical trials or other preclinical studies of these candidates or conduct them in a timely manner; or
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we may face delays in obtaining regulatory approvals to commence one or more clinical trials.
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Additionally, because our technology potentially
involves mutation silencing via genome binding and/or editing across multiple cell and tissue types, we are subject to many of the challenges
and risks that advanced therapies, such as gene therapies, face, including:
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regulatory requirements governing gene and cell therapy products have changed frequently and may continue
to change in the future;
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improper modification of a gene sequence in a patient’s genome could lead to lymphoma, leukemia
or other cancers, or other aberrantly functioning cells; and
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the FDA recommends a follow-up observation period of 15 years or longer for all patients who receive treatment
using gene therapies, and we may need to adopt and support such an observation period for our product candidates.
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Success in early development does not mean that
later development will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate sufficient
safety and efficacy despite having progressed through initial clinical trials.
Furthermore, we have licensed or acquired
virtually all of the intellectual property related to our product candidates from Carnegie Mellon University (“CMU”).
Some of our preclinical studies and other analyses performed to date with respect to our product candidates have been conducted by
their original owners or collaborators. Therefore, as a company, we have limited experience in conducting research on our platform
technology and preclinical trials for our product candidates. Since our experience with our platform technology and product
candidates is limited, we will need to train our existing personnel or hire additional personnel in order to successfully administer
and manage our preclinical studies and clinical trials as anticipated, which may result in delays in completing such anticipated
preclinical trials and clinical studies.
We currently do not have strategic collaborations
in place for clinical development of our platform technology and any of our current product candidates. Therefore, in the future, we or
any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for development of our
product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels required for regulatory
approvals. Even if we believe data collected during the development of our product candidates are promising, such data may not be sufficient
to support marketing approval by the FDA, the EMA or comparable foreign authorities.
Further, data generated during development can
be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data in different ways than
we or our collaborators. Our failure to adequately demonstrate the safety and efficacy of our platform technology and any of our product
candidates would prevent our receipt of regulatory approval, and such failure would ultimately prevent the potential commercialization
of these product candidates.
Since we do not currently possess the resources
necessary to independently develop and commercialize our product candidates or any other product candidates that we may develop, we may
seek to enter into collaborative agreements to assist in the development and potential future commercialization of some or all of these
assets as a component of our strategic plan. Our discussions with potential collaborators, however, may not lead to the establishment
of collaborations on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading to development
and potential commercialization delays, which would adversely affect our business, financial condition and results of operations.
We expect to continue to incur significant
research and development expenses, which may make it difficult for us to attain profitability.
We expect to expend substantial funds in research
and development, including preclinical studies and clinical trials for our platform technology and product candidates, and to manufacture
and market any product candidates in the event they are approved for commercial sale. We will likely need additional funding to develop
or acquire complementary companies, technologies and assets, as well as for working capital requirements and other operating and general
corporate purposes. Moreover, an increase in our headcount would dramatically increase our costs in the near and long-term.
Such spending may not yield any commercially
viable products. Due to our limited financial and managerial resources, we must focus on a limited number of research programs and
product candidates and on specific indications. Our resource allocation decisions may cause us to fail to capitalize on viable
commercial products or profitable market opportunities.
Because the successful development of our product candidates is uncertain,
we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we
may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates, to become
profitable.
We may expend our limited resources to pursue
a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or
for which there is a greater likelihood of success.
Because we have limited financial and managerial
resources, we will initially develop our lead product candidates for particular rare genetic diseases. As a result, we may forego or delay
pursuit of opportunities in other types of diseases that may prove to have greater treatment potential. Likewise, we may forego or delay
the pursuit of opportunities with other potential product candidates that may prove to have greater commercial potential.
Our resource allocation decisions may cause us
to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and
development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do
not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights
to that product candidate through collaboration, licensing or other similar arrangements in cases in which it would have been more advantageous
for us to retain sole development and commercialization rights to the product candidate.
Given our lack of current cash flow, we
will need to raise additional capital to achieve our goals; however, it may be unavailable to us or, even if capital is obtained, may
cause dilution or place significant restrictions on our ability to operate our business.
Since we will be unable to generate sufficient,
if any, cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide
the capital required to maintain or expand our operations.
We believe that our existing balance of cash and
cash equivalents will enable us to fund our operations into the first calendar quarter of 2022. In particular, we expect that these funds
will allow us to achieve certain preclinical milestones for our NT0100 program for HD and our NT0200 program for DM1, but we expect that
we will need to obtain additional funding to obtain clinical data from the programs. We have based these estimates on assumptions that
may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our operating plans and other demands on
our cash resources may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than
planned, through public or private equity or debt financings or other capital sources, including potentially collaborations, licenses
and other similar arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations
even if we believe we have sufficient funds for our current or future operating plans.
There can be no assurance that we will be able
to raise sufficient additional capital on acceptable terms or at all. If such additional financing is not available on satisfactory terms,
or is not available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities,
and our ability to achieve our business objectives, our competitiveness, and our business, financial condition and results of operations
may be materially adversely affected. In addition, we may be required to grant rights to develop and market product candidates that we
would otherwise prefer to develop and market ourselves. Our inability to fund our business could lead to the loss of your investment.
Our future capital requirements will depend on
many factors, including, but not limited to:
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the scope, rate of progress, results and cost of our preclinical studies, clinical trials and other related
activities;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the
financial terms of such arrangements;
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the timing of, and the costs involved in, obtaining regulatory approvals for any of our current or future
product candidates;
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the number and characteristics of the product candidates it seeks to develop or commercialize;
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the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates;
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the cost of commercialization activities if any of our current or future product candidates are approved
for sale, including marketing, sales and distribution costs;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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the costs incurred in maintaining appropriate facilities to be able to perform the necessary work to develop
our products;
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the amount of revenue, if any, received from commercial sales of our product candidates, should any of
our product candidates receive marketing approval; and
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent
claims, including litigation costs and the outcome of any such litigation.
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Any additional capital efforts may divert our
management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.
Moreover, if we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced,
and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences
and privileges senior to those of our common stock.
Given our need for cash and that equity issuances
are the most common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders.
Furthermore, the incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain
restrictive covenants, such as limitations on our ability to incur additional debt and other operating restrictions that could adversely
impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborators or otherwise
at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our product candidates or
otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
Our efforts to discover product candidates
beyond our current product candidates may not succeed, and any product candidates we recommend for clinical development may not actually
begin clinical trials.
We intend to use our technology, including our
licensed technology, knowledge and expertise, to develop novel drug candidates to address some of the world’s most devastating and
costly central nervous system, muscular, and other disorders, including orphan genetic and oncology indications. We intend to expand our
existing pipeline of core assets by advancing drug candidate compounds from discovery programs into preclinical and clinical development.
However, the process of researching and discovering drug candidate compounds is expensive, time-consuming and unpredictable. Data from
our current preclinical programs may not support the clinical development of our lead compounds or other compounds from these programs,
and we may not identify any additional drug compounds suitable for recommendation for clinical development. Moreover, any drug compounds
we recommend for clinical development may not demonstrate, through preclinical studies, indications of safety and potential efficacy that
would support advancement into clinical trials. Such findings would potentially impede our ability to maintain or expand our clinical
development pipeline. Our ability to identify new drug compounds and advance them into clinical development also depends upon our ability
to fund our research and development operations, and we cannot be certain that additional funding will be available on acceptable terms,
or at all.
We are significantly dependent on the success
of our PATrOL™ platform and our product candidates based on this platform. A failure of any product candidate based on this platform
in clinical development would adversely affect our business and may require us to discontinue development of other product candidates
based on the same therapeutic approach.
We have invested, and we expect to continue
to invest, significant efforts and financial resources in the development of product candidates based on our PATrOL™ platform.
Our ability to generate meaningful revenue, which may not occur for the foreseeable future, if ever, will depend heavily on the
successful development, regulatory approval and commercialization of one or more of these product candidates using our PATrOL™
platform. We will not be able to develop new product candidates if it is found that the PATrOL™ platform does not work or
creates product candidates that are not safe for use in humans. Since all of our product candidates in our current pipeline are
based on our PATrOL™ platform, if any product candidate fails in development as a result of an underlying problem with our
PATrOL™ platform, then we may be required to discontinue development of all product candidates that are based on our
therapeutic approach. If we were required to discontinue the development of such product candidates based on the PATrOL™
platform, or if any of them were to fail to receive regulatory approval or achieve sufficient market acceptance, we could be
prevented from or significantly delayed in achieving profitability. We can provide no assurance that we would be successful at
developing other product candidates based on an alternative therapeutic approach from our PATrOL™ platform.
The pharmaceutical market and biotechnology
industry are intensely competitive and involve a high degree of risk. If we are unable to compete effectively with existing drugs, new
treatment methods and new technologies, we may be unable to commercialize successfully any drug candidates that we develop.
The pharmaceutical market and biotechnology industry
are intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental
agencies and other public and private research organizations, both in the U.S. and worldwide, are pursuing the development of novel drugs
for the same diseases that we are targeting or expect to target. Many of our competitors have, either alone or with strategic partners:
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much greater financial, research, technical and human resources than we have at every stage of the discovery,
development, manufacture and commercialization of products and product candidates;
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more extensive experience in designing and conducting preclinical studies and clinical trials, obtaining
regulatory approvals, and in manufacturing, marketing and selling pharmaceutical products and product candidates;
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product candidates that are based on previously tested or accepted technologies;
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products and product candidates that have been approved or are in late stages of development; and
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collaborative arrangements in our target markets with leading companies and research institutions.
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We will face intense competition from drugs that
have already been approved and accepted by the medical community for the treatment of the conditions for which we may develop drug candidates.
We also expect to face competition from new drugs that enter the market. We believe there are a significant number of drugs currently
under development that may become commercially available in the future, for the treatment of conditions for which we may try to develop
drugs. These drugs may be more effective, safer, less expensive, introduced to market earlier, or marketed and sold more effectively or
on a more cost-effective basis, than any product candidates we develop. It is possible that the potential advantages of PATrOL™-derived
therapeutic candidates (including, among other potential advantages, the ability to systemically deliver drugs and get broad tissue distribution
and penetration across the blood-brain barrier, minimal to no innate or adaptive immune responses after single dose or multiple-dose administration,
preferential selectivity to mutant targets, and dose schedules to address the disease appropriately or that is viable in the marketplace)
do not materialize.
Our competitors may develop or commercialize products
with significant advantages over any product candidates we are able to develop and commercialize based on many different factors, including:
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the safety and effectiveness of our product candidates relative to alternative therapies, if any;
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the ease with which our product candidates can be administered and the extent to which patients accept
relatively new routes of administration;
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the timing and scope of regulatory approvals for these product candidates;
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the availability and cost of manufacturing, marketing and sales capabilities;
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reimbursement coverage from governments and other third-party payors; and
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patent position and intellectual property protection.
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Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products that are viewed as safer, more effective, more convenient or less expensive
than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their competing products more
rapidly than we may obtain approval for any of our product candidates, which could result in our competitors establishing a strong market
position before we are able to enter the market. Further, we expect that we will also compete with others when recruiting clinical trial
sites and subjects for our clinical trials and when recruiting and retaining qualified scientific and management personnel.
While there are currently no approved treatments
available to slow the progression of Huntington’s Disease or Myotonic Dystrophy Type 1, publicly available information shows that
a number of companies are pursuing product candidates seeking to address the root cause of these indications. These include investigational
drugs in clinical development for HD, and several ongoing preclinical programs targeting the underlying disease and symptoms in HD and
DM1. The success of any of these competitors could reduce or eliminate our commercial opportunity.
Any collaboration arrangement that we may
enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and
potential future product candidates.
We may seek collaboration arrangements with pharmaceutical
companies for the development or commercialization of our current and potential future product candidates. To the extent that we decide
to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Moreover, collaboration
arrangements are complex and time consuming to negotiate, execute and implement. We may not be successful in our efforts to establish
and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, and the terms of the
arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product
candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party.
The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally
have significant discretion in determining the efforts and resources that they will apply to these collaborations. As such, our inability
to control our collaborators, and the potentially adverse results of our collaborators, may materially and adversely affect our product
candidates and, more generally, our PATrOL™ platform, and we may not be able to conduct our program in the manner or on the time
schedule it currently contemplates, which could negatively impact our business.
If our potential future collaborations do not
result in the successful discovery, development and commercialization of products or if one of our collaborators terminates our agreement
with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive
the funding we expect under these agreements, our development of our platform technology and product candidates could be delayed and we
may need additional resources to develop product candidates and our technology.
Finally, disagreements between parties to a collaboration
arrangement can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a
mutually beneficial manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed
to expire by the other party. Any such termination or expiration could adversely affect our business, financial condition and results
of operations.
We, or any future collaborators, may not
be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates.
Regulatory authorities in some jurisdictions,
including the U.S. and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act,
the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined
as a patient population of fewer than 200,000 individuals annually in the U.S. In the U.S. and Europe, obtaining orphan drug approval
may allow us to obtain financial incentives, such as an extended period of exclusivity during which only we are allowed to market the
orphan drug for the orphan indications that we are developing. While we may seek orphan drug designation from the FDA for any of our product
candidates, we, or any future collaborators, may not be granted orphan drug designations for our product candidates in the U.S. or in
other jurisdictions.
Even if we or any future collaborators
obtain orphan drug designation for a product candidate, we or such collaborators may not be able to obtain orphan drug exclusivity
for that product candidate. Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it
receives the first marketing approval for the indication for which it has such designation, in which case the FDA or the EMA will be
precluded from approving another marketing application for the same drug for that indication for the applicable exclusivity period.
The applicable exclusivity period is seven years in the U.S. and ten years in Europe. The European exclusivity period can be reduced
to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that
market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for
designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of
patients with the rare disease or condition.
Even if we or any future collaborators obtain
orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because FDA has taken
the position that, under certain circumstances, another drug with the same active chemical and pharmacological characteristics, or moiety,
can be approved for the same condition. Specifically, the FDA’s regulations provide that it can approve another drug with the same
active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer,
more effective or makes a major contribution to patient care.
Our operations have been adversely affected
by the coronavirus outbreak, and we face risks that could impact our business.
A novel strain of coronavirus, COVID-19, originated
in Wuhan, China, in December 2019. The virus has spread globally and includes a significant number of cases in the U.S., Europe and Asia.
We have relationships with contract research organizations to conduct certain pre-clinical programs and testing and other services in
Europe and certain of those business operations have been impacted by the COVID-19 pandemic and are further subject to potential business
interruptions arising from new protective measures that may be taken by the governmental or other agencies or governing bodies. We also
conduct limited operations within Asia through third-party contract manufacturing organizations whose operations have been and may continue
to be negatively affected by the coronavirus outbreak. In addition, certain of our collaborative relationships with academic research
institutions in the United States have been and may continue to be materially and adversely impacted by protective measures taken by those
institutions or federal and state agencies and governing bodies to restrict access to, or suspend operations at, such facilities. Such
protective measures, including quarantines, travel restrictions and business shutdowns, have impacted and may continue to negatively affect
our core operations. We have taken precautionary measures aligned with CDC, state and local guidelines that are intended to help minimize
the risk of the virus to our employees, including the provision of personal protective equipment, suspension of non-essential travel worldwide
for our employees, and we discourage employee attendance at other gatherings. Several of our employees work remotely. Business disruptions
elsewhere in the world could also negatively affect the sources and availability of components and materials that are essential to the
operation of our business.
Extended periods of interruption to our U.S. operations
or those of our contract research and manufacturing organizations due to the coronavirus outbreak could adversely impact the growth of
our business and could cause us to cease or delay operations. For example, one of our external contract research providers, was forced
to shut down its vivarium where the in vivo testing for the NT0100 program was ongoing, and this disruption in operations
contributed to a delay and may also incur additional future delays in that program. In such instances, we may need to locate an appropriate
replacement third-party facility and establish a contractual relationship in connection with such facilities, which may not be readily
available or on acceptable terms that would cause additional delay and increased expense, including as a result of additional required
FDA approvals, and may have a material adverse effect on our business.
The extent to which the coronavirus impacts our
business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted. This includes
new information that may emerge concerning the severity of the coronavirus, the spread and proliferation of the coronavirus around the
world, and the actions taken to contain the coronavirus or treat its impact, among others.
We are subject to a multitude of manufacturing
risks, any of which could substantially increase our costs and limit supply of our product candidates.
The process of manufacturing our product
candidates is complex, highly regulated, and subject to several risks. For example, the process of manufacturing our product
candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of
equipment, low yielding processes, or vendor or operator error. Even minor deviations from normal manufacturing processes for any of
our product candidates could result in reduced production yields, product defects, and other supply disruptions. If microbial,
viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product
candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy
the contamination. In addition, the manufacturing facilities in which our product candidates are made could be adversely affected by
equipment failures, labor shortages, natural disasters, public health crises, pandemics and epidemics, such as a novel strain of
coronavirus (COVID-19), power failures and numerous other factors. For instance, our therapeutic molecules are complex and comprised
of both peptides and nucleic acids, and it may be difficult or impossible to find Good Laboratory Practice- (“GLP”) and
Current Good Manufacturing Practice- (“cGMP”) grade manufacturers, manufacturing may be cost prohibitive, we or our
third-party manufacturers may not be able to manufacture product candidates in a timely manner or within specification, or
manufacturing may not be available to fulfill regulatory requirements. In addition, we or our third-party manufacturers may not be
able to manufacture our product candidates at the necessary scale to meet our development and commercialization requirements.
In addition, any adverse developments affecting
manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls,
or other interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other charges
and expenses for product candidates that fail to meet specifications, undertake costly remediation efforts or seek costlier manufacturing
alternatives.
We rely, and will continue to rely, predominantly,
on third parties to manufacture our preclinical and clinical drug supplies and our business, financial condition and results of operations
could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality
levels, prices, or timelines.
We have the capability internally to manufacture
small quantities of our drugs for preclinical studies. However, we do not currently have, nor do we plan to acquire, the infrastructure
or capability internally to manufacture our clinical drug supplies for use in our clinical trials, and we lack the resources and the capability
to manufacture any of our product candidates on a clinical or commercial scale. We rely on our manufacturers to purchase from third-party
suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for
raw materials that we use to manufacture our product candidates, and there may be a need to identify alternate suppliers to prevent a
possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and, if approved,
ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our
manufacturers. Any significant delay or discontinuity in the supply of a product candidate, or the raw material components thereof, for
an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials,
product testing and potential regulatory approval of our product candidates, which could harm our business, financial condition and results
of operations.
If we are unable to develop our own commercial
organization or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant
revenues.
We do not have a sales and marketing organization,
and we have no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product candidates
are approved for commercialization, we may be required to develop our own sales, marketing and distribution capabilities, or make arrangements
with a third party to perform sales and marketing services. Developing a sales force for any resulting product or any product resulting
from any of our other product candidates is expensive and time consuming and could delay any product launch. We may be unable to establish
and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable
of generating sufficient demand for our product candidates. To the extent that we enter into arrangements with collaborators or other
third parties to perform sales and marketing services, our product revenues are likely to be lower than if we marketed and sold our product
candidates independently. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may
not be able to generate significant revenues and may not become profitable.
The commercial success of our product candidates
depends upon their market acceptance among physicians, patients, healthcare payors and the medical community.
Even if our product candidates obtain regulatory
approval, our products, if any, may not gain market acceptance among physicians, patients, healthcare payors and the medical community.
The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including:
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the effectiveness of our approved product candidates as compared to currently available products;
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patient willingness to adopt our approved product candidates in place of current therapies;
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our ability to provide acceptable evidence of safety and efficacy;
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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restrictions on use in combination with other products;
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availability of alternative treatments;
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pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements,
based on the profile of our product candidates and target markets;
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effectiveness of our or our partners’ sales and marketing strategy;
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our ability to obtain sufficient third-party coverage or reimbursement; and
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potential product liability claims.
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In addition, the potential market opportunity
for our product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates
include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys.
Independent sources have not verified all of our assumptions. If any of these assumptions proves to be inaccurate, then the actual market
for our product candidates could be smaller than our estimates of our potential market opportunity. If the actual market for our product
candidates is smaller than we expect, our product revenue may be limited, it may be harder than expected to raise funds and it may be
more difficult for us to achieve or maintain profitability. If we fail to achieve market acceptance of our product candidates in the U.S.
and abroad, our revenue will be limited, and it will be more difficult to achieve profitability.
If we fail to obtain and sustain an adequate
level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.
There will be no viable commercial market for
our product candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare
reform measures. We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate
we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our
anticipated revenue and gross margins will be adversely affected.
Third-party payors, such as government or private
healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement
rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates
may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services.
There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private payors, managed care
organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use
of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and
challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly
approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease
the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will
be priced significantly higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant
benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our
drugs, which would significantly reduce the likelihood of our products gaining market acceptance.
We expect that private insurers will consider
the efficacy, cost-effectiveness, safety and tolerability of our product candidates in determining whether to approve reimbursement for
such product candidates and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial
condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our product
candidates from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare
carrier level or by fiscal intermediaries. Medicare Part B, which covers medical insurance to Medicare patients as discussed below, does
not require participating insurance plans to cover all drugs that have been approved by the FDA. Our business, financial condition and
results of operations could be materially adversely affected if Part B medical insurance were to limit access to, or deny or limit reimbursement
of, our product candidates.
Reimbursement systems in international markets
vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries,
the product candidate cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical
pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries
can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that
compares the cost-effectiveness of our product candidates to other available therapies.
If the prices for our product candidates are reduced
or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash
flows and prospects for profitability will suffer.
We are exposed to product liability, non-clinical
and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability
and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. In
addition, the use in our anticipated clinical trials of pharmaceutical products and the subsequent sale of product candidates by us, if
approved, or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim
or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
Because we do not currently have any clinical
trials ongoing, we do not currently carry product liability insurance. We anticipate obtaining such insurance upon initiation of our clinical
development activities; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate
amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects.
A successful product liability claim or series of claims brought against us could adversely affect our results of operations and business
if judgments therewith exceed our insurance coverage.
If we fail to retain current members of
our management, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product
candidates.
Our success depends on our continued ability to
attract, retain and motivate highly qualified management and scientific personnel. As of March 30, 2021, we had 21 full-time employees.
We will rely primarily on outsourcing research, development and clinical trial activities, and manufacturing operations, as well as other
functions critical to our business. We believe this approach enhances our ability to focus on our core product opportunities, allocate
resources efficiently to different projects and allocate internal resources more effectively. We have filled several key open positions
and are currently recruiting for several other remaining positions. However, competition for qualified personnel is intense. We may not
be successful in attracting qualified personnel to fulfill our current or future needs. In the event we are unable to fill critical open
employment positions, we may need to delay our operational activities and goals, including the development of our product candidates,
and may have difficulty in meeting our obligations as a public company. We do not maintain “key person” insurance on any of
our employees.
In addition, competitors and others are likely
in the future to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain
highly qualified personnel in the future or delays in hiring such personnel, particularly senior management and other technical personnel,
could materially and adversely affect our business, financial condition and results of operations. In addition, the replacement of key
personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.
From time to time, our management seeks the advice
and guidance of certain scientific advisors and consultants regarding clinical and regulatory development programs and other customary
matters. These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts
with, other entities that may limit their availability to us. In addition, our scientific advisors may have arrangements with other companies
to assist those companies in developing products or technologies that may compete with us.
We will need to increase the size of our
organization and may not successfully manage our growth.
We are a preclinical-stage pharmaceutical company
with a small number of employees, and our management systems currently in place are not likely to be adequate to support our future growth
plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional
employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of
additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant
number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we
fail to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, such failure
could have a material adverse effect on our business, financial condition and results of operations.
Because our Chief Executive Officer is involved
with several unaffiliated privately held companies, he may experience conflicts of interest and competing demands for his time and attention.
Dietrich Stephan, Ph.D., our Chief Executive Officer,
is a member of the governing bodies of several unaffiliated privately held companies, as well as a general partner of Cyto Ventures. Although
Dr. Stephan expects to devote substantially all of his time to us, he expects to continue in each of these positions for the foreseeable
future. Conflicts of interest could arise with respect to business opportunities that could be advantageous to third party organizations
affiliated with Dr. Stephan, on the one hand, and us, on the other hand.
The majority of our current management lacks
public company experience, which could put us at greater risk of incurring fines or regulatory actions for failure to comply with federal
securities laws and could put us at a competitive disadvantage and require our management to devote additional time and resources to ensure
compliance with applicable corporate governance requirements.
The majority of our current executive management
do not have experience in managing and operating a public company, which could have an adverse effect on our ability to quickly respond
to problems or adequately address issues and matters applicable to public companies. Any failure to comply with federal securities laws,
rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, financial condition
and results of operations. Further, since certain of our current executive officers do not have experience managing and operating a public
company, we may need to dedicate additional time and resources to comply with legally mandated corporate governance policies relative
to our competitors whose management teams have more public company experience.
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.
Despite the implementation of security measures,
our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents
or security breaches could cause interruptions in our operations and could result in a material disruption of our drug development and
preclinical and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to
remedy. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur material legal claims and liability, damage to our reputation, suffer
loss or harm to our intellectual property rights and the further research, development and commercial efforts of our products and product
candidates could be delayed. The loss of drug development or clinical trial data could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result
in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could
incur liability and our development programs and the development of our product candidates could be delayed. In addition, if we are held
liable for a claim against which we are not insured or for damages exceeding the limits of our insurance coverage, whether arising out
of cybersecurity matters, or from some other matter, that claim could have a material adverse effect on our results of operations.
Our employees, consultants, third-party
vendors and collaborators may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements.
We are exposed to the risk of employee,
consultant, third-party vendor or collaborator fraud or other misconduct. Misconduct by our employees, consultants, third-party
vendors or collaborators could include, among other things, intentional failures to comply with FDA regulations, provide accurate
information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and
regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales,
marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent
fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of
pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements.
Employee, consultant, vendor or collaborator misconduct also could involve the improper use of information obtained in the course of
preclinical or clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always
possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective
in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a material adverse effect on our
business, financial condition and results of operations, and result in the imposition of significant fines or other sanctions
against us.
Business disruptions such as natural disasters
could seriously harm our future revenues and financial condition and increase our costs and expenses.
We and our suppliers may experience a disruption
in our and their business as a result of natural disasters. A significant natural disaster, such as an earthquake, hurricane, flood or
fire, could severely damage or destroy our headquarters or facilities or the facilities of our manufacturers or suppliers, which could
have a material and adverse effect on our business, financial condition and results of operations. In addition, terrorist acts or acts
of war targeted at the U.S., and specifically the Pittsburgh, Pennsylvania, greater New York, New York, and greater southern California
regions, could cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse
effect on our business, financial condition and results of operations.
We may engage in strategic transactions
that could impact our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions,
such as spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Additional
potential transactions that we may consider include a variety of different business arrangements, including acquisitions of companies,
asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Any such transaction may require us
to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges
or disrupt our management or business, which could adversely affect our business, financial condition and results of operations. For example,
these transactions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of our business and diversion of our management’s time and attention in order to develop
acquired products, product candidates or technologies;
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incurrence of substantial debt or dilutive issuances of equity securities to pay for any of these transactions;
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higher-than-expected transaction and integration costs;
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write-downs of assets or goodwill or impairment charges;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses or product lines
with our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses or product lines
due to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
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Accordingly, although there can be no assurance
that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may
be subject to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results
of operations.
Risks Related to Our Intellectual Property
Our success depends in part on our ability
to protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able
to protect our intellectual property rights throughout the world.
Our commercial success will depend in large part
on obtaining and maintaining patent, trademark and trade secret protection of our proprietary technologies and our product candidates,
their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending
these patents against third-party challenges. Our ability to stop unauthorized third parties from making, using, selling, offering to
sell or importing our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade
secrets that cover these activities.
The patenting process is expensive and time-consuming,
and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
In addition, we may not pursue or obtain patent protection in all relevant markets. It is also possible that we will fail to identify
patentable aspects of our research and development output before it is too late to obtain patent protection. Our pending and future patent
applications may not result in issued patents that protect our technology or products, in whole or in part. In addition, our existing
patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from developing
competing products and technologies.
In the future we may, and presently do, in-license
intellectual property from licensors. We may rely on these licensors to file and prosecute patent applications and maintain patents and
otherwise protect the intellectual property we license from them. We may have limited control over these activities or any other intellectual
property that may be in-licensed. For example, we cannot be certain that such activities by licensors have been or will be conducted in
compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
We may have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer
of the intellectual property rights, or defend certain of the intellectual property that is licensed to us. It is possible that the licensors’
infringement proceeding or defense activities may be less vigorous than had we conducted them ourselves.
The growth of our business may depend in part
on our ability to acquire or in-license additional proprietary rights. For example, our programs may involve additional product candidates
that may require the use of additional proprietary rights held by third parties. Our product candidates may also require specific formulations
to work effectively and efficiently. These formulations may be covered by intellectual property rights held by others. We may develop
products containing our compounds and pre-existing pharmaceutical compounds. These pharmaceutical compounds may be covered by intellectual
property rights held by others. We may be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic
test or tests with our product candidates. These diagnostic test or tests may be covered by intellectual property rights held by
others. We may be unable to acquire or in-license any relevant third-party intellectual property rights that we identify as necessary
or important to our business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at
all, which would harm our business. We may need to cease use of the compositions or methods covered by such third-party intellectual property
rights, and may need to seek to develop alternative approaches that do not infringe on such intellectual property rights which may entail
additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are
able to obtain a license under such intellectual property rights, any such license may be non-exclusive, which may allow our competitors
access to the same technologies licensed to us. If we are unable to successfully obtain rights to required third-party intellectual
property or to maintain the existing intellectual property rights we have, we may have to abandon development of such program and our
business and financial condition could suffer.
We may not be successful in obtaining or
maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Because several of our programs currently
require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to
maintain and exploit these proprietary rights. In addition, we may need to acquire or in-license additional intellectual property in
the future. We may be unable to acquire or in-license any compositions, methods of use, processes or other intellectual property
rights from third parties that we identify as necessary for our product candidates. We face competition with regard to acquiring and
in-licensing third-party intellectual property rights, including from a number of more established companies. These established
companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and
commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license
intellectual property rights to us. We also may be unable to acquire or in-license third-party intellectual property rights on terms
that would allow it to make an appropriate return on our investment, and we may not be able to market products or perform research
and development or other activities covered by these patents.
We may enter into collaboration agreements with
U.S. and foreign academic institutions to accelerate development of our current or future preclinical product candidates. Typically, these
agreements include an option for the company to negotiate a license to the institution’s intellectual property rights resulting
from the collaboration. Even with such an option, we may be unable to negotiate a license within the specified timeframe or under terms
that are acceptable to us. If we are unable to license rights from a collaborating institution, the institution may offer the intellectual
property rights to other parties, potentially blocking our ability to pursue our desired program.
If we are unable to successfully obtain required
third-party intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of
the related program and our business, financial condition and results of operations could be materially and adversely affected.
If we are unable to obtain and maintain
sufficient patent and other intellectual property protection for our product candidates and technology, our competitors could develop
and commercialize products and technology similar or identical to ours, and we may not be able to compete effectively in our market or
successfully commercialize any product candidates we may develop.
We rely upon a combination of patents, trade secret
protection and confidentiality agreements to protect the intellectual property related to our technologies. We will only be able to protect
our product candidates, proprietary technologies and their uses from unauthorized use by third parties to the extent that valid and enforceable
patents or trade secrets cover them. Any disclosure to or misappropriation by third parties of our confidential proprietary information
could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our
market.
Composition-of-matter patents on the active pharmaceutical
ingredient are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such
patents provide protection without regard to any method of use. Method-of-use patents protect the use of a product for the specified method.
This type of patent does not prevent a competitor from making and marketing a product that is identical to our products for an indication
that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted
indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute
to the infringement of method-of use patents, the practice is common and such infringement is difficult to prevent or prosecute.
The strength of patents in the biotechnology and
pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own may fail
to result in issued patents in the United States or in other foreign countries. Even if the patents do successfully issue, third parties
may challenge the validity, enforceability, inventorship, or scope thereof, which may result in such patents being narrowed, invalidated
or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our
intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents
and patent applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with
us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delays in our clinical trials,
the period of time during which we could market our product candidates under patent protection would be reduced. Since patent applications
in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the
first to file any patent application related to our product candidates. Furthermore, for applications in which all claims are entitled
to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the United States
Patent and Trademark Office or the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims
of our applications.
In addition to the protection afforded by
patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not
patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development
processes that involve proprietary know- how, information or technology that is not covered by patents. Although we require all of
our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who
have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain
that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise
gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws
of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United
States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United
States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we
will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our
business, operating results and financial condition.
If we fail to comply with our obligations
in the agreements under which we in-license intellectual property and other rights from third parties or otherwise experiences disruptions
to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.
Our license agreement with CMU (the “CMU
License Agreement”), as the licensor (the “Licensor”), is important to our business, and we expect to enter into additional
license agreements in the future. The CMU License Agreement imposes, and we expect that future license agreements will impose, various
royalties, sublicensing fees and other obligations on us. If we fail to comply with our obligations under these agreements, or if we file
for bankruptcy, we may be required to make certain payments to the Licensor, we may lose the exclusivity of our license, or the Licensor
may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license.
Additionally, the royalties and other payments associated with these licenses could materially and adversely affect our business, financial
condition and results of operations.
Pursuant to the terms of the CMU License Agreement,
the Licensor has the right to terminate the CMU License Agreement with respect to the program licensed under certain circumstances, including,
but not limited to: (i) if we do not pay amounts when due and within the applicable cure periods or (ii) if we file or have filed against
us a petition in bankruptcy or makes an assignment for the benefit of creditors. In the event the CMU License Agreement is terminated
by the Licensor, all licenses (or, in the determination of the Licensor, the exclusivity of such licenses) granted to us by the Licensor
will terminate immediately.
In some cases, patent prosecution of our licensed
technology may be controlled solely by the licensor. If our licensor fails to obtain and maintain patent or other protection for the proprietary
intellectual property we in-license, then we could lose our rights to the intellectual property or our exclusivity with respect to those
rights, and our competitors could market competing products using the intellectual property. In certain cases, we may control the prosecution
of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur
significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves
complex legal, business and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including,
but not limited to:
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the scope of rights granted under the license agreement and other interpretation-related issues;
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the extent to which our technology and processes infringe on intellectual property of the licensor that
is not subject to the licensing agreement;
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the sublicensing of patent and other rights;
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our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by our licensors and us and our collaborators; and
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the priority of invention of patented technology.
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If disputes over intellectual property and other
rights that we have in-licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may
be unable to successfully develop and commercialize the affected product candidates. If we fail to comply with any such obligations to
our licensor, such licensor may terminate their licenses to us, in which case we would not be able to market products covered by these
licenses. The loss of our licenses would have a material adverse effect on our business, financial condition and results of operations.
We may be required to pay royalties and
sublicensing fees pursuant to the CMU License Agreement, which could adversely affect the overall profitability for us of any product
candidates that we may seek to commercialize.
Under the terms of the CMU License Agreement,
we will be required to pay royalties on future worldwide net product sales and a percentage of sublicensing fees that we may earn. These
royalty payments and sublicensing fees could adversely affect the overall profitability for us of any product candidates that we may seek
to commercialize.
We may not be able to protect our proprietary
or licensed technology in the marketplace.
We depend on our ability to protect our proprietary
or licensed technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements
with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability and any
licensor’s or licensee’s ability to obtain and maintain patent protection in the U.S. and other countries with respect to
our proprietary or licensed technology and product candidates. We currently in-license some of our intellectual property rights to develop
our product candidates and may in-license additional intellectual property rights in the future. We cannot be certain that patent enforcement
activities by our current or future licensors have been or will be conducted in compliance with applicable laws and regulations or will
result in valid and enforceable patents or other intellectual property rights. We also cannot be certain that our current or future licensors
will allocate sufficient resources or prioritize their or our enforcement of such patents. Even if we are not a party to these legal actions,
an adverse outcome could prevent us from continuing to license intellectual property that we may need to operate our business, which would
have a material adverse effect on our business, financial condition and results of operations.
If we are compelled to spend significant time
and money protecting or enforcing our licensed patents and future patents we may own, designing around patents held by others or licensing
or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business, financial condition and results
of operations may be materially and adversely affected. If we are unable to effectively protect the intellectual property that we own
or in-license, other companies may be able to offer the same or similar products for sale, which could materially adversely affect our
business, financial condition and results of operations. The patents of others from whom we may license technology, and any future patents
we may own, may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing
the same or similar products or limit the length of term of patent protection that we may have for our products.
Obtaining and maintaining patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent
agencies, and our patent protection for licensed patents, licensed pending patent applications and potential future patent applications
and patents could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity
fees and various other governmental fees on patents and/or patent applications will be due to be paid to the U.S. Patent and Trademark
Office (“USPTO”) and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable
patent and/or patent application. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be
cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the
relevant jurisdiction. If this occurs with respect to our in-licensed patents or patent applications we may file in the future, our competitors
might be able to use our technologies, which would have a material adverse effect on our business, financial condition and results of
operations.
The patent position of pharmaceutical and
biotechnology companies generally is highly uncertain and involves complex legal and factual questions for which many legal
principles remain unresolved. In recent years patent rights have been the subject of significant litigation. As a result, the
issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future
patent applications may not result in patents being issued in the United States or in other jurisdictions which protect our
technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in
either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our
patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the
same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual
discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after
filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our
patents or pending patent applications, or that we were the first to file for patent protection of such inventions. In addition, the
U.S. Patent and Trademark Office, or USPTO, might require that the term of a patent issuing from a pending patent application be
disclaimed and limited to the term of another patent that is commonly owned or names a common inventor. As a result, the issuance,
scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
Even if our patent applications issue as patents,
they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise
provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar
or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity
or enforceability, and our owned and in-licensed patents may be challenged in the courts or patent offices in the United States and abroad.
Such challenges may result in the patent claims of our owned or in-licensed patents being narrowed, invalidated or held unenforceable,
in whole or in part. This result could limit our ability to stop or prevent us from stopping others from using or commercializing similar
or identical technology and products, or limit the duration of the patent protection of our technology and products. Such challenges
may result in loss of exclusivity or freedom to operate. Given the amount of time required for the development, testing and regulatory
review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or
identical to ours or otherwise provide us with a competitive advantage.
The degree of future protection for our proprietary
rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain
or keep our competitive advantage. For example:
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others may be able to make or use compounds that are similar to the pharmaceutical compounds used in our
product candidates but that are not covered by the claims of our patents;
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the active pharmaceutical ingredients in our current product candidates will eventually become commercially
available in generic drug products, and no patent protection may be available with regard to formulation or method of use;
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we or our licensors, as the case may be, may fail to meet our obligations to the U.S. government in regards
to any in-licensed patents and patent applications funded by U.S. government grants, leading to the loss of patent rights;
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we might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not result in issued patents;
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it is possible that there are prior public disclosures that could invalidate our patents, as the case
may be, or parts of our or their patents;
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it is possible that others may circumvent our patents;
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it is possible that there are unpublished patent applications maintained in secrecy that may later issue
with claims covering our products or technology similar to ours;
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the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of
the United States;
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the claims of our issued patents or patent applications, if and when issued, may not cover our product
candidates;
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our patents may not provide us with any competitive advantages, may be narrowed in scope, or be held invalid
or unenforceable as a result of legal challenges by third parties;
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the inventors of our patents or patent applications may become involved with competitors, develop products
or processes which design around our patents, or become hostile to us or the patents or patent applications on which they are named as
inventors;
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collaborators may develop adjacent or competing products to ours that are outside the scope of our patents;
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we may not develop additional proprietary technologies for which we can obtain patent protection;
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it is possible that product candidates or diagnostic tests we develop may be covered by third parties’
patents or other exclusive rights; or
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the patents of others may have an adverse effect on our business.
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Patents that we currently license and patents
that we may own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a
number of reasons, including, without limitation, the following:
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the patents may not be broad or strong enough to prevent competition from other products that are identical
or similar to our product candidates;
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there can be no assurance that the term of a patent can be extended under the provisions of patent term
extensions afforded by U.S. law or similar provisions in foreign countries, where available;
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the issued patents and patents that we may obtain or license in the future may not prevent generic entry
into the market for our product candidates;
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we, or third parties from whom we in-license or may license patents, may be required to disclaim part
of the term of one or more patents;
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there may be prior art of which we are not aware that may affect the validity or enforceability of a patent
claim;
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there may be prior art of which we are aware, which we do not believe affects the validity or enforceability
of a patent claim, but which, nonetheless, ultimately may be found to affect the validity or enforceability of a patent claim;
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there may be other patents issued to others that will affect our freedom to operate;
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if the patents are challenged, a court could determine that they are invalid or unenforceable;
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there might be a significant change in the law that governs patentability, validity and infringement of
our licensed patents or any future patents we may own that adversely affects the scope of our patent rights;
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a court could determine that a competitor’s technology or product does not infringe our licensed
patents or any future patents we may own; and
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the patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations
or could be subject to compulsory licensing.
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If we encounter delays in our development or clinical
trials, the period of time during which we could market our potential products under patent protection would be reduced.
Our competitors may be able to circumvent our
licensed patents or future patents we may own by developing similar or alternative technologies or products in a non-infringing manner.
Our competitors may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA
in which our competitors claim that our licensed patents or any future patents we may own are invalid, unenforceable or not infringed.
Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our product candidates.
In these circumstances, we may need to defend or assert our licensed patents or any future patents we may own, including by filing lawsuits
alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our licensed patents
or any future patents we may own invalid or unenforceable. We may also fail to identify patentable aspects of our research and development
before it is too late to obtain patent protection. Even if we own or in-license valid and enforceable patents, these patents still may
not provide protection against competing products or processes sufficient to achieve our business objectives.
We also may rely on trade secrets to protect our
technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to
protect, and we have limited control over the protection of trade secrets used by our collaborators and suppliers. Although we use reasonable
efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may
unintentionally or willfully disclose our information to competitors or use such information to compete with us. Moreover, our competitors
may independently develop equivalent knowledge, methods and know-how. If our confidential or proprietary information is divulged to or
acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and this would have a
material adverse effect on our business.
Filing, prosecuting and defending patents on
product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in
some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some
countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be
able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or
importing products made using our inventions in and into the United States or other countries. Competitors may use our technologies
in countries where we have not obtained patent protection to develop their own products and further, may infringe our patents in
territories where we have patent protection, but enforcement is not as strong as in the United States. These products may compete
with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Many companies have encountered significant problems
in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating
to pharmaceutical and biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing
of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign countries
could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk
of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert
claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially
meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license.
We may infringe the intellectual property
rights of others, which may prevent or delay our drug development efforts and prevent us from commercializing or increase the costs of
commercializing our product candidates.
Our commercial success depends significantly on
our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could
be issued patents of which we are not aware that our current or potential future product candidates infringe. There also could be patents
that we believe we do not infringe, but that we may ultimately be found to infringe. We have licensed intellectual property from CMU under
the CMU License Agreement, and prior generation intellectual property was licensed to other entities. Such intellectual property, in conjunction
with further developed technologies for gene editing therapies using such intellectual property, may overlap with our own intellectual
property.
As the biotechnology and pharmaceutical industries
expand and more patents are issued, the risk increases that others may assert our product candidates infringe the patent rights of others.
Moreover, it is not always clear to industry participants, including us, which patents cover various types of drugs, products or their
methods of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in our fields, there
may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies or methods. Furthermore,
because the nucleic acid therapeutics intellectual property landscape is still evolving and our product candidates have not been through
clinical trials or commercialized, it is difficult to conclusively assess our freedom to operate without infringing third party rights.
There are numerous companies that have pending patent applications and issued patents directed to certain aspects of nucleic acid therapeutics.
We are aware of third-party competitors in the oligonucleotide therapeutics space, whose patent filings and/or issued patents may include
claims directed to targets and/or products related to some of our programs. It is possible that at the time that we commercialize our
products these third-party patent portfolios may include issued patent claims that cover our product candidates or critical features of
their production or use. Our competitive position may suffer if patents issued to third parties or other third-party intellectual property
rights cover, or may be alleged to cover, our product candidates or elements thereof, or methods of manufacture or use relevant to our
development plans. In such cases, we may not be in a position to develop or commercialize product candidates unless we successfully pursue
litigation to nullify or invalidate the third-party intellectual property right concerned or enter into a license agreement with the intellectual
property right holder, if available on commercially reasonable terms.
Moreover, patent applications are in some
cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were
filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may
later result in issued patents that our product candidates or potential products infringe. For example, pending applications may
exist that claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors
may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or
continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product
candidates. We cannot be certain that others have not filed patent applications for technology covered by our issued patents or
our pending applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future
file, patent applications covering our products or technology similar to ours. Any such patent application may have priority over
our patent applications or patents, which could require us to obtain rights to issued patents covering such technologies.
Third parties may assert that we are employing
their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits
are costly and could adversely affect our business, financial condition and results of operations and divert the attention of managerial
and scientific personnel. If we are sued for patent infringement, we would need to demonstrate that our product candidates, potential
products or methods either do not infringe the claims of the relevant patent or that the patent claims are invalid, and we may not be
able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing
evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur
substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings,
which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful
conclusion. If a court holds that any third-party patents are valid, enforceable and cover our products or their use, the holders of any
of these patents may be able to block our ability to commercialize our products unless it acquires or obtains a license under the applicable
patents or until the patents expire.
If a third party claims that we infringe its intellectual
property rights, we may face a number of issues, including, but not limited to: infringement and other intellectual property claims which,
regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;
substantial damages for infringement, which we may have to pay if a court decides that the product candidate or technology at issue infringes
on or violates the third party’s rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble
damages and the patent owner’s attorneys’ fees; a court prohibiting us from developing, manufacturing, marketing or selling
our product candidates, or from using our proprietary technologies, unless the third party licenses its product rights to us, which it
is not required to do; if a license is available from a third party, we may have to pay substantial royalties, upfront fees and other
amounts, and/or grant cross-licenses to intellectual property rights for our products; and redesigning our product candidates or processes
so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.
We may choose to challenge the patentability of
claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims in an ex-parte re-exam, inter
partes review or post-grant review proceedings. These proceedings are expensive and may consume our time or other resources.
We may choose to challenge a third party’s patent in patent opposition proceedings in the EPO, or other foreign patent office. The
costs of these opposition proceedings could be substantial, and may consume our time or other resources. If we fail to obtain a favorable
result at the USPTO, EPO or other patent office then we may be exposed to litigation by a third party alleging that the patent may be
infringed by our product candidates or proprietary technologies.
We may not be able to enter into licensing arrangements
or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could
result in delays in the introduction of our product candidates or lead to prohibition of the manufacture or sale of products by us. Even
if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to
us. We could be forced, including by court order, to cease commercializing the infringing technology or product candidate. In addition,
in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees,
if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates
or force us to cease some of our business operations, which could materially and adversely affect our business, financial condition and
results of operations. Any claims by third parties that we have misappropriated their confidential information or trade secrets could
have a similar material and adverse effect on our business, financial condition and results of operations. In addition, any uncertainties
resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds
necessary to continue our operations.
Our product candidates may also require
specific formulations to work effectively and efficiently. These formulations may be covered by intellectual property rights held by
others. We may develop products containing our compounds and pre-existing pharmaceutical compounds. These pharmaceutical compounds
may be covered by intellectual property rights held by others. We may be required by the FDA or comparable foreign regulatory
authorities to provide a companion diagnostic test or tests with our product candidates. These diagnostic test or tests may be
covered by intellectual property rights held by others. We may be unable to acquire or in-license any relevant third-party
intellectual property rights that we identify as necessary or important to our business operations.
We, or our licensors, may not be able to detect
infringement against our owned or in-licensed patents, as the case may be, which may be especially difficult for manufacturing processes
or formulation patents. Even if we or our licensors detect infringement by a third party of our owned or in-licensed patents, we or our
licensors, as the case may be, may choose not to pursue litigation against or settlement with the third party. If we, or our licensors,
later sue such third party for patent infringement, the third party may have certain legal defenses available to it, which otherwise would
not be available except for the delay between when the infringement was first detected and when the suit was brought. Such legal defenses
may make it impossible for us or our licensors to enforce our owned or in-licensed patents, as the case may be, against such third party.
Any claims or lawsuits relating to infringement
of intellectual property rights brought by or against us will be costly and time consuming and may adversely affect our business, financial
condition and results of operations.
Competitors may infringe or otherwise violate
our patents, trademarks, copyrights or other intellectual property. To counter infringement or other violations, we may be required to
initiate litigation to enforce or defend our licensed and owned intellectual property. Lawsuits to protect our intellectual property rights
can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights
in the pharmaceutical industry generally. Such litigation or proceedings could substantially increase our operating expenses and reduce
the resources available for development activities or any future sales, marketing or distribution activities.
In any infringement litigation, any award of monetary
damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection
with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during
litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement
claims, which typically last for years before they are resolved. Further, any claims we assert against a perceived infringer could provoke
these parties to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties
resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability
to compete in the marketplace. In addition, in a patent infringement proceeding, a court may decide that one or more of the patents we
assert is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to prevent the other party
from using the technology at issue on the grounds that our patents do not cover the technology. Similarly, if we assert trademark infringement
claims, a court may determine that the marks we have asserted are invalid or unenforceable or that the party against whom we have asserted
trademark infringement has superior rights to the marks in question. In such a case, we could ultimately be forced to cease use of such
marks.
In addition, our licensed patents and patent applications,
and patents and patent applications that we may apply for, own or license in the future, could face other challenges, such as interference
proceedings, opposition proceedings, re-examination proceedings and other forms of post-grant review. Any of these challenges, if successful,
could result in the invalidation of, or in a narrowing of the scope of, any of our licensed patents and patent applications and patents
and patent applications that we may apply for, own or license in the future subject to challenge. Any of these challenges, regardless
of their success, would likely be time-consuming and expensive to defend and resolve and would divert our management and scientific personnel’s
time and attention.
Any issued patents we may own covering our
product candidates could be narrowed or found invalid or unenforceable if challenged in court or before administrative bodies in the United
States or abroad, including the USPTO.
Any of our intellectual property rights
could be challenged or invalidated despite measures we take to obtain patent and other intellectual property protection with respect
to our product candidates and proprietary technology. For example, if we were to initiate legal proceedings against a third party to
enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or
unenforceable. In patent litigation in the U.S. and in some other jurisdictions, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory
requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an
allegation that someone connected with prosecution of the patent withheld material information from the USPTO or the applicable
foreign counterpart, or made a misleading statement, during prosecution. A litigant or the USPTO itself could challenge our patents
on this basis even if we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good
faith. The outcome following such a challenge is unpredictable.
With respect to challenges to the validity of
our patents, for example, there might be invalidating prior art, of which we and the patent examiner were unaware during prosecution.
If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all,
of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability,
our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. The
cost of defending such a challenge, particularly in a foreign jurisdiction, and any resulting loss of patent protection could have a material
adverse impact on one or more of our product candidates and our business. Enforcing our intellectual property rights against third parties
may also cause such third parties to file other counterclaims against us, which could be costly to defend, particularly in a foreign jurisdiction,
and could require us to pay substantial damages, cease the sale of certain products or enter into a license agreement and pay royalties
(which may not be possible on commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also
likely to be costly and may divert the efforts of our scientific and management personnel.
We may be subject to claims challenging
the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees,
collaborators or other third parties have an interest in our patents, trade secrets, or other intellectual property as an inventor or
co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of employees, consultants or others who
are involved in developing our product candidates. While it is our policy to require our employees and contractors who may be involved
in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in
executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment
agreements may not be self-executing or may be breached, and litigation may be necessary to defend against these and other claims challenging
inventorship or our ownership of our patents, trade secrets or other intellectual property. If we fail in defending any such claims, in
addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use,
intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse
effect on our business, financial condition, results of operations and prospects.
We may not be able to protect our intellectual
property rights throughout the world.
Filing, prosecuting and defending patents on product
candidates throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions
where we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products
to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that in the U.S. These
products may compete with our product candidates in jurisdictions where we do not have any issued or licensed patents, and any future
patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our licensed
patents and future patents we may own, or marketing of competing products in violation of our proprietary rights generally. Further,
the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the
U.S. As a result, we may encounter significant problems in protecting and defending our licensed and owned intellectual property
both in the U.S. and abroad. For example, China currently affords less protection to a company’s intellectual property than
some other jurisdictions. As such, the lack of strong patent and other intellectual property protection in China may significantly
increase our vulnerability regarding unauthorized disclosure or use of our intellectual property and undermine our competitive
position. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and
divert our efforts and attention from other aspects of our business.
We may be unable to adequately prevent disclosure
of trade secrets and other proprietary information.
In order to protect our proprietary and licensed
technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers,
outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure
of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.
In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret
protection could adversely affect our competitive business position.
We may be subject to claims that our employees,
consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We expect to employ individuals who were previously
employed at other pharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that
us or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information
of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. There is
no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a
distraction to our management and other employees.
We may become involved in disputes with
our employees, consultants, or independent contractors regarding the ownership of intellectual property.
We will rely on our employees, consultants, and
independent contractors to develop intellectual property that we will own and commercialize. These persons may dispute the terms of their
agreements with us, for example, their obligation to assign intellectual property, work product, and know how to us. In case of such a
dispute, the person may assert that he owns the work that he performed on our behalf, and that all corresponding intellectual property
rights vest in him. The person may assert ownership of the intellectual property, refuse to disclose the intellectual property to us,
and fail to execute documents essential to document our ownership. If the person withholds the disclosure of new technology, we may not
even know what technology has been withheld from us, or that the technology even exists. In this case, we may never be able to identify
and perfect title to the technology. Such a person would pose a significant risk of disclosure of our confidential intellectual property.
If the person chose to reveal the technology to a third party, we may have no means or opportunity to prevent the disclosure. Our confidential
intellectual property would then become known to third parties, possibly even without us knowing about the disclosure. We would suffer
material adverse effects from the disclosure and misuse of our intellectual property. To enforce our rights would require a complex dispute
of state and federal intellectual property law to take place in a state court. The outcome of such a dispute in a state court, especially
in a jury trial, is highly uncertain.
Patent terms may be inadequate to protect
our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United
States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional
filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents
covering our product candidates are obtained, once the patent life has expired for a product candidate, we may be open to competition
from competitive medications, including generic medications. Given the amount of time required for the development, testing and regulatory
review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates
are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing
product candidates similar or identical to ours for a meaningful amount of time, or at all.
Depending upon the timing, duration and
conditions of any FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments, and similar legislation in the European Union and certain other countries. The Hatch-Waxman Amendments permit a patent
term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during
product development and the FDA regulatory review process. However, we may not receive an extension if we fail to exercise due
diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to
expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be
less than we request. Only one patent per approved product can be extended, the extension cannot extend the total patent term beyond
14 years from approval and only those claims covering the approved drug, a method for using it or a method for manufacturing it may
be extended. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period
during which we can enforce our patent rights for the applicable product candidate will be shortened and our competitors may obtain
approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. Further, if this
occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical
data and launch their product earlier than might otherwise be the case, and our competitive position, business, financial condition,
results of operations and prospects could be materially harmed.
Also, there are detailed rules and requirements
regarding the patents that may be submitted to the FDA for listing in the Approved Drug Products with Therapeutic Equivalence Evaluations,
or the Orange Book. We may be unable to obtain patents covering our product candidates that contain one or more claims that satisfy the
requirements for listing in the Orange Book. Even if we submit a patent for listing in the Orange Book, the FDA may decline to list the
patent, or a manufacturer of generic drugs may challenge the listing. If one of our product candidates is approved and a patent covering
that product candidate is not listed in the Orange Book, a manufacturer of generic drugs would not have to provide advance notice to us
of any abbreviated new drug application filed with the FDA to obtain permission to sell a generic version of such product candidate. Any
of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects.
Risks Related to Government Regulation
We are very early in our development efforts.
All of our product candidates are still in preclinical development. If we are unable to advance our product candidates to clinical development,
obtain regulatory approval and ultimately commercialize our product candidates or experience significant delays in doing so, our business
will be materially harmed.
We are very early in our development efforts,
and all of our product candidates are still in preclinical development. We have invested substantially all of our efforts and financial
resources in the identification and preclinical development of PATrOL-enabled therapies, including the development programs for the treatment
of Huntington’s Disease and Myotonic Dystrophy Type 1. Our ability to generate product revenues, which we do not expect will occur
for many years, if ever, will depend on the successful development and eventual commercialization of our product candidates, which may
never occur. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a marketable
product. In addition, certain of our product candidate development programs contemplate the development of companion diagnostics, which
are assays or tests to identify an appropriate patient population. Companion diagnostics are subject to regulation as medical devices
and must themselves be approved for marketing by the FDA or certain other foreign regulatory agencies before we may commercialize our
product candidates. The success of our product candidates will depend on several factors, including the following:
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successful completion of preclinical studies;
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approval of INDs for our planned clinical trials or future clinical trials;
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successful enrollment in, and completion of, clinical trials;
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successful development of companion diagnostics for use with certain of our product candidates;
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receipt of regulatory approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers for clinical supply and commercial manufacturing;
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obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;
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launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
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acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors;
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effectively competing with other therapies;
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obtaining and maintaining third-party insurance coverage and adequate reimbursement;
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enforcing and defending intellectual property rights and claims; and
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maintaining a continued acceptable safety profile of the product candidates following approval, if approved.
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If we do not achieve one or more of these factors
in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates,
which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to
continue our operations.
Furthermore, the FDA has relatively limited experience
with nucleic acid therapeutics, particularly PNAs, which may increase the complexity, uncertainty and length of the regulatory review
process for our product candidates. To date, the FDA has approved few nucleic acid therapeutics for marketing and commercialization, and
the FDA and our foreign counterparts have not yet established any definitive policies, practices or guidelines specifically in relation
to these drugs. The lack of policies, practices or guidelines specific to nucleic acid therapeutics may hinder or slow review by the FDA
of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining requirements we may not have
anticipated. Such responses could lead to significant delays in the development of our product candidates. In addition, because there
may be approved treatments for some of the diseases for which we may seek approval, in order to receive regulatory approval, we may need
to demonstrate through clinical trials that the product candidates we develop to treat these diseases, if any, are not only safe and effective,
but safer or more effective than existing products. Furthermore, in recent years, there has been increased public and political pressure
on the FDA with respect to the approval process for new drugs, and the FDA’s standards, especially regarding drug safety, appear
to have become more stringent. As a result of the foregoing factors, we may never receive regulatory approval to market and commercialize
any product candidate.
Preclinical and clinical trials are expensive,
time-consuming and difficult to design and implement, and involve uncertain outcomes. Furthermore, results of earlier preclinical studies
and clinical trials may not be predictive of results of future preclinical studies or clinical trials.
All of our product candidates are still in the
preclinical stage, and their risk of failure is high. Before we can commence clinical trials for a product candidate, we must complete
extensive preclinical testing and studies that support our planned INDs in the U.S., or similar applications in other jurisdictions. We
cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory
authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support
the further development of our programs. It is also impossible to predict when or if any of our product candidates will complete clinical
trials evaluating their safety and effectiveness in humans or will receive regulatory approval. To obtain the requisite regulatory approvals
to market and sell any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our
PATrOL™ platform and product candidates are safe and effective in humans for use in each target indication. To date, we have never
advanced a product candidate into a clinical trial. Preclinical and clinical testing is expensive and can take many years to complete,
and the outcome is inherently uncertain. Failure can occur at any time during the preclinical or clinical trial process. Our preclinical
programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory
approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business, financial condition
and results of operations.
Additionally, the results of preclinical studies
and future clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates
in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical
studies and initial clinical trials. Many companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future
clinical trial results may not be successful for these or other reasons.
This product candidate development risk is heightened
by any changes in the anticipated clinical trials compared to the completed clinical trials. As product candidates are developed from
preclinical through early to late stage clinical trials towards approval and commercialization, it is customary that various aspects of
the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes
and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials,
approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.
Any of these changes could make the results of
our anticipated clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates
to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product
candidates, and/or jeopardize our ability to commence product sales and generate revenues.
We may rely on third parties to conduct
investigator-sponsored clinical trials of our product candidates. Any failure by a third party to meet our obligations with respect to
the clinical development of our product candidates may delay or impair our ability to obtain regulatory approval for other product candidates.
We may rely on academic and private non-academic
institutions to conduct and sponsor preclinical and clinical trials relating to our product candidates. We will not control the design
or conduct of the investigator-sponsored trials, and it is possible that the FDA or non-U.S. regulatory authorities will not view these
investigator-sponsored trials as providing adequate support for future preclinical and clinical trials, whether controlled by us or third
parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.
For example, we collaborate with, and rely on, academic centers to conduct preclinical and non-investigator-sponsored research and it
is possible that the interests of such academic centers may not be aligned with our interests.
Such arrangements will likely provide us certain
information rights with respect to the investigator-sponsored trials, including access to and the ability to use and reference the data,
including for our own regulatory filings, resulting from the investigator-sponsored trials. However, we would not have control over the
timing and reporting of the data from investigator-sponsored trials, nor would we own the data from the investigator-sponsored trials.
If we are unable to confirm or replicate the results from the investigator-sponsored trials or if negative results are obtained, we would
likely be further delayed or prevented from advancing further clinical development of our product candidates. Further, if investigators
or institutions breach their obligations with respect to the clinical development of our product candidates, or if the data proves to
be inadequate compared to the first-hand knowledge we might have gained had the investigator-sponsored trials been sponsored and conducted
by us, then our ability to design and conduct any future preclinical or clinical trials ourselves may be adversely affected.
Additionally, the FDA or non-U.S. regulatory authorities
may disagree with the sufficiency of our right of reference to the preclinical, manufacturing or clinical data generated by these investigator-sponsored
trials, or our interpretation of preclinical, manufacturing or clinical data from these investigator-sponsored trials. If so, the FDA
or other non-U.S. regulatory authorities may require us to obtain and submit additional preclinical, manufacturing, or clinical data before
we may initiate our anticipated trials and/or may not accept such additional data as adequate to initiate our anticipated trials.
Our product candidates may cause undesirable
side effects that could delay or prevent their regulatory approval or commercialization or have other significant adverse implications
on our business, financial condition and results of operations.
Undesirable side effects observed in
preclinical studies or in clinical trials with our product candidates could interrupt, delay or halt their development and could
result in the denial of regulatory approval by the FDA, the EMA or comparable foreign authorities for any or all targeted
indications or adversely affect the marketability of any product candidates developed using our PATrOL™ platform that receive
regulatory approval. In turn, this could eliminate or limit our ability to commercialize our product candidates.
Our product candidates may exhibit adverse effects
in preclinical toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements
the FDA, the EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.
Our product candidates may require a risk management
program that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-marketing
observational study and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists
or physicians trained in the use of the drug, or could be limited to a more restricted patient population. Any risk management program
required for approval of our product candidates could potentially have an adverse effect on our business, financial condition and results
of operations.
Undesirable side effects involving our product
candidates may have other significant adverse implications on our business, financial condition and results of operations. For example:
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we may be unable to obtain additional financing on acceptable terms, if at all;
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our collaborators may terminate any development agreements covering these product candidates;
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if any development agreements are terminated, we may determine not to further develop the affected product
candidates due to resource constraints and may not be able to establish additional collaborations for their further development on acceptable
terms, if at all;
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if we were to later continue the development of these product candidates and receive regulatory approval,
earlier findings may significantly limit their marketability and thus significantly lower our potential future revenues from their commercialization;
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we may be subject to product liability or stockholder litigation; and
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we may be unable to attract and retain key employees.
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In addition, if any of our product candidates
receive marketing approval and we or others later identify undesirable side effects caused by the product:
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regulatory authorities may withdraw their approval of the PATrOL™-enabled product, or we or our
partners may decide to cease marketing and sale of the product voluntarily;
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we may be required to change the way the product is administered, conduct additional preclinical studies
or additional clinical trials after initial clinical trials regarding the product, change the labeling of the product, or change the product’s
manufacturing facilities; and
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our reputation may suffer.
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Any of these events could prevent us from achieving
or maintaining market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the
product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.
Delays in the commencement or completion
of clinical trials could result in increased costs to us and delay our ability to establish strategic collaborations.
Delays in the commencement or completion of clinical
trials could significantly impact our drug development costs. We do not know whether anticipated clinical trials will begin on time or
be completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but not limited
to, delays related to:
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obtaining regulatory approval to commence one or more clinical trials;
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reaching agreement on acceptable terms with prospective third-party contract research organizations (“CROs”) and clinical trial sites;
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manufacturing sufficient quantities of a product candidate or other materials necessary to conduct clinical trials;
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changes in regulations as part of a response to the COVID-19 pandemic, which may require us to change the ways in which future clinical trials would otherwise be conducted;
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obtaining institutional review board approval to conduct one or more clinical trials at a prospective site;
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recruiting and enrolling patients to participate in one or more clinical trials; and
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the failure of our collaborators to adequately resource our product candidates due to their focus on other programs or as a result of general market conditions.
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In addition, once a clinical trial has begun,
it may be suspended or terminated by us, our collaborators, the institutional review boards or data safety monitoring boards charged with
overseeing our clinical trials, the FDA, the EMA or comparable foreign authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
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inspection of the clinical trial operations or clinical trial site by the FDA, the EMA or comparable foreign
authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues;
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lack of adequate funding to continue the clinical trials; and
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lack of patient enrollment in clinical studies.
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If we experience delays in the completion or termination
of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to
commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing
our clinical trials will increase our costs and slow down our product candidate development and approval process. Delays in completing
our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patent protection period
during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business,
financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement
or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
If we experience delays in the enrollment
of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical
trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these
trials as required by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinical trials,
is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’
perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs
that may be approved for the indications we are investigating. In addition, the COVID-19 pandemic may negatively impact our ability to
recruit and enroll patients for our clinical trials because they may be reluctant or unable to visit clinical sites, or may delay seeking
treatment for chronic conditions.
If we fail to enroll and maintain the number of
patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder
to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in
our clinical trials may result in increased development costs for our product candidates, which would cause our value to decline and limit
our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of our future clinical trials
would result in significant delays or may require us to abandon one or more clinical trials altogether.
We intend to rely on third parties to conduct
our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual
duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize
our product candidates and our business, financial condition and results of operations could be substantially harmed.
We intend to rely upon third-party CROs, medical
institutions, clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and anticipated
clinical programs. Nevertheless, we maintain responsibility for ensuring that each of our preclinical studies are, and anticipated clinical
studies will be, conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on
these third parties does not relieve the Company of our regulatory responsibilities. The Company and our CROs and other vendors are required
to comply with current requirements on cGMP, good clinical practices (“GCP”) and GLP, which are a collection of laws and regulations
enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development. Regulatory
authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators,
preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply with applicable
regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable
foreign authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical
trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations.
Our failure to comply with these regulations may require it to repeat clinical trials, which would delay the development and regulatory
approval processes.
We may also not be able to enter into arrangements
with CROs on commercially reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available
to us under our agreements with such CROs, we will not be able to 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 data they obtain is compromised due to the failure to adhere
to our 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. CROs may also generate higher costs
than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product
candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.
Switching or adding additional CROs, medical institutions,
clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is
a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact
our ability to meet our desired development timelines. 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 effect on our business, financial condition or results
of operations.
Our product candidates are subject to extensive
regulation under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated delays
or prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling,
storage, record-keeping, advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive
regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither us
nor our collaborators are permitted to market our product candidates until we or our collaborators receive approval of an NDA from the
FDA or receive similar approvals abroad. The process of obtaining these approvals is expensive, often takes many years, and can vary substantially
based upon the type, complexity and novelty of the product candidates involved. Approval policies or regulations may change and may be
influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely
manner or at all. Any guidance that may result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize
such product candidates. In addition, as a company, we have not previously filed NDAs with the FDA or filed similar applications with
other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency approval
in a timely manner, if at all, for our product candidates for which development and commercialization is our responsibility.
Despite the time and expense invested, regulatory
approval is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit or deny approval of a product candidate
for many reasons, including:
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a product candidate may not be deemed safe or effective;
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agency officials of the FDA, the EMA or comparable foreign authorities may not find the data from non-clinical or preclinical studies and clinical trials generated during development to be sufficient;
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the FDA, the EMA or comparable foreign authorities may not approve our third-party manufacturers’ processes or facilities; or
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the FDA, the EMA or a comparable foreign authority may change our approval policies or adopt new regulations.
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Our inability to obtain these approvals would
prevent us from commercializing our product candidates.
The FDA, the NIH and the EMA have demonstrated
caution in their regulation of gene therapy treatments, and ethical and legal concerns about gene therapy and genetic testing may result
in additional regulations or restrictions on the development and commercialization of our product candidates, which may be difficult to
predict.
The FDA, National Institutes of Health (“NIH”)
and the EMA have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example,
the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level in
the United States, as well as U.S. congressional committees and other governments or governing agencies, have also expressed interest
in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our product candidates.
Regulatory requirements in the U.S. and in other
jurisdictions governing gene therapy products have changed frequently and may continue to change in the future. The FDA established the
Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research to consolidate the review of gene
therapy and related products, and established the Cellular, Tissue and Gene Therapies Advisory Committee to advise this review. Prior
to submitting an IND, our human clinical trials will be subject to review by the NIH Office of Biotechnology Activities (“OBA”)
Recombinant DNA Advisory Committee (the “RAC”). Following an initial review, RAC members make a recommendation as to whether
the protocol raises important scientific, safety, medical, ethical or social issues that warrant in-depth discussion at the RAC’s
quarterly meetings. Even though the FDA decides whether individual gene therapy protocols may proceed under an IND, the RAC’s recommendations
are shared with the FDA and the RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA
has reviewed the trial design and details and has not objected to its initiation or has notified the sponsor that the study may begin.
Conversely, the FDA can put an IND on a clinical hold even if the RAC has provided a favorable review or has recommended against an in-depth,
public review. Moreover, under guidelines published by the NIH, patient enrollment in our future gene silencing clinical trials cannot
begin until the investigator for such clinical trial has received a letter from the OBA indicating that the RAC review process has been
completed; and Institutional Biosafety Committee (“IBC”) approval as well as all other applicable regulatory authorizations
have been obtained. In addition to the government regulators, the IBC and IRB of each institution at which we will conduct clinical trials
of our product candidates, or a central IRB if appropriate, would need to review the proposed clinical trial to assess the safety of the
trial. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight
bodies to change the requirements for approval of any of our product candidates. Similarly, the EMA governs the development of gene therapies
in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and
require that we comply with these new guidelines. These regulatory review agencies and committees and the new requirements or guidelines
they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development
costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates
or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult
with these regulatory agencies and committees and comply with applicable requirements and guidelines. If we fail to do so, we may be required
to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process
that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further
restrictions on the development of our product candidates can be costly and could negatively impact our or our collaborators’ ability
to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.
Even if our product candidates receive regulatory
approval in the U.S., it may never receive approval or commercialize our products outside of the U.S.
In order to market any products outside of the
U.S., we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy.
Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The
time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process
in other countries may include all of the risks detailed above regarding FDA approval in the U.S. as well as other risks. Regulatory approval
in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country
may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay
seeking or obtaining such approval would impair our ability to develop foreign markets for our product candidates.
Even if any of our product candidates receive
regulatory approval, our product candidates may still face future development and regulatory difficulties.
If any of our product candidates receive regulatory
approval, the FDA, the EMA or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing
of the product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition, regulatory
agencies subject a product, our manufacturer and the manufacturer’s facilities to continual review and periodic inspections. If
a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our collaborators
or us, including requiring withdrawal of the product from the market. Our product candidates will also be subject to ongoing FDA, EMA
or comparable foreign authorities’ requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and
submission of safety and other post-market information on the drug. If our product candidates fail to comply with applicable regulatory
requirements, a regulatory agency may:
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issue warning letters or other notices of possible violations;
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impose civil or criminal penalties or fines or seek disgorgement of revenue or profits;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications filed by us or our collaborators;
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withdraw any regulatory approvals;
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impose restrictions on operations, including costly new manufacturing requirements, or shut down our manufacturing operations; or
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seize or detain products or require a product recall.
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The FDA, the EMA and comparable foreign
authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
The FDA, the EMA and comparable foreign
authorities strictly regulate the promotional claims that may be made about prescription products, such as our product candidates,
if approved. In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign
authorities as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates for
our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the
approved label, if the physicians personally believe in their professional medical judgment that our products could be used in such
manner. However, if we are found to have promoted our product candidates, if approved, for any off-label uses, the federal
government could levy civil, criminal or administrative penalties, and seek fines against us. Such enforcement has become more
common in the industry. The FDA, the EMA or comparable foreign authorities could also request that we enter into a consent decree or
a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored,
changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject
to significant liability, which would materially adversely affect our business, financial condition and results of operations.
We and our potential contract manufacturers
are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we will
rely may not continue to meet regulatory requirements.
All entities involved in the preparation of therapeutics
for clinical trials or commercial sale, including our potential contract manufacturers for our product candidates, are subject to extensive
regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured
in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality
systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes
can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may
not be detectable in final product testing. We or our potential contract manufacturers must supply all necessary documentation in support
of an NDA or marketing authorization application (“MAA”) on a timely basis and must adhere to GLP and cGMP regulations enforced
by the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of our potential contract manufacturers
may not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority
approvals to do so. The facilities and quality systems of some or all of our potential third-party contractors must pass a pre-approval
inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our
other potential product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility
involved with the preparation of our product candidates or the associated quality systems for compliance with the regulations applicable
to the activities being conducted. Although we plan to oversee the contract manufacturers, we cannot control the manufacturing process
of, and will be completely dependent on, our contract manufacturing partners for compliance with applicable regulatory requirements. If
these facilities do not pass a pre-approval plant inspection, regulatory approval of the product candidates may not be granted or may
be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time
following approval of a product for sale, audit the manufacturing facilities of our potential third-party contractors. If any such inspection
or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations
occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly
or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial
or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with
whom we may contract could materially harm our business, financial condition and results of operations.
If we or any of our potential third-party manufacturers
fail to maintain regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including,
among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval, or suspension of production.
As a result, our business, financial condition and results of operations may be materially and adversely affected.
Additionally, if supply from one manufacturer
is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign
regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new
manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in
a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs
and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product
candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers
capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Current and future legislation may increase
the difficulty and cost of commercializing our product candidates and may affect the prices we may obtain if our product candidates are
approved for commercialization.
In the U.S. and some foreign jurisdictions, there
have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay
regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell
any of our product candidates for which we obtain regulatory approval.
In the U.S., the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction
initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved
product candidates. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage
policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the
MMA may result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the “ACA”), was enacted. The
ACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees
on the health industry and impose additional health policy reforms. The ACA increased manufacturers’ rebate liability under the
Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of
“average manufacturer price” (“AMP”), which may also increase the amount of Medicaid drug rebates manufacturers
are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain
new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare &
Medicaid Services, which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization
that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the ACA imposed a
significant annual fee on companies that manufacture or import branded prescription drug products. Legislative and regulatory proposals
have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities
for pharmaceutical products.
There have been recent public announcements by
members of the U.S. Congress, President Trump and his administration regarding their plans to repeal and replace the ACA and Medicare.
For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated
the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health
coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates,
if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent
marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.
Additionally, there has been heightened
governmental scrutiny in the U.S. of pharmaceutical pricing practices in light of the rising cost of prescription drugs and
biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state
legislation 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. At the federal level, the
Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted
during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to
negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to
eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a
“Blueprint,” or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to
increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize
manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The
U.S. Department of Health and Human Services has already started the process of soliciting feedback on some of these measures and,
at the same, is immediately implementing others under its existing authority. While some proposed measures will require
authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it
will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are
increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological 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.
We expect that these and other healthcare reform
measures that may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price
that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar
reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us
from being able to generate revenue, attain profitability or commercialize our drugs.
In June 2016, the United Kingdom (“UK”)
held a referendum pursuant to which voters elected to leave the European Union (“EU”), commonly referred to as Brexit. The
UK formally left the EU on January 31, 2020, and the UK remained subject to EU law during a “Brexit transition period” that
ended on December 31, 2020. Although the long-term effects of Brexit will depend on any agreements the UK makes to retain access to the
EU markets, Brexit has created additional uncertainties that may ultimately result in new regulatory costs and challenges for biotechnology
companies. We cannot predict what consequences the withdrawal of the UK from the EU, if it occurs, might have on the regulatory frameworks
of the UK or the EU, or on our future operations, if any, in these jurisdictions.
Changes in government funding for the FDA
and other government agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug
innovation, or prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial
condition and results of operations.
The ability of the FDA to review and approve new
products can be affected by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, and statutory,
regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government
funding of other agencies that fund research and development activities is subject to the political process, which is inherently fluid
and unpredictable.
In December 2016, the 21st Century Cures Act was
signed into law. This new legislation is designed to advance medical innovation and empower the FDA with the authority to directly hire
positions related to drug and device development and review. However, government proposals to reduce or eliminate budgetary deficits may
include reduced allocations to the FDA and other related government agencies. These budgetary pressures may result in a reduced ability
by the FDA to perform their respective roles; including the related impact to academic institutions and research laboratories whose funding
is fully or partially dependent on both the level and timing of funding from government sources.
Disruptions at the FDA and other agencies may
also slow the time necessary for our product candidates to be reviewed or approved by necessary government agencies, which could adversely
affect our business, financial condition and results of operations.
We are subject to “fraud and abuse”
and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance
could harm our business, financial condition and results of operations.
In the U.S., we are subject to various federal
and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended, among
other things, to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for
any person, including a prescription drug manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive,
offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a
particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such as
Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws
are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly,
it is possible that our practices may be challenged under the federal Anti-Kickback Statute.
The federal False Claims Act prohibits anyone
from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare
programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as
claimed, or claims for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996,
we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors,
or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services to obtain money or property of any
healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including penalties,
fines or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting
with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal
False Claims Act as well as under the false claims laws of several states.
Many states have adopted laws similar to the federal
Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental
payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector
General Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America’s
Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical
companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state
requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.
Neither the government nor the courts have provided
definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on
enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business
arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If we are
found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines,
exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of our operations. If this
occurs, our business, financial condition and results of operations may be materially adversely affected.
If we face allegations of noncompliance
with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately
approved for commercialization could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations
of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply
with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates
that are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business,
financial condition and results of operations will be adversely affected. Additionally, if we are unable to generate revenues from product
sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.
Risks Related to Our Common Stock
The market price of our common stock is
expected to be volatile.
The trading price of our stock is likely to be
volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
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our ability to conduct and achieve continued positive outcomes from our preclinical activities on the PATrOL™ platform and disease specific programs;
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public health crises, pandemics and epidemics, such as a novel strain of coronavirus (COVID-19) and their effects on our preclinical activities;
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results from, costs, and any delays in, anticipated preclinical and clinical studies and data releases;
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contracting with third parties such as academic institutions, and various CROs who will perform such studies, or the potential lack of performance of such organizations;
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acceptance of INDs by the FDA or similar regulatory filing by comparable foreign regulatory authorities for the conduct of clinical trials of our product candidates and our proposed design of future clinical trials;
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delays in publications of research findings;
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significant lawsuits, including patent or stockholder litigation;
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inability to obtain additional funding or funding on favorable terms;
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failure to successfully develop and commercialize our product candidates;
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changes in laws or regulations applicable to our product candidates;
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inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptable prices or in an acceptable timeframe;
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unanticipated serious safety concerns related to our PATrOL™ platform or any of our product candidates;
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adverse regulatory decisions;
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introduction of new products or technologies by our competitors;
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adverse events or results for our competitors or our product candidate target areas that could generally adversely affect us our or our industry;
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failure to meet or exceed drug development or financial projections we provide to the public;
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failure to meet or exceed the estimates, expectations and projections of the investment community and our stockholders;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our licensed and owned technologies;
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additions or departures of key scientific, management, or board personnel;
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changes in the market valuations of similar companies;
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general economic and market conditions and overall fluctuations in the U.S. equity market;
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sales of our common stock by us or our stockholders in the future;
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trading volume of our common stock;
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period-to-period fluctuations in our financial results;
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any identified material weakness in our internal control over financial reporting;
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changes in the structure of health care payments;
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changes in the Nasdaq listing of our stock; and
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recommendations of equity analysts covering our stock.
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In addition, the stock market, and equity values
of small pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market
price of our common stock, regardless of our actual operating performance. Further, a decline in the financial markets and related factors
beyond our control may cause our stock price to decline rapidly and unexpectedly.
In the past, following periods of volatility in
the market price of a company’s securities, stockholders have often instituted class action securities litigation against those
companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which
could significantly harm our profitability and reputation.
As previously disclosed in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2019 (the “2019 Form 10-K”), in connection with the preparation of the Company’s
consolidated financial statements for the fiscal year ended September 30, 2019, but prior to the issuance of such financial statements,
the Company determined the accounting treatment and valuations pertaining to the PATrOL™ technology license acquired during the
first quarter of fiscal 2019 should be modified. The 2019 Form 10-K disclosed that the change in accounting treatment and valuations resulted
in an increase in total operating expenses of approximately $0.9 million on the Company’s consolidated statements of operations
for the fiscal year ended September 30, 2019 and a decrease in intangible assets of approximately $1.5 million on the Company’s
consolidated balance sheet as of and for the fiscal year ended September 30, 2019, as well as a decrease in total operating expenses of
approximately $0.3 million on the Company’s consolidated statements of operations in connection with the adjustment of the valuation
of certain share-based awards for the fiscal year ended September 30, 2019.
In addition, the Company identified an error
in one of the Black-Scholes option pricing model assumptions, utilized in calculating the fair value of a stock option award granted during
the year ended September 30, 2019, which resulted in an overstatement of share-based compensation expense. The Company concluded that the
error was not material to any prior annual or interim period. Nevertheless, the Company has revised its historical financial statements
to properly reflect the fair value of options granted in the prior period.
If we are required to restate any of our financial
statements in the future due to our inability to adequately remedy the issues that gave rise to these modifications or for any other reason,
we may be subject to regulatory penalties and investors could lose confidence in the accuracy and completeness of our financial statements,
which could cause our share price to decline.
Our management owns a significant percentage
of our stock and is able to exert significant control over matters subject to stockholder approval.
Dr. Stephan, our President, Chief Executive Officer
and a director of us, holds a significant number of shares of our outstanding common stock and an option to purchase additional shares
of common stock. Accordingly, Dr. Stephan has the ability to influence us through his ownership position.
This significant concentration of stock
ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock
in companies with controlling stockholders. As a result, Dr. Stephan could significantly influence all matters requiring approval by
our stockholders, including the election of directors and the approval of mergers or other business combination transactions. Dr.
Stephan may be able to determine all matters requiring stockholder approval. The interests of these stockholders may not always
coincide with our interests or the interests of other stockholders. This may also prevent or discourage unsolicited acquisition
proposals or offers for our common stock that you may feel are in your best interests as one of our stockholders, and he may act in
a manner that advances his best interests and not necessarily those of other stockholders, including seeking a premium value for his
common stock, and might affect the prevailing market price for our common stock.
We previously identified a material weakness in
our internal control over financial reporting, which has been remediated. If we identify additional material weaknesses in the future
or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial
condition or results of operations, which may adversely affect our business and stock price.
We previously identified a material weakness in
our internal control over financial reporting as of September 30, 2019. Although this material weakness was remediated as of September
30, 2020 as discussed in Item 9A of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, we cannot
assure you that we will not identify another material weakness in the future. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
our annual or interim financial statements will not be prevented or detected in a timely basis.
As previously disclosed in our 2019 Form 10-K,
in connection with the preparation of our financial statements for such fiscal year, our management and the Audit Committee of our board
of directors determined that our accounting treatment and valuations pertaining to the PATrOL™ technology license should be modified.
In connection with such revisions, our management identified a material weakness in our internal control over financial reporting due
to a lack of expertise in complex accounting transactions, which were not operating effectively to provide reasonable assurance that complex
transactions were accounted for correctly. We subsequently restated our unaudited condensed consolidated statements of operations and
our unaudited condensed consolidated balance sheets as of and for the three months ended December 31, 2018 and as of and for the three
and six months ended March 31, 2019 upon the filing of our Quarterly Reports on Form 10-Q for such periods. As discussed in Item 9A of
Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, we took remedial measures during fiscal 2019 and
throughout fiscal 2020 to remediate this material weakness.
We cannot assure you that the measures we have
taken to date, and actions we may take in the future, will be sufficient to prevent or avoid potential future material weaknesses. In
connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we
may identify material weaknesses that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of
any improvements and receiving a favorable attestation by our independent registered public accounting firm, if and when required.
If we are unable to achieve and maintain an effective
internal control environment in our disclosure controls or internal control over financial reporting, the accuracy and timing of our financial
reporting may be adversely affected; our liquidity, our access to capital markets and our ability to complete acquisitions may be adversely
affected; we may be unable to maintain or regain compliance with applicable securities laws, The Nasdaq Stock Market LLC (“Nasdaq”)
listing requirements, and the covenants under certain agreements regarding the timely filing of periodic reports; we may be subject to
regulatory investigations and penalties; investors may lose confidence in our financial reporting; and our stock price may decline.
We restated our previously issued
unaudited financial statements for the three months ended December 31, 2019 and the three and six months ended March 31, 2019. As a result,
and if we identify errors in our financial reporting in the future that require us to restate other previously issued financial statements,
such restatements may subject us to unanticipated costs or regulatory penalties and could cause investors to lose confidence in the accuracy
and completeness of our financial statements, which could cause the price of our common stock to decline.
As discussed further in our Quarterly
Reports on Form 10-Q for the quarters ended December 31, 2019 and March 31, 2020, we restated our unaudited condensed consolidated
financial statements and related disclosures for the three months ended December 31, 2018 and the three and six months ended March
31, 2019 in a Form 8-K amendment filed on March 26, 2020. The misstatements were quantitatively material to the period presented in
such prior financial statements, and we determined that it would be appropriate to correct the misstatements in such previously
issued interim financial statements by restating such financial statements. We may be subject to unanticipated costs and regulatory
penalties and investors could lose confidence in the accuracy and completeness of our financial statements, which could cause our
share price to decline, due to such restatement and if we are required to restate any of our other financial statements in the
future.
We may take advantage of specified reduced
disclosure requirements applicable to a “smaller reporting company” under Regulation S-K, and the information that we provide
to stockholders may be different than they might receive from other public companies.
We are a “smaller reporting company,”
as defined under Regulation S-K. As a smaller reporting company, we may take advantage of specified reduced disclosure and other requirements
that are otherwise applicable generally to public companies. These provisions include, among other things, scaled disclosure requirements,
including about our executive compensation arrangements.
We intend to continue to take advantage of certain
of the scaled disclosure requirements of smaller reporting companies. We may continue to take advantage of these allowances until we are
no longer a smaller reporting company. We will cease to be a smaller reporting company if we have (i) more than $250 million in market
value of our shares held by non-affiliates as of the last business day of our second fiscal quarter or (ii) more than $100 million of
annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter and a market value
of our shares held by non-affiliates more than $700 million as of the last business day of our second fiscal quarter. We may choose to
take advantage of some but not all of these scaled disclosure requirements. Therefore, the information that we provide stockholders may
be different than one might get from other public companies. Further, if some investors find our shares of common stock less attractive
as a result, there may be a less active trading market for our shares of common stock and the market price of such shares of common stock
may be more volatile.
Our amended and restated certificate of
incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the
exclusive forums for substantially all disputes between us and our stockholders other than actions arising under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation
provides that the Court of Chancery of the State of Delaware is the exclusive forum for:
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any derivative action or proceeding brought on our behalf;
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any action asserting a breach of fiduciary duty;
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any action asserting a claim against us arising under the General Corporation Law of the State of Delaware
(the “DGCL”), our amended and restated certificate of incorporation or our amended and restated bylaws; and
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any action asserting a claim against us that is governed by the internal-affairs doctrine
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These exclusive-forum provisions do not apply
to claims under the Securities Act, the Exchange Act or any other claims for which the federal courts have exclusive jurisdiction.
These exclusive forum provisions may limit a stockholder’s
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 lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive forum
provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, it may incur additional
costs associated with resolving the dispute in other jurisdictions, which could harm our business.
We are subject to securities class action
litigation and derivative shareholder litigation. If an unfavorable ruling were to occur, there exists the possibility of a material
adverse impact on us.
On February 14, 2018, plaintiff Jeevesh
Khanna, commenced an action in the Southern District of New York, against Ohr and several current and former officers and directors,
alleging that they violated federal securities laws between June 24, 2014 and January 4, 2018. On August 7, 2018, the lead
plaintiffs, now George Lehman and Insured Benefit Plans, Inc., filed an amended complaint, stating the class period to be April 8,
2014 through January 4, 2018. The plaintiffs did not quantify any alleged damages in their complaint but, in addition to
attorneys’ fees and costs, they seek to maintain the action as a class action and to recover damages on behalf of themselves
and other persons who purchased or otherwise acquired Ohr common stock during the putative class period and purportedly suffered
financial harm as a result. We and the individuals dispute these claims and intend to defend the matter vigorously. On September 17,
2018, Ohr filed a motion to dismiss the complaint. On September 20, 2019, the district court entered an order granting the
defendants’ motion to dismiss. On October 23, 2019, the plaintiffs filed a notice of appeal of that order dismissing the
action and other related orders by the district court. After full briefing and oral argument, on October 9, 2020, the U.S. Court of
Appeals for the Second Circuit issued a summary order affirming the district court’s order granting the motion to dismiss and
remanding the action to the district court to make a determination on the record related to plaintiffs’ request for leave to
file an amended complaint. On October 16, 2020, the district court requested the parties’ positions as to how they proposed to
proceed in light of the Second Circuit’s decision. After letter briefing on this issue and plaintiffs’ alternative
request for leave to file a second amended complaint, on November 16, 2020, the district court denied plaintiffs’ request to
amend and dismissed with prejudice plaintiffs’ claims. On December 16, 2020, plaintiffs filed a notice of appeal of that order
denying plaintiffs leave to amend, and the plaintiffs filed their appellate brief with respect to such matters with the Court on
March 31, 2021. This litigation could result in substantial costs and a diversion of management’s resources and attention,
which could harm the Company’s business and the value of the Company’s common stock.
On May 3, 2018, plaintiff Adele J. Barke, derivatively
on behalf of Ohr, commenced an action against certain former directors of Ohr, including Michael Ferguson, Orin Hirschman, Thomas M. Riedhammer,
June Almenoff and Jason S. Slakter in the Supreme Court, State of New York, alleging that the action was brought in the right and for
the benefit of Ohr seeking to remedy their “breach of fiduciary duties, corporate waste and unjust enrichment that occurred between
June 24, 2014 and the present.” It does not quantify any alleged damages. We and the individuals dispute these claims and intend
to defend the matter vigorously. Such litigation has been stayed pursuant to a stipulation by the parties, which has been so ordered by
the court, pending a decision in the Southern District case on the motion to dismiss, but that status could change. This litigation could
result in substantial costs and a diversion of management’s resources and attention, which could harm our business and the value
of our common stock.
On March 20, 2019, a putative class action lawsuit
was filed in the United States District Court for District of Delaware naming as defendants Ohr and its board of directors, Legacy NeuBase
and Ohr Acquisition Corp., captioned Wheby v. Ohr Pharmaceutical, Inc., et al., Case No. 1:19-cv-00541-UNA (the “Wheby
Action”). The plaintiffs in the Wheby Action allege that the preliminary joint proxy/prospectus statement filed by Ohr with the
SEC on March 8, 2019 contained false and misleading statements and omitted material information in violation of Section 14(a) of the Exchange
Act and SEC Rule 14a-9 promulgated thereunder, and further that the individual defendants are liable for those alleged misstatements and
omissions under Section 20(a) of the Exchange Act. The complaint in the Wheby Action has not been served on, nor was service waived by,
any of the named defendants in that action. The action seeks, among other things, to rescind the Merger or an award of damages, and an
award of attorneys’ and experts’ fees and expenses. The defendants dispute the claims raised in the Wheby Action. Management
believes that the likelihood of an adverse decision from the sole remaining action is unlikely; however, the litigation could result in
substantial costs and a diversion of management’s resources and attention, which could harm our business and the value of our common
stock.
Anti-takeover provisions in our charter
documents and under Delaware law could make an acquisition of the Company more difficult and may prevent attempts by our stockholders
to replace or remove our management.
Provisions in our amended and restated certificate
of incorporation and amended and restated bylaws may significantly reduce the value of shares of our common stock to a potential acquirer
or delay or prevent an acquisition or a change in management without the consent of our board of directors. The provisions in our amended
and restated certificate of incorporation and amended and restated bylaws include the following:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the exclusive rights of our board of directors to establish the authorized number of directors and to elect a director to fill a vacancy created by the expansion of our board of directors or the death, resignation, disqualification, retirement or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
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a provision that directors may be removed by our stockholders only for cause;
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the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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the ability of our board of directors to make, alter or appeal our amended and restated bylaws without obtaining stockholder approval;
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the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of our capital stock entitled to vote generally in the election of directors is required to amend, alter, repeal or adopt any provision inconsistent with, several of the provisions of our amended and restated certificate of incorporation and amended and restated bylaws;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of stockholders may be called only by our board of directors, chief executive officer or president, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
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a restriction on the forum for certain litigation against us to Delaware; and
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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
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Although we believe these provisions collectively
will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they
would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent
any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace
members of the board of directors, which is responsible for appointing the members of management.
Certain provisions of the DGCL deter hostile takeovers.
Specifically, Section 203 of the DGCL prohibits a Delaware corporation from engaging in a business combination with an “interested
stockholder” for a period of three years following the date the person first became an interested stockholder, unless (with certain
exceptions) the business combination or the transaction by which the person became an interested stockholder is approved in a prescribed
manner. Generally, a “business combination” includes a merger, asset or stock sale, or certain other transactions resulting
in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with
affiliates and associates, beneficially owns or within three years prior to becoming an “interested stockholder” did own,
15% or more of a corporation’s outstanding voting stock. While this statute permits a corporation to opt out of these protective
provisions in its certificate of incorporation, our certificate of incorporation does not include any such opt-out provision.
Claims for indemnification by our directors
and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available
to us.
Our amended and restated certificate of incorporation
provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the
General Corporation Law of the State of Delaware, or the DGCL, our amended and restated certificate of incorporation and our indemnification
agreements that we have entered into with our directors and officers provide that:
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We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
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We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
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We are required to advance expenses actually and reasonably incurred by our directors and officers in connection with any proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined by a court of competent jurisdiction that such person is not entitled to indemnification.
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We will not be obligated pursuant to our amended and restated certificate of incorporation to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.
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The rights to indemnification conferred in our amended and restated certificate of incorporation are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.
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We may not retroactively amend our amended and restated certificate of incorporation provisions to reduce our indemnification obligations to current or former directors or officers.
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Our indemnification obligations could result in
substantial expenditures by us, which we will be unable to recover.
Our pre-Merger net operating loss carryforwards
and certain other tax attributes will likely be subject to limitations. The pre-Merger net operating loss carryforwards and certain other
tax attributes of us may also be subject to limitations as a result of ownership changes resulting from the Merger.
In general, a corporation that undergoes an “ownership
change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, is subject to limitations on its ability to
utilize its pre-change net operating losses (“NOLs”) to offset future taxable income (the “Section 382 Limitation”).
Such an ownership change occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five
percent or more of a corporation’s common stock, applying certain look-through and aggregation rules, increases by more than 50
percentage points over such stockholders’ lowest percentage ownership during the testing period, generally three years. Due to the
ownership change of the Company upon completion of the Merger, our NOLs and certain other tax attributes will be subject to the Section
382 Limitation. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our NOLs and certain
other tax attributes because of the Section 382 Limitation, which could have a material adverse effect on cash flow and results of operations.
As of September 30, 2020, we had approximately $20.0 million in NOL carryforwards. We have not completed an analysis regarding the limitation
of net operating loss carryforwards, however, it is likely that the Section 382 Limitation will cause a significant portion of our NOL
carryforwards to never be utilized. In addition, if we are determined to have discontinued our historic business following the completion
of the Merger, subject to certain exceptions, the Section 382 Limitation could eliminate all possibility of utilizing our NOL carryforwards.
We may never pay dividends on our common
stock so any returns would be limited to the appreciation of our stock.
We currently anticipate that we will retain
future earnings for the development, operation and expansion of our business and do not anticipate we will declare or pay any cash
dividends for the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends.
Any return to stockholders will therefore be limited to the appreciation of their stock.