ITEM
1—BUSINESS
Tenax
Therapeutics was originally formed as a New Jersey corporation in
1967 under the name Rudmer, David & Associates, Inc., and
subsequently changed its name to Synthetic Blood International,
Inc. Effective June 30, 2008, we changed the domiciliary state of
the corporation to Delaware and changed the company name to Oxygen
Biotherapeutics, Inc. On September 19, 2014, we changed the company
name to Tenax Therapeutics, Inc.
We are
a specialty pharmaceutical company focused on identifying,
developing and commercializing products
that address
cardiovascular and pulmonary diseases of high unmet medical
need
. On November 13, 2013, through our wholly owned
subsidiary, Life Newco, Inc., or Life Newco, we acquired a license
granting Life Newco an exclusive, sublicenseable right to develop
and commercialize pharmaceutical products containing levosimendan,
2.5 mg/ml concentrate for solution for infusion / 5ml vial
in the United States and
Canada
.
Business Strategy
Our
principal business objective is to identify, develop, and
commercialize novel therapeutic products for disease indications
that represent significant areas of clinical need and commercial
opportunity. The key elements of our business strategy are outlined
below.
Efficiently conduct clinical development to establish clinical
proof of concept with our current product candidate.
Levosimendan represents novel therapeutic modalities for the
treatment of pulmonary hypertension and other
cardiovascular and
pulmonary diseases of high unmet medical need.
We are
conducting clinical development with the intent to establish proof
of concept in several important disease areas where these
therapeutics would be expected to have benefit. Our focus is on
conducting well-designed studies to establish a robust foundation
for subsequent development, partnership and expansion into
complementary areas.
Efficiently explore new high potential therapeutic applications,
leveraging third-party research collaborations and our results from
related areas
. Our product candidate has shown promise in
multiple disease areas. We are committed to exploring potential
clinical indications where our therapies may achieve best-in-class
profile, and where we can address significant unmet medical needs.
In order to achieve this goal, we have established collaborative
research relationships with investigators from research and
clinical institutions and our strategic partners. These
collaborative relationships have enabled us to cost effectively
explore where our product candidates may have therapeutic
relevance, and how it may be utilized to advance treatment over
current clinical care. Additionally, we believe we will be able to
leverage clinical safety data and preclinical results from some
programs to support accelerated clinical development efforts in
other areas, saving substantial development time and resources
compared to traditional drug development.
Continue to expand our intellectual property portfolio
. Our
intellectual property is important to our business and we take
significant steps to protect its value. We have ongoing research
and development efforts, both through internal activities and
through collaborative research activities with others, which aim to
develop new intellectual property and enable us to file patent
applications that cover new applications of our existing
technologies or product candidates.
Enter into licensing or product co-development arrangements in
certain areas, while out-licensing opportunities in non-core
areas
. In addition to our internal development efforts, an
important part of our product development strategy is to work with
collaborators and partners to accelerate product development,
reduce our development costs, and broaden our commercialization
capabilities. We believe this strategy will help us to develop a
portfolio of high-quality product development opportunities,
enhance our clinical development and commercialization
capabilities, and increase our ability to generate value from our
proprietary technologies.
Our Current Programs
Levosimendan Background
Levosimendan
was discovered and developed by Orion Corporation, a Finnish
company, or Orion. Levosimendan is a
calcium sensitizer/K-ATP activator
developed for intravenous use in hospitalized patients with acutely
decompensated heart failure. It is currently approved in over 60
countries for this indication and not available in the United
States or Canada. It is estimated that to date over 1,000,000
patients have been treated worldwide with levosimendan
.
Levosimendan
is a novel, first in class
calcium
sensitizer/K-ATP activator
. The therapeutic effects of
levosimendan are mediated through:
●
Increased cardiac
contractility by calcium sensitization of troponin C, resulting in
a positive inotropic effect which is not associated with
substantial increases in oxygen demand.
●
Opening of
potassium channels in the vasculature smooth muscle, resulting in a
vasodilatory effect on all vascular beds.
●
Opening of
mitochondrial potassium channels in cardiomyocytes, resulting in a
cardioprotective effect.
This
triple mechanism of action helps to preserve heart function during
cardiac surgery. Several studies have demonstrated that
levosimendan protects the heart and improves tissue perfusion while
minimizing tissue damage during cardiac surgery.
In
2013, we acquired certain assets of Phyxius Pharma, Inc., or
Phyxius, including its North American rights to develop and
commercialize levosimendan for any indication in the United States
and Canada. In the countries where levosimendan is marketed,
levosimendan is indicated for the short-term treatment of acutely
decompensated severe chronic heart failure in situations where
conventional therapy is not sufficient, and in cases where
inotropic support is considered appropriate.
In acute decompensated heart failure patients,
levosimendan has been shown to significantly improve
patients’ symptoms as well as acute hemodynamic measurements
such as increased cardiac output, reduced preload and reduced
afterload.
The European Society of Cardiology, or the ESC, recommends
levosimendan as a preferable agent over dobutamine to reverse the
effect of beta blockade if it is thought to be contributing to
hypotension. The ESC guidelines also state that levosimendan is not
appropriate for patients with systolic blood pressure less than
85mmHg or in patients in cardiogenic shock unless it is used in
combination with other inotropes or vasopressors
.
Other unique properties of
levosimendan include sustained efficacy through the formation of a
long acting metabolite, lack of impairment of diastolic function,
and evidence of better compatibility with beta blockers than
dobutamine.
Levosimendan Development for Pulmonary Hypertension
Patients
We are
currently initiating a Phase 2 clinical trial of levosimendan in
North America for the treatment of patients with pulmonary
hypertension associated with heart failure with preserved ejection
fraction, or PH-HFpEF. PH-HFpEF is defined hemodynamically by
a pulmonary artery pressure, or mPAP, ≥25 mmHg, a pulmonary
capillary wedge pressure, or PCWP, >15 mmHg, and a diastolic
pressure gradient, or diastolic PAP – PCWP, >7mmHg.
Pulmonary hypertension in these patients initially develops from a
passive backward transmission of elevated filling pressures from
left-sided heart failure. These mechanical components of pulmonary
venous congestion may trigger pulmonary vasoconstriction, decreased
nitric oxide availability, increased endothelin expression,
desensitization to natriuretic peptide induced vasodilation, and
vascular remodeling. Finally, these changes often lead to
advanced pulmonary vascular disease, increased right ventricle, or
RV, afterload, and RV failure.
PH-HFpEF
is a common form of pulmonary hypertension with an estimated US
prevalence exceeding 1.5 million patients. Currently, no
pharmacologic therapies are approved for treatment of
PH-HFpEF. Despite the fact that many therapies have been
studied in PH-HFpEF patients, including therapies approved to treat
pulmonary arterial hypertension patients, no therapies have been
shown to be effective in treating PH-HFpEF patients.
Published
pre-clinical and clinical studies indicate that levosimendan may
provide important benefits to patients with pulmonary hypertension.
Data from these published trials indicate that levosimendan may
reduce pulmonary vascular resistance and improve important
cardiovascular hemodynamics such as reduced pulmonary capillary
wedge pressure in patients with pulmonary hypertension. In
addition, several published studies provide evidence that
levosimendan may improve right ventricular dysfunction which is a
common comorbidity in patients with pulmonary hypertension. While
none of these studies have focused specifically on PH-HFpEF
patients, the general hemodynamic improvements in these published
studies of various types of pulmonary hypertension provide an
indication that levosimendan may be beneficial in PH-HFpEF
patients.
In
March 2018, we met with the United States Food and Drug
Administration, or FDA, to discuss development of levosimendan in
PH-HFpEF patients. The FDA agreed with our planned Phase 2 design,
patient entry criteria, and endpoints. The study may be conducted
under the existing investigational new drug application with no
additional nonclinical studies required to support full
development. The FDA recognized there were no approved drug
therapies to treat PH-HFpEF patients and acknowledged this provided
an opportunity for a limited Phase 3 clinical program. This topic
will be discussed further at the End-of-Phase 2 Meeting following
completion of the planned Phase 2 study in PH-HFpEF patients. We
initiated the first of our expected 10-12 clinical sites in
November 2018 and the first of 36 patients was enrolled in the
study in March 2019.
Levosimendan Development for Cardiac Surgery Patients
Low
cardiac output syndrome, or LCOS, is generally defined as a
patient’s inability to maintain a cardiac index >2.2
L/min/m2 and hence requiring use of inotropic agents and/or
mechanical assist devices such as an intra-aortic balloon pump or a
left ventricular assistance device. LCOS in the cardiac surgery
setting is reported to occur in 5-10% of patients undergoing
cardiac surgery and is associated with 10-15-fold higher mortality
or severe sequelae as a result of poor organ
perfusion.
Currently,
no pharmacologic therapies are approved for management or
prevention of post-cardiotomy LCOS. While conventional inotropes
are used to manage cardiac hemodynamics in the peri-operative
setting, none have been shown to improve outcomes.
Substantial
published scientific research indicates that levosimendan may
provide important benefits to cardiac surgery patients, including
35 published prospectively designed clinical trials and multiple
published meta-analyses. Many of these publications indicate that
levosimendan provides substantial mortality and or morbidity
benefits to cardiac surgery patients, particularly those at risk of
developing LCOS.
In
2014, we initiated a Phase 3 trial (LEVO-CTS) to investigate the
safety and efficacy of pre-operative administration of levosimendan
treatment to reduce the mortality and morbidity in cardiac surgery
patients at risk for developing LCOS. The Phase 3 trial was
conducted under an FDA approved Special Protocol Assessment, or
SPA, and with FDA granted Fast Track status for the development of
levosimendan to reduce mortality and morbidity in cardiac surgery
patients at risk of LCOS. Pursuant to our license to levosimendan,
we are required to use the “Simdax
®
”
trademark to commercialize this product.
The
LEVO-CTS trial design was guided by the published literature,
including important dosing refinements and inclusion of patients
with low preoperative ejection fraction. In addition, we relied
heavily on the input of European clinicians who have significant
personal clinical experience with the use of levosimendan in
treating cardiac surgery patients.
Current
data in cardiac surgery suggest that levosimendan is superior to
traditional inotropes (dobutamine, phosphodiesterase
[PDE]-inhibitors) as it achieves:
●
sustained
hemodynamic improvement;
●
diminished
myocardial injury;
●
improved tissue
perfusion;
●
better outcomes and
fewer hospital days;
●
effects most
favorable in patients with low left ventricular ejection fraction
(LVEF) (< 40%); and
●
opportunity to
initiate therapy pre-operatively due to increased cardiac
contractility without increasing intracellular calcium, without
increasing oxygen consumption, or affecting cardiac rhythm and
relaxation.
The
Phase 3 trial was conducted in approximately 60 major cardiac
surgery centers in North America. The trial enrolled patients
undergoing coronary artery bypass grafts, or CABG, and/or mitral
valve surgery, and CABG with aortic valve surgery who are at risk
for developing LCOS. The trial was designed as a double blind,
randomized, placebo-controlled study seeking to enroll 760
patients. During 2016 we made the decision to increase enrollment
in the LEVO-CTS trial to 880 patients. These additional patients
were necessary to ensure sufficient powering and were necessary due
to:
●
a small percentage
of patients who were randomized but did not receive the study
drug;
●
a small percentage
of patients who were missing one or more component measurements of
the primary endpoint; and
●
a slightly lower
primary endpoint event rate than we originally
projected.
Enrollment began in the third quarter of calendar year 2014 and was
completed in December of 2016. On January 31, 2017, we announced
top-line results from the Phase 3 LEVO-CTS trial. Levosimendan,
given prophylactically prior to cardiac surgery to patients with
reduced left ventricular function, had no effect on the co-primary
outcomes. The study did not achieve statistically significant
reductions in the dual endpoint of death or use of a mechanical
assist device at 30 days, nor in the quad endpoint of death,
myocardial infarction, need for dialysis, or use of a mechanical
assist device at 30 days.
However, the study results demonstrated statistically significant
reductions in two of three secondary endpoints including reduction
in LCOS and a reduction in postoperative use of secondary
inotropes. Additionally, levosimendan was found to be safe with no
clinically significant increases in hypotension or cardiac
arrhythmias and the clinical data showed a non-significant
numerical reduction in 90-day mortality.
A post hoc analysis on patients in whom isolated CABG surgery was
performed (66% of the patients) revealed that levosimendan improved
90-day survival significantly (p=0.0017). This was accompanied with
a significant improvement in postoperative cardiac index, in the
frequency of LCOS and in the need for further inotropic support.
Accordingly, the reductions in the incidence of LCOS were
associated with a substantial improvement in mortality. However,
there was essentially no effect on any of these endpoints in those
LEVO-CTS patients receiving valve surgeries.
In the second and third quarters of 2017 we explored the
opportunity for submitting a new drug application, or NDA, for use
of levosimendan in CABG surgery patients on the basis of the robust
reduction in 90-day mortality observed in the LEVO-CTS trial.
However, the FDA advised that another study in CABG surgery
patients would be required that prospectively tests
levosimendan’s effectiveness in improving
mortality.
Accordingly, we have suspended development of levosimendan for use
in CABG patients due to the scope of the repeat study, as required
by the FDA. The incidence of 90-day mortality in CABG surgery
patients is low (~8%). The repeat study would need to randomize
approximately 1200 CABG surgery patients with low LVEF (<35%) to
demonstrate a >50% risk reduction in mortality. Based on this
analysis, we determined the cost and timing of this study would
outweigh the likely benefit.
Suppliers
Pursuant
to the terms of our license for levosimendan, Orion is our sole
manufacturing source for levosimendan.
Intellectual Property
We rely
on a combination of patent applications, patents, trade secrets,
proprietary know-how, trademarks, and contractual provisions to
protect our proprietary rights. We believe that to have a
competitive advantage, we must develop and maintain the proprietary
aspects of our technologies. Currently, we require our officers,
employees, consultants, contractors, manufacturers, outside
scientific collaborators and sponsored researchers, and other
advisors to execute confidentiality agreements in connection with
their employment, consulting, or advisory relationships with us,
where appropriate. We also require our employees, consultants, and
advisors who we expect to work on our products to agree to disclose
and assign to us all inventions conceived during the work day,
developed using our property, or which relate to our
business.
To
date, we own or in-license the rights to six U.S. and foreign
patents. In addition, we have one U.S. patent application pending
related to a product candidate and proprietary process, method and
technology. Our issued and in-licensed patents, as well as our
pending patents, expire between 2023 and 2038.
We
have:
●
one U.S. patent
(8,404,752), one Australian Patent (209,271,530) and one European
patent (EPO9798325.8) held jointly with Virginia Commonwealth
University Intellectual Property Foundation for the treatment of
traumatic brain injury;
●
one Israeli patent
(215516) and numerous patent applications, including one U.S.
patent application, for the formulation of perfluorocarbon emulsion
with an average remaining life of approximately 13 years;
and
●
two U.S. patents
(6,730,673 and 6,943,164) for the intravenous formulation of
levosimendan as in-licensed patent rights for our development and
commercialization of levosimendan in the United States and
Canada.
Our
patent and patent applications include claims covering all various
uses of levosimendan, our lead product candidate currently under
development, as well as the manufacturing and use of our
perfluorocarbon emulsion formulation.
The
U.S. trademark registration for Simdax
®
is owned by
Orion and is licensed to us for sales and marketing purposes for
any pharmaceutical products containing levosimendan that are
commercialized in the United States and Canada.
Competition
The
pharmaceutical and biotechnology industries are intensely
competitive. Many companies, including biotechnology, chemical and
pharmaceutical companies, are actively engaged in activities
similar to ours, including research and development of drugs for
the treatment of rare medical conditions. Many of these companies
have substantially greater financial and other resources, larger
research and development staffs, and more extensive marketing and
manufacturing organizations than we do. In addition, some of them
have considerable experience in preclinical testing, clinical
trials and other regulatory approval procedures. In addition, there
are also academic institutions, governmental agencies and other
research organizations that are conducting research in areas in
which we are working. We expect to encounter significant
competition for any of the pharmaceutical products we plan to
develop.
We
believe the concept of using levosimendan to treat patients with
PH-HFpEF is novel. Because no therapies are approved to treat
PH-HFpEF, our ability to succeed in the market is dependent on our
ability to change the established practice paradigm, which is never
an easy task. Key factors on which we will compete with regards to
the development and marketing of levosimendan for the treatment of
pulmonary hypertension include, among others, the ability to obtain
adequate efficacy data, safety data, cost effectiveness data and
hospital formulary approval, as well as sufficient distribution and
handling. Furthermore, while we believe the mechanism of action of
levosimendan is novel, other low priced generically available
products possess some similar qualities, which could present
competition in the form of therapeutic substitution.
In
order to compete successfully in this and other therapeutic areas,
we must develop proprietary positions in patented drugs for
therapeutic markets that have not been satisfactorily addressed by
conventional research strategies. Our product candidates, even if
successfully tested and developed, may not be adopted by physicians
over other products and may not offer economically feasible
alternatives to other therapies.
Government Regulation
The
manufacture and distribution of levosimendan will require the
approval of United States government authorities as well as those
of foreign countries. In the United States, the FDA regulates
medical products. The Federal Food, Drug and Cosmetic Act and the
Public Health Service Act govern the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of our medical products. In addition to
FDA regulations, we are also subject to other federal and state
regulations, such as the Occupational Safety and Health Act and the
Environmental Protection Act. Product development and approval
within this regulatory framework requires a number of years and
involves the expenditure of substantial funds.
Preclinical
tests include evaluation of product chemistry and studies to assess
the safety and effectiveness of the product and its formulation.
The results of the preclinical tests are submitted to the FDA as
part of the application. The goal of clinical testing is the
demonstration in adequate and well-controlled studies of
substantial evidence of the safety and effectiveness of the product
in the setting of its intended use. The results of preclinical and
clinical testing are submitted to the FDA from time to time
throughout the trial process. In addition, before approval for the
commercial sale of a product can be obtained, results of the
preclinical and clinical studies must be submitted to the FDA. The
testing and approval process requires substantial time and effort
and there can be no assurance that any approval will be granted on
a timely basis, if at all. The approval process is affected by a
number of factors, including the severity of the condition being
treated, the availability of alternative treatments and the risks
and benefits demonstrated in clinical trials. Additional
preclinical studies or clinical trials may be requested during the
FDA review process and may delay product approval. After FDA
approval for its initial indications, further clinical trials may
be necessary to gain approval for the use of a product for
additional indications. The FDA may also require post-marketing
testing, which can involve significant expense, to monitor for
adverse effects.
The ongoing HELP study in PH-HFpEF patients incorporates FDA
advice. An End of Phase 2 Meeting with the FDA is planned in 2020
to review results of the HELP study and Phase 3 study design in
development of levosimendan for treatment of PH-HFpEF
patients.
Employees
We
believe that our success will be based on, among other things, the
quality of our clinical programs, our ability to invent and develop
superior and innovative technologies and products, and our ability
to attract and retain capable management and other personnel. We
have assembled a high-quality team of clinical development managers
and executives with significant experience in the biotechnology and
pharmaceutical industries.
As of
December 31, 2018, we had nine full-time employees and one
part-time employee. In addition to our employees, we also use the
service and support of outside consultants and advisors. None of
our employees are represented by a union, and we believe
relationships with our employees are good.
Available Information
Our
website address is www.tenaxthera.com, and our investor relations
website is located at http://investors.tenaxthera.com. Information
on our website is not incorporated by reference herein. Copies of
our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and our Proxy Statements for our annual
meetings of stockholders, and any amendments to those reports, as
well as Section 16 reports filed by our insiders, are available
free of charge on our website as soon as reasonably practicable
after we file the reports with, or furnish the reports to, the
Securities and Exchange Commission, or the SEC. Our SEC filings are
also publicly available on the SEC’s website located at
www.sec.gov, which contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC.
ITEM
1A—RISK FACTORS
Risks Related to Our Financial Position and Need for Additional
Capital
We have a limited operating history, and we expect a number of
factors to cause our operating results to fluctuate on a quarterly
and annual basis, which may make it difficult to predict our future
performance.
Our
operations, to date, have been primarily limited to organizing and
staffing our company, licensing our technology from Orion and
undertaking preclinical studies and clinical trials of our product
candidates. We have not yet obtained regulatory approvals for any
of our clinical product candidates. Consequently, any predictions
you make about our future success or viability may not be as
accurate as they could be if we had a longer operating
history.
Specifically,
our financial condition and operating results have varied
significantly in the past and will continue to fluctuate from
quarter-to-quarter and year-to-year in the future due to a variety
of factors, many of which are beyond our control. Factors relating
to our business that may contribute to these fluctuations include
the following factors, among others:
–
our ability to
obtain additional funding to develop our product candidates, and
any further product candidate which we may develop or in license in
the future;
–
the need to obtain
regulatory approval of our product candidates;
–
potential risks
related to any collaborations we may enter into for our product
candidates;
–
delays in the
commencement, enrollment and completion of clinical testing, as
well as the analysis and reporting of results from such clinical
testing;
–
the success of
clinical trials of our product candidates;
–
any delays in
regulatory review and approval of product candidates in
development;
–
our ability to
establish an effective sales and marketing
infrastructure;
–
competition from
existing products or new products that may emerge;
–
the ability to
receive regulatory approval or commercialize our
products;
–
potential side
effects of our product candidates that could delay or prevent
commercialization;
–
potential product
liability claims and adverse events;
–
potential
liabilities associated with hazardous materials;
–
our ability to
maintain adequate insurance policies;
–
our dependency on
third-party manufacturers to supply or manufacture our
products;
–
our ability to
establish or maintain collaborations, licensing or other
arrangements;
–
our ability, our
partners’ abilities, and third parties’ abilities to
protect and assert intellectual property rights;
–
costs related to
and outcomes of potential litigation;
–
compliance with
obligations under intellectual property licenses with third
parties;
–
our ability to
adequately support future growth; and
–
our ability to
attract and retain key personnel to manage our business
effectively.
Due to
the various factors mentioned above, and others, the results of any
prior quarterly or annual periods should not be relied upon as
indications of our future operating performance.
We may need additional funding and if we are unable to raise
capital when needed, we would be forced to delay, reduce or
eliminate our product development programs.
Developing
biopharmaceutical products, including conducting preclinical
studies and clinical trials and establishing manufacturing
capabilities, is expensive. We expect our research and development
expenses to increase in connection with our ongoing activities. In
addition, our expenses could increase beyond expectations if
applicable regulatory authorities, including the FDA, require that
we perform additional studies to those that we currently
anticipate, in which case the timing of any potential product
approval may be delayed. As of December 31, 2018, we had $12.4
million of cash and cash equivalents, including the fair value of
our marketable securities on hand. Based on our current operating
plans, we believe that our existing cash and cash equivalents will
be sufficient to fund our projected operating requirements through
the first quarter of calendar year 2020. We will need substantial
additional capital in the future in order to complete the
regulatory approval and commercialization of levosimendan and to
fund the development and commercialization of future product
candidates. Until we can generate a sufficient amount of product
revenue, if ever, we expect to finance future cash needs through
public or private equity offerings, debt financings or corporate
collaboration and licensing arrangements. Such funding, if needed,
may not be available on favorable terms, if at all. In the event we
are unable to obtain additional capital, we may delay or reduce the
scope of our current research and development programs and other
expenses. As a result of our historical operating losses and
expected future negative cash flows from operations, we have
concluded that there is substantial doubt about our ability to
continue as a going concern. Similarly, the report of our
independent registered public accounting firm on our December 31,
2018 Consolidated Financial Statements includes an explanatory
paragraph indicating that there is substantial doubt about our
ability to continue as a going concern. Substantial doubt about our
ability to continue as a going concern may materially and adversely
affect the price per share of our common stock and make it more
difficult to obtain financing.
If
adequate funds are not available, we may also be required to
eliminate one or more of our clinical trials, delaying approval of
levosimendan or our commercialization efforts. To the extent that
we raise additional funds by issuing equity securities, our
stockholders may experience additional significant dilution, and
debt financing, if available, may involve restrictive covenants. To
the extent that we raise additional funds through collaboration and
licensing arrangements, it may be necessary to relinquish some
rights to our technologies or our product candidates or to grant
licenses on terms that may not be favorable to us. We may seek to
access the public or private capital markets whenever conditions
are favorable, even if we do not have an immediate need for
additional capital at that time. We may also consider strategic
alternatives, including a sale of our company, merger, other
business combination or recapitalization.
Our
forecast of the period of time through which our financial
resources will be adequate to support our operations is a
forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors,
including the factors discussed elsewhere in this “Risk
Factors” section. We have based this estimate on assumptions
that may prove to be wrong, and we could utilize our available
capital resources sooner than we currently expect. Our future
funding requirements will depend on many factors, including, but
not limited to:
–
the scope, rate of
progress and cost of our clinical trials and other research and
development activities;
–
the costs and
timing of regulatory approval;
–
the costs of
filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights;
–
the effect of
competing technological and market developments;
–
the terms and
timing of any collaboration, licensing or other arrangements that
we may establish;
–
the cost and timing
of completion of clinical and commercial-scale manufacturing
activities; and
–
the costs of
establishing sales, marketing and distribution capabilities for any
product candidates for which we may receive regulatory
approval.
Risks Related to Commercialization and Product
Development
We are limited in the number of products we can simultaneously
pursue and therefore our survival depends on our success with a
small number of product opportunities.
We have
limited financial resources, so at present we are primarily
focusing these resources on developing levosimendan for the
treatment of pulmonary hypertension, in addition to exploring
strategic alternatives in order to maximize stockholder value. On
January 31, 2017, we announced top-line results from the Phase 3
LEVO-CTS trial for the treatment of LCOS. The study did not achieve
statistically significant reductions in the dual endpoint of death
or use of a mechanical assist device at 30 days, nor in the quad
endpoint of death, myocardial infarction, need for dialysis, or use
of a mechanical assist device at 30 days. Nevertheless, the study
demonstrated statistically significant reductions in two of three
secondary endpoints including reduction in LCOS and a reduction in
postoperative use of secondary inotropes. Additionally, we observed
a non-significant numerical reduction in 90-day mortality. At
present, we intend to commit most of our resources to advancing
levosimendan to the point it receives regulatory approval for the
treatment of pulmonary hypertension. If as a consequence of the
results of our Phase 3 LEVO-CTS trial or our Phase 2 trial in
PH-HFpEF that we plan to conduct, we are unable to receive
regulatory approval of levosimendan, then we may not have resources
to pursue development of any other products and our business could
terminate.
We currently have no approved drug products for sale, and we cannot
guarantee that we will ever have marketable drug
products.
We
currently have no approved drug products for sale. The research,
testing, manufacturing, labeling, approval, selling, marketing, and
distribution of drug products are subject to extensive regulation
by the FDA and other regulatory authorities in the United States
and other countries, with regulations differing from country to
country. We are not permitted to market our product candidates in
the United States until we receive approval of an NDA from the FDA
for each product candidate. We have not submitted an NDA or
received marketing approval for any of our product candidates, and
obtaining approval of an NDA is a lengthy, expensive and uncertain
process. In addition, markets outside of the United States also
have requirements for approval of drug candidates which we must
comply with prior to marketing. Accordingly, we cannot guarantee
that we will ever have marketable drug products.
Prior
to obtaining approval to commercialize a product candidate in the
United States or abroad, we or our collaborators must demonstrate
with substantial evidence from well-controlled clinical trials, and
to the satisfaction of the FDA, that such product candidates are
safe and effective for their intended uses. Results from
preclinical studies and clinical trials can be interpreted in
different ways. Even if we believe the preclinical or clinical data
for our product candidates are promising, such data may not be
sufficient to support approval by the FDA and other regulatory
authorities. Additionally, the FDA may also require us to conduct
additional preclinical studies or clinical trials for our product
candidates either prior to or post-approval, or it may object to
elements of our clinical development program.
The development of levosimendan is subject to a high level of
technological risk.
We have
devoted a substantial portion of our financial and managerial
resources to pursue Phase 3 clinical trials for levosimendan. The
biomedical field has undergone rapid and significant technological
changes. Technological developments may result in our products
becoming obsolete or non-competitive before we are able to recover
any portion of the research and development and other expenses we
have incurred to develop and clinically test levosimendan. As our
opportunity to generate substantial product revenues within the
next three to four years is most likely dependent on successful
testing and commercialization of levosimendan for pulmonary
hypertension, any such occurrence would have a material adverse
effect on our operations and could result in the cessation of our
business.
We are required to conduct additional clinical trials in the
future, which are expensive and time consuming, and the outcome of
the trials is uncertain.
We
expect to commit a substantial portion of our financial and
business resources over the next three years to clinical testing of
levosimendan and advancing this product to regulatory approval for
use in one or more medical applications. All of these clinical
trials and testing will be expensive and time consuming and the
timing of the regulatory review process is uncertain. The
applicable regulatory agencies may suspend clinical trials at any
time if they believe that the subjects participating in such trials
are being exposed to unacceptable health risks. We cannot ensure
that we will be able to complete our clinical trials successfully
or obtain FDA or other governmental or regulatory approval of
levosimendan, or that such approval, if obtained, will not include
limitations on the indicated uses for which levosimendan may be
marketed. Our business, financial condition and results of
operations are critically dependent on obtaining capital to advance
our testing program and receiving FDA and other governmental and
regulatory approvals of our products. A significant delay in or
failure of our planned clinical trials or a failure to achieve
these approvals would have a material adverse effect on us and
could result in major setbacks or jeopardize our ability to
continue as a going concern.
The market may not accept our products.
Even if
regulatory approval is obtained, there is a risk that the efficacy
and pricing of our products, considered in relation to our
products’ expected benefits, will not be perceived by health
care providers and third-party payers as cost-effective, and that
the price of our products will not be competitive with other new
technologies or products. Our results of operations may be
adversely affected if the price of our products is not considered
cost-effective or if our products do not otherwise achieve market
acceptance.
Any collaboration we enter with third parties to develop and
commercialize any future product candidates may place the
development of our product candidates outside our control, may
require us to relinquish important rights or may otherwise be on
terms unfavorable to us.
We may
enter into collaborations with third parties to develop and
commercialize future product candidates. Our dependence on future
partners for development and commercialization of our product
candidates would subject us to a number of risks,
including:
–
we may not be able
to control the amount and timing of resources that our partners may
devote to the development or commercialization of our product
candidates or to their marketing and distribution;
–
partners may delay
clinical trials, provide insufficient funding for a clinical trial
program, stop a clinical trial or abandon a product candidate,
repeat or conduct new clinical trials or require a new formulation
of a product candidate for clinical testing;
–
disputes may arise
between us and our partners that result in the delay or termination
of the research, development or commercialization of our product
candidates or that result in costly litigation or arbitration that
diverts management’s attention and resources;
–
partners may
experience financial difficulties;
–
partners may not
properly maintain or defend our intellectual property rights, or
may use our proprietary information, in such a way as to invite
litigation that could jeopardize or invalidate our intellectual
property rights or proprietary information or expose us to
potential litigation;
–
business
combinations or significant changes in a partner’s business
strategy may adversely affect a partner’s willingness or
ability to meet its obligations under any arrangement;
–
a partner could
independently move forward with a competing product candidate
developed either independently or in collaboration with others,
including our competitors; and
–
the collaborations
with our partners may be terminated or allowed to expire, which
would delay the development and may increase the cost of developing
our product candidates.
Delays in the enrollment and completion of clinical testing could
result in increased costs to us and delay or limit our ability to
obtain regulatory approval for our product candidates.
Delays
in the enrollment and completion of clinical testing could
significantly affect our ability to gain FDA approval of
levosimendan and any other future product development costs. The
completion of clinical trials requires us to identify and maintain
a sufficient number of trial sites, many of which may already be
engaged in other clinical trial programs for the same indication as
our product candidates or may be required to withdraw from our
clinical trial as a result of changing standards of care or may
become ineligible to participate in clinical studies. The
enrollment and completion of clinical trials can be delayed for a
variety of other reasons, including delays related to:
–
reaching agreements
on acceptable terms with prospective trial sites, the terms of
which can be subject to extensive negotiation and may vary
significantly among trial sites;
–
obtaining
institutional review board, or IRB, approval to conduct a clinical
trial at numerous prospective sites;
–
recruiting and
enrolling patients to participate in clinical trials for a variety
of reasons, including meeting the enrollment criteria for our study
and competition from other clinical trial programs for the same
indication as our product candidates;
–
maintaining and
supplying clinical trial material on a timely basis;
and
–
collecting,
analyzing and reporting final data from the clinical
trials.
In
addition, a clinical trial may be suspended or terminated by us,
the FDA or other regulatory authorities due to a number of factors,
including:
–
failure to conduct
the clinical trial in accordance with regulatory requirements or
our clinical protocols;
–
inspection of the
clinical trial operations or trial sites by the FDA or other
regulatory authorities resulting in the imposition of a clinical
hold;
–
unforeseen safety
issues or any determination that a trial presents unacceptable
health risks; and
–
lack of adequate
funding to continue the clinical trial, including unforeseen costs
due to enrollment delays, requirements to conduct additional trials
and studies and increased expenses associated with the services of
our contract research organizations, or CROs, and other third
parties.
Changes
in regulatory requirements and guidance may occur and we may need
to amend clinical trial protocols to reflect these changes with
appropriate regulatory authorities. Amendments may require us to
resubmit our clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a
clinical trial. If we experience delays in the completion of, or if
we terminate, our clinical trials, the commercial prospects for our
product candidates will be harmed, and our ability to generate
product revenues will be delayed. 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 a product candidate. Even if we are able to
ultimately commercialize our product candidates, other therapies
for the same or similar indications may have been introduced to the
market and established a competitive advantage.
Risks Relating to Regulatory Matters
Our activities are and will continue to be subject to extensive
government regulation, which is expensive and time consuming, and
we will not be able to sell our products without regulatory
approval.
Our
development, marketing and distribution of levosimendan is, and
will continue to be, subject to extensive regulation, monitoring
and approval by the FDA and other regulatory agencies. There are
significant risks at each stage of the regulatory
scheme.
Product approval stage
During
the product approval stage, we attempt to prove the safety and
efficacy of our product for its indicated uses. There are numerous
problems that could arise during this stage,
including:
–
the data obtained
from laboratory testing and clinical trials are susceptible to
varying interpretations, which could delay, limit or prevent FDA
and other regulatory approvals;
–
adverse events
could cause the FDA and other regulatory authorities to halt
trials;
–
at any time, the
FDA and other regulatory agencies could change policies and
regulations that could result in delay and perhaps rejection of our
products;
–
if a prolonged
government shutdown occurs, it could significantly impact the
ability of the FDA to timely review and process our regulatory
submission; and
–
even after
extensive testing and clinical trials, there is no assurance that
regulatory approval will ever be obtained for any of our
products.
Post-commercialization stage
Discovery
of previously unknown problems with our products, or unanticipated
problems with our manufacturing arrangements, even after FDA and
other regulatory approvals of our products for commercial sale may
result in the imposition of significant restrictions, including
withdrawal of the product from the market.
Additional
laws and regulations may also be enacted that could prevent or
delay regulatory approval of our products, including laws or
regulations relating to the price or cost-effectiveness of medical
products. Any delay or failure to achieve regulatory approval of
commercial sales of our products is likely to have a material
adverse effect on our financial condition, results of operations
and cash flows.
The FDA
and other regulatory agencies continue to review products even
after they receive agency approval. If and when the FDA or another
regulatory agency outside the United States approves one of our
products, its manufacture and marketing will be subject to ongoing
regulation, which could include compliance with current good
manufacturing practices, adverse event reporting requirements and
general prohibitions against promoting products for unapproved or
“off-label” uses. We are also subject to inspection and
market surveillance by the FDA for compliance with these and other
requirements. Any enforcement action resulting from failure, even
by inadvertence, to comply with these requirements could affect the
manufacture and marketing of levosimendan or our other products. In
addition, the FDA or other regulatory agencies could withdraw a
previously approved product from the market upon receipt of newly
discovered information. The FDA or another regulatory agency could
also require us to conduct additional, and potentially expensive,
studies in areas outside our approved indicated uses.
We must continually monitor the safety of our products once
approved and marketed for signs that their use may elicit serious
and unexpected side effects and adverse events, which could
jeopardize our ability to continue marketing the products. We may
also be required to conduct post-approval clinical studies as a
condition to licensing a product.
As with
all pharmaceutical products, the use of our products could
sometimes produce undesirable side effects or adverse reactions or
events (referred to cumulatively as adverse events). For the most
part, we would expect these adverse events to be known and occur at
some predicted frequency. When adverse events are reported to us,
we will be required to investigate each event and circumstances
surrounding it to determine whether it was caused by our product
and whether it implies that a previously unrecognized safety issue
exists. We will also be required to periodically report summaries
of these events to the applicable regulatory
authorities.
In
addition, the use of our products could be associated with serious
and unexpected adverse events, or with less serious reactions at a
greater than expected frequency. This may be especially true when
our products are used in critically ill or otherwise compromised
patient populations. When these unexpected events are reported to
us, we will be required to make a thorough investigation to
determine causality and implications for product safety. These
events must also be specifically reported to the applicable
regulatory authorities. If our evaluation concludes, or regulatory
authorities perceive, that there is an unreasonable risk associated
with the product, we would be obligated to withdraw the impacted
lot(s) of that product. Furthermore, an unexpected adverse event of
a new product could be recognized only after extensive use of the
product, which could expose us to product liability risks,
enforcement action by regulatory authorities and damage to our
reputation and public image.
A
serious adverse finding concerning the risk of our products by any
regulatory authority could adversely affect our reputation,
business and financial results.
When a
new product is approved, the FDA or other regulatory authorities
may require post-approval clinical trials, sometimes called Phase 4
clinical trials. If the results of such trials are unfavorable,
this could result in the loss of the license to market the product,
with a resulting loss of sales.
After our products are commercialized, we expect to spend
considerable time and money complying with federal and state laws
and regulations governing their sale, and, if we are unable to
fully comply with such laws and regulations, we could face
substantial penalties.
Health
care providers, physicians and others will play a primary role in
the recommendation and prescription of our clinical products. Our
arrangements with third-party payers and customers may expose us to
broadly applicable fraud and abuse and other health care laws and
regulations that may constrain the business or financial
arrangements and relationships through which we will market, sell
and distribute our products. Applicable federal and state health
care laws and regulations are expected to include, but not be
limited to, the following:
–
the federal
anti-kickback statute is a criminal statute that makes it a felony
for individuals or entities knowingly and willfully to offer or
pay, or to solicit or receive, direct or indirect remuneration, in
order to induce the purchase, order, lease, or recommending of
items or services, or the referral of patients for services, that
are reimbursed under a federal health care program, including
Medicare and Medicaid;
–
the federal False
Claims Act imposes liability on any person who knowingly submits,
or causes another person or entity to submit, a false claim for
payment of government funds, with penalties that include three
times the government’s damages plus civil penalties for each
false claim; in addition, the False Claims Act permits a person
with knowledge of fraud, referred to as a qui tam plaintiff, to
file a lawsuit on behalf of the government against the person or
business that committed the fraud, and, if the action is
successful, the qui tam plaintiff is rewarded with a percentage of
the recovery;
–
Health Insurance
Portability and Accountability Act imposes obligations, including
mandatory contractual terms, with respect to safeguarding the
privacy, security and transmission of individually identifiable
health information;
–
the Social Security
Act contains numerous provisions allowing the imposition of a civil
money penalty, a monetary assessment, exclusion from the Medicare
and Medicaid programs, or some combination of these penalties;
and
–
many states have
analogous state laws and regulations, such as state anti-kickback
and false claims laws, which, in some cases, these state laws
impose more strict requirements than the federal laws and may
require pharmaceutical companies to comply with certain price
reporting and other compliance requirements.
Our
failure to comply with any of these federal and state health care
laws and regulations, or health care laws in foreign jurisdictions,
could have a material adverse effect on our business, financial
condition, result of operations and cash flows.
Health care reform and controls on health care spending may limit
the price we can charge for our products and the amount we can
sell.
As a
result of the Patient Protection and Affordable Care Act and the
Health Care and Education Affordability Reconciliation Act of 2010,
collectively, the ACA, enacted in March 2010, substantial changes
have occurred and are expected to continue to occur in the system
for paying for health care in the United States, including changes
made in order to extend medical benefits to those who currently
lack insurance coverage. This comprehensive health care reform
legislation also included provisions to control health care costs
and improve health care quality. Together with ongoing statutory
and budgetary policy developments at a federal level, this health
care reform legislation could include changes in Medicare and
Medicaid payment policies and other health care delivery
administrative reforms that could potentially negatively impact our
business. Because not all the administrative rules implementing
health care reform under the legislation have been finalized, and
because of ongoing federal fiscal budgetary pressures not yet
resolved for federal health programs, the full impact of the ACA
and of further statutory actions to reform healthcare payment on
our business is unknown, but there can be no assurances that health
care reform legislation will not adversely impact either our
operational results or the manner in which we operate our business.
There have been judicial and Congressional challenges to the ACA
and there may be additional challenges and amendments to the ACA in
the future, particularly in light of the current presidential
administration and U.S. Congress. For example, the Tax Cuts and
Jobs Act enacted on December 22, 2017, repealed the shared
responsibility payment for individuals who fail to maintain minimum
essential coverage under section 5000A of the Internal Revenue
Code, commonly referred to as the individual mandate, beginning in
2019, and on October 13, 2017, President Trump signed an executive
order terminating the cost-sharing subsidies that reimburse the
insurers under the ACA. We expect that the ACA, as well as other
healthcare reform measures that may be adopted in the future, may
result in more rigorous coverage criteria and lower reimbursement,
and in additional downward pressure on the price that we receive
for any approved product. Cost of care could be reduced by reducing
the level of reimbursement for medical services or products
(including those biopharmaceuticals that we intend to produce and
market), or by restricting coverage (and, thereby, utilization) of
medical services or products. In either case, a reduction in the
utilization of, or reimbursement for, our products could have a
materially adverse impact on our financial performance. Moreover,
recently there has been heightened governmental scrutiny over the
manner in which manufacturers set prices for their commercial
products. We cannot predict what healthcare reform initiatives may
be adopted in the future.
Uncertainty of third-party reimbursement could affect our future
results of operations.
Sales
of medical products largely depend on the reimbursement of
patients’ medical expenses by governmental health care
programs and private health insurers. We will be required to report
detailed pricing information, net of included discounts, rebates
and other concessions, to the Centers for Medicare and Medicaid
Services, or CMS, for the purpose of calculating national
reimbursement levels, certain federal prices, and certain federal
rebate obligations. If we report pricing information that is not
accurate to the federal government, we could be subject to fines
and other sanctions that could adversely affect our business. In
addition, the government could change its calculation of
reimbursement, federal prices, or federal rebate obligations which
could negatively impact us. There is no guarantee that government
health care programs or private health insurers will reimburse for
the sales of our products or permit us to sell our products at high
enough prices to generate a profit.
Governments outside the United States tend to impose strict price
controls and reimbursement approval policies, which may adversely
affect our prospects for generating revenue outside the United
States.
Although
we only have distribution rights in the United States and Canada
for levosimendan, in some countries, particularly European Union
countries and Canada, the pricing of prescription pharmaceuticals
is subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take considerable
time after the receipt of marketing approval for a product. In
addition, there can be considerable pressure by governments and
other stakeholders on prices and reimbursement levels, including as
part of cost containment measures. Political, economic and
regulatory developments may further complicate pricing
negotiations, and pricing negotiations may continue after
reimbursement has been obtained. To obtain or maintain
reimbursement or pricing approval in some countries with respect to
any product candidate that achieves regulatory approval, we may be
required to conduct a clinical trial that compares the
cost-effectiveness of our product candidate to other available
therapies. If reimbursement of our products upon approval, if at
all, is unavailable or limited in scope or amount, or if pricing is
set at unsatisfactory levels, our prospects for generating revenue,
if any, could be adversely affected which would have a material
adverse effect on our business and results of operations. Further,
if we achieve regulatory approval of any product, we must
successfully negotiate product pricing for such product in
individual countries. As a result, the pricing of our products, if
approved, in different countries may vary widely, thus creating the
potential for third-party trade in our products in an attempt to
exploit price differences between countries. This third-party trade
of our products could undermine our sales in markets with higher
prices.
Risks Relating to Our Dependence on Third Parties
We depend on third parties to manufacture our
products.
We do
not own or operate any manufacturing facilities for the
commercial-scale production of our products. Pursuant to the terms
of our license for levosimendan, Orion is our sole manufacturing
source for levosimendan. Accordingly, our business is
susceptible to disruption, and our results of operations can be
adversely affected, by any disruption in supply or other adverse
developments in our relationship with Orion. If supply from
Orion is delayed or terminated, or if its facilities suffer any
damage or disruption, we may need to successfully qualify an
alternative supplier in a timely manner in order to not disrupt our
business. If we cannot obtain an alternate manufacturer in a
timely manner, we would experience a significant interruption in
supply of levosimendan, which could negatively affect our financial
condition, results of operations and cash flows.
We depend on the services of a limited number of key
personnel.
Our
success is highly dependent on the continued services of a limited
number of scientists and support personnel. The loss of any of
these individuals could have a material adverse effect on us. In
addition, our success will depend, among other factors, on the
recruitment and retention of additional highly skilled and
experienced management and technical personnel. There is a risk
that we will not be able to retain existing employees or to attract
and retain additional skilled personnel on acceptable terms given
the competition for such personnel among numerous large and
well-funded pharmaceutical and health care companies, universities,
and non-profit research institutions, which could negatively affect
our financial condition, results of operations and cash
flows.
We have no experience in the sale and marketing of medical
products.
We have
no experience in the sale and marketing of approved medical
products and marketing the licensing of such products before FDA or
other regulatory approval. We have not decided upon a
commercialization strategy in these areas. We do not know of any
third party that is prepared to distribute our products should they
be approved. If we decide to establish our own commercialization
capability, we will need to recruit, train and retain a marketing
staff and sales force with sufficient technical expertise. We do
not know whether we can establish a commercialization program at a
cost that is acceptable in relation to revenue or whether we can be
successful in commercializing our product. Factors that may inhibit
our efforts to commercialize our products directly and without
strategic partners include:
–
our inability to
recruit and retain adequate numbers of effective sales and
marketing personnel;
–
the inability of
sales personnel to obtain access to or persuade adequate numbers of
physicians to prescribe our products;
–
the lack of
complementary products to be offered by sales personnel, which may
put us at a competitive disadvantage relative to companies with
more extensive product lines; and
–
unforeseen costs
and expenses associated with creating and sustaining an independent
sales and marketing organization.
Failure
to successfully commercialize our products or to do so on a
cost-effective basis would likely result in failure of our
business.
We may enter into distribution arrangements and marketing alliances
for certain products and any failure to successfully identify and
implement these arrangements on favorable terms, if at all, may
impair our ability to commercialize our product
candidates.
We do
not anticipate having the resources in the foreseeable future to
develop sales and marketing capabilities for all of the products we
develop, if any. We may pursue arrangements regarding the sales and
marketing and distribution of one or more of our product candidates
and our future revenues may depend, in part, on our ability to
enter into and maintain arrangements with other companies having
sales, marketing and distribution capabilities and the ability of
such companies to successfully market and sell any such products.
Any failure to enter into such arrangements and marketing alliances
on favorable terms, if at all, could delay or impair our ability to
commercialize our product candidates and could increase our costs
of commercialization. Any use of distribution arrangements and
marketing alliances to commercialize our product candidates will
subject us to a number of risks, including the
following:
–
we may be required
to relinquish important rights to our products or product
candidates;
–
we may not be able
to control the amount and timing of resources that our distributors
or collaborators may devote to the commercialization of our product
candidates;
–
our distributors or
collaborators may experience financial difficulties;
–
our distributors or
collaborators may not devote sufficient time to the marketing and
sales of our products; and
–
business
combinations or significant changes in a collaborator’s
business strategy may adversely affect a collaborator’s
willingness or ability to complete its obligations under any
arrangement.
We may
need to enter into additional co-promotion arrangements with third
parties where our own sales force is neither well situated nor
large enough to achieve maximum penetration in the market. We may
not be successful in entering into any co-promotion arrangements,
and the terms of any co-promotion arrangements we enter into may
not be favorable to us.
Risks Relating to Intellectual Property
It is difficult and costly to protect our proprietary rights, and
we may not be able to ensure their protection.
Our
commercial success will depend in part on obtaining and maintaining
patent protection and trade secret protection of our future product
candidates, if any, and the methods used to manufacture them, as
well as successfully defending these patents against third-party
challenges. Our ability to stop third parties from making, using,
selling, offering to sell or importing our products is dependent
upon the extent to which we have rights under valid and enforceable
patents or trade secrets that cover these activities.
We
license certain intellectual property from Orion that covers our
product candidate levosimendan. The principal United States patents
that we license from Orion expire in September 2020. We rely on
Orion to file, prosecute and maintain patent applications and
otherwise protect the intellectual property to which we have a
license, and we have not had and do not have primary control over
these activities for certain of these patents or patent
applications and other intellectual property rights. We cannot be
certain that such activities by third parties 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. Our enforcement of certain of these licensed
patents or defense of any claims asserting the invalidity of these
patents would also be subject to the cooperation of the third
parties.
The
patent positions of pharmaceutical and biopharmaceutical companies
can be highly uncertain and involve complex legal and factual
questions for which important legal principles remain unresolved.
No consistent policy regarding the breadth of claims allowed in
biopharmaceutical patents has emerged to date in the United States.
The biopharmaceutical patent situation outside the United States is
even more uncertain. Changes in either the patent laws or in
interpretations of patent laws in the United States and other
countries may diminish the value of our intellectual property.
Accordingly, we cannot predict the breadth of claims that may be
allowed or enforced in the patents we own or to which we have a
license from a third-party. Further, if any of our patents are
deemed invalid and unenforceable, it could impact our ability to
commercialize or license our technology.
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:
–
others may be able
to make compositions or formulations that are similar to our
product candidates but that are not covered by the claims of our
patents;
–
we might not have
been the first to make the inventions covered by our issued patents
or pending patent applications;
–
we might not have
been the first to file patent applications for these
inventions;
–
others may
independently develop similar or alternative technologies or
duplicate any of our technologies;
–
it is possible that
our pending patent applications will not result in issued
patents;
–
our issued patents
may not provide us with any competitive advantages, or may be held
invalid or unenforceable as a result of legal challenges by third
parties;
–
we may not develop
additional proprietary technologies that are patentable;
or
–
the patents of
others may have an adverse effect on our business.
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.
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. Enforcing a claim that a
third party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is
unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Moreover, our
competitors may independently develop equivalent knowledge, methods
and know-how.
We rely on confidentiality agreements that, if breached, may be
difficult to enforce and could have a material adverse effect on
our business and competitive position.
Our
policy is to enter agreements relating to the non-disclosure and
non-use of confidential information with third parties, including
our contractors, consultants, advisors and research collaborators,
as well as agreements that purport to require the disclosure and
assignment to us of the rights to the ideas, developments,
discoveries and inventions of our employees and consultants while
we employ them. However, these agreements can be difficult and
costly to enforce. Moreover, to the extent that our contractors,
consultants, advisors and research collaborators apply or
independently develop intellectual property in connection with any
of our projects, disputes may arise as to the proprietary rights to
the intellectual property. If a dispute arises, a court may
determine that the right belongs to a third party, and enforcement
of our rights can be costly and unpredictable. In addition, we rely
on trade secrets and proprietary know-how that we seek to protect
in part by confidentiality agreements with our employees,
contractors, consultants, advisors or others. Despite the
protective measures we employ, we still face the risk
that:
–
these agreements
may be breached;
–
these agreements
may not provide adequate remedies for the applicable type of
breach; or
–
our trade secrets
or proprietary know-how will otherwise become known.
Any
breach of our confidentiality agreements or our failure to
effectively enforce such agreements would have a material adverse
effect on our business and competitive position.
We may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property
rights and we may be unable to protect our rights to, or use, our
technology.
If we
or our partners choose to go to court to stop someone else from
using the inventions claimed in our patents, that individual or
company has the right to ask the court to rule that these patents
are invalid and/or should not be enforced against that third party.
These lawsuits are expensive and would consume time and other
resources even if we were successful in stopping the infringement
of these patents. In addition, there is a risk that the court will
decide that these patents are not valid and that we do not have the
right to stop the other party from using the inventions. There is
also the risk that, even if the validity of these patents is
upheld, the court will refuse to stop the other party on the ground
that such other party’s activities do not infringe our rights
to these patents.
Furthermore,
a third party may claim that we or our manufacturing or
commercialization partners are using inventions covered by the
third party’s patent rights and may go to court to stop us
from engaging in our normal operations and activities, including
making or selling our product candidates. These lawsuits are costly
and could affect our results of operations and divert the attention
of managerial and technical personnel. There is a risk that a court
would decide that we or our commercialization partners are
infringing the third party’s patents and would order us or
our partners to stop the activities covered by the patents. In
addition, there is a risk that a court will order us or our
partners to pay the other party damages for having violated the
other party’s patents. We have agreed to indemnify certain of
our commercial partners against certain patent infringement claims
brought by third parties. The biotechnology industry has produced a
proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of
products or methods of use. The coverage of patents is subject to
interpretation by the courts, and the interpretation is not always
uniform. If we are sued for patent infringement, we would need to
demonstrate that our products or methods of use either does not
infringe the patent claims of the relevant patent and/or that the
patent claims are invalid, and we may not be able to do this.
Proving invalidity, in particular, is difficult since it requires a
showing of clear and convincing evidence to overcome the
presumption of validity enjoyed by issued patents.
Because
some patent applications in the United States may be maintained in
secrecy until the patents are issued, because patent applications
in the United States and many foreign jurisdictions are typically
not published until eighteen months after filing and because
publications in the scientific literature often lag behind actual
discoveries, 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 technology similar to ours. Any
such patent application may have priority over our patent
applications or patents, which could further require us to obtain
rights to issued patents by others covering such technologies. If
another party has filed a U.S. patent application on inventions
similar to ours, we may have to participate in an interference
proceeding declared by the U.S. Patent and Trademark Office, or
USPTO, to determine priority of invention in the United States. The
costs of these proceedings could be substantial, and it is possible
that such efforts would be unsuccessful if, unbeknownst to us, the
other party had independently arrived at the same or similar
invention prior to our own invention, resulting in a loss of our
U.S. patent position with respect to such inventions.
Some of
our competitors may be able to sustain the costs of complex patent
litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties
resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the
funds necessary to continue our operations.
Our collaborations with outside scientists and consultants may be
subject to restriction and change.
We work
with chemists, biologists and other scientists at academic and
other institutions, and consultants who assist us in our research,
development, regulatory and commercial efforts, including the
members of our scientific advisory board. These scientists and
consultants have provided, and we expect that they will continue to
provide, valuable advice on our programs. These scientists and
consultants are not our employees, may have other commitments that
would limit their future availability to us and typically will not
enter into non-compete agreements with us. If a conflict of
interest arises between their work for us and their work for
another entity, we may lose their services. In addition, we will be
unable to prevent them from establishing competing businesses or
developing competing products. For example, if a key scientist
acting as a principal investigator in any of our clinical trials
identifies a potential product or compound that is more
scientifically interesting to his or her professional interests,
his or her availability to remain involved in our clinical trials
could be restricted or eliminated.
Under current law, we may not be able to enforce all
employees’ covenants not to compete and therefore may be
unable to prevent our competitors from benefiting from the
expertise of some of our former employees.
We have
entered into non-competition agreements with certain of our
employees. These agreements prohibit our employees, if they cease
working for us, from competing directly with us or working for our
competitors for a limited period. Under current law, we may be
unable to enforce these agreements against certain of our employees
and it may be difficult for us to restrict our competitors from
gaining the expertise our former employees gained while working for
us. If we cannot enforce our employees’ non-compete
agreements, we may be unable to prevent our competitors from
benefiting from the expertise of our former employees.
We may infringe or be alleged to infringe intellectual property
rights of third parties.
Our
products or product candidates may infringe on, or be accused of
infringing on, one or more claims of an issued patent or may fall
within the scope of one or more claims in a published patent
application that may be subsequently issued and to which we do not
hold a license or other rights. Third parties may own or control
these patents or patent applications in the United States and
abroad. These third parties could bring claims against us or our
collaborators that would cause us to incur substantial expenses
and, if successful against us, could cause us to pay substantial
damages. Further, if a patent infringement suit were brought
against us or our collaborators, we or they could be forced to stop
or delay research, development, manufacturing or sales of the
product or product candidate that is the subject of the
suit.
If we
are found to infringe the patent rights of a third party, or in
order to avoid potential claims, we or our collaborators may choose
or be required to seek a license from a third party and be required
to pay license fees or royalties or both. These licenses may not be
available on acceptable terms, or at all. Even if we or our
collaborators were able to obtain a license, the rights may be
nonexclusive, which could result in our competitors gaining access
to the same intellectual property. Ultimately, we could be
prevented from commercializing a product, or be forced to cease
some aspect of our business operations, if, as a result of actual
or threatened patent infringement claims, we or our collaborators
are unable to enter into licenses on acceptable terms.
There
have been substantial litigation and other proceedings regarding
patent and other intellectual property rights in the pharmaceutical
and biotechnology industries. In addition to infringement claims
against us, we may become a party to other patent litigation and
other proceedings, including interference proceedings declared by
the USPTO and opposition proceedings in the European Patent Office,
regarding intellectual property rights with respect to our
products. Our products, after commercial launch, may become subject
to Paragraph IV certification under the Hatch-Waxman Act, thus
forcing us to initiate infringement proceedings against such
third-party filers. The cost to us of any patent litigation or
other proceeding, even if resolved in our favor, could be
substantial. Some of our competitors may be able to sustain the
costs of such litigation or proceedings more effectively than we
can because of their substantially 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. Patent
litigation and other proceedings may also absorb significant
management time.
Many of
our employees were previously employed at universities or other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We try to ensure that our
employees do not use the proprietary information or know-how of
others in their work for us. We may, however, be subject to claims
that we or these employees have inadvertently or otherwise used or
disclosed intellectual property, trade secrets or other proprietary
information of any such employee’s former employer.
Litigation may be necessary to defend against these claims and,
even if we are successful in defending ourselves, could result in
substantial costs to us or be distracting to our management. If we
fail to defend any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or
personnel.
Product liability lawsuits against us could cause us to incur
substantial liabilities, limit sales of our existing products and
limit commercialization of any products that we may
develop.
Our
business exposes us to the risk of product liability claims that
are inherent in the manufacturing, distribution, and sale of
biotechnology products. We face an inherent risk of product
liability exposure related to the testing of our product candidates
in human clinical trials and an even greater risk when we
commercially sell any products. If we cannot successfully defend
ourselves against claims that our product candidates or products
caused injuries, we could incur substantial liabilities. Regardless
of merit or eventual outcome, liability claims may result
in:
–
decreased demand
for our products and any product candidates that we may
develop;
–
injury to our
reputation;
–
withdrawal of
clinical trial participants;
–
costs to defend the
related litigation;
–
substantial
monetary awards to trial participants or patients;
–
the inability to
commercialize any products that we may develop.
We
currently maintain limited product liability insurance coverage for
our clinical trials in the total amount of $3 million. However, our
profitability will be adversely affected by a successful product
liability claim in excess of our insurance coverage. There can be
no assurance that product liability insurance will be available in
the future or be available on reasonable terms.
Our business and operations would suffer in the event of computer
system failures, cyber-attacks or deficiencies in our
cyber-security.
Despite
the implementation of security measures, our internal computer
systems, and those of third parties on which we rely, are
vulnerable to damage from computer viruses, malware, natural
disasters, terrorism, war, telecommunication and electrical
failures, cyber-attacks or cyber-intrusions over the Internet,
attachments to emails, persons inside our organization, or persons
with access to systems inside our organization. The risk of a
security breach or disruption, particularly through cyber-attacks
or cyber intrusion, including by computer hackers, foreign
governments, and cyber terrorists, has generally increased as the
number, intensity and sophistication of attempted attacks and
intrusions from around the world have increased. If such an event
were to occur and cause interruptions in our operations, it could
result in a material disruption of our product development
programs. For example, the loss of clinical trial data from
completed or ongoing or planned clinical trials 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 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, and damage to our
reputation, and the further development of our product candidates
could be delayed.
Our
disclosure controls and procedures address cybersecurity and
include elements intended to ensure that there is an analysis of
potential disclosure obligations arising from security breaches. We
also maintain compliance programs to address the potential
applicability of restrictions against trading while in possession
of material, nonpublic information generally and in connection with
a cyber-security breach. However, a
breakdown in existing controls and
procedures around our cyber-security environment may prevent us
from
detecting, reporting or responding to cyber incidents
in a timely manner and
could have a material adverse effect
on our financial position and value of our
stock.
Risks Related to Owning Our Common Stock
Our share price has been volatile and may continue to be volatile
which may subject us to securities class action litigation in the
future.
Our
stock price has in the past been, and is likely to be in the
future, volatile. The stock market in general has experienced
extreme volatility that has often been unrelated to the operating
performance of particular companies. As a result of this
volatility, our existing stockholders may not be able to sell their
stock at a favorable price. The market price for our common stock
may be influenced by many factors, including:
–
actual or
anticipated fluctuations in our financial condition and operating
results;
–
status and/or
results of our clinical trials;
–
status of ongoing
litigation;
–
results of clinical
trials of our competitors’ products;
–
regulatory actions
with respect to our products or our competitors’
products;
–
actions and
decisions by our collaborators or partners;
–
actual or
anticipated changes in our growth rate relative to our
competitors;
–
actual or
anticipated fluctuations in our competitors’ operating
results or changes in their growth rate;
–
competition from
existing products or new products that may emerge;
–
issuance of new or
updated research or reports by securities analysts;
–
fluctuations in the
valuation of companies perceived by investors to be comparable to
us;
–
share price and
volume fluctuations attributable to inconsistent trading volume
levels of our shares;
–
market conditions
for biopharmaceutical stocks in general;
–
status of our
search and selection of future management and leadership;
and
–
general economic
and market conditions.
On
December 31, 2018 the last closing price of our common stock was
$1.21, as compared to $9.80 as of December 31, 2017. During the
year ended December 31, 2018, the lowest closing price for our
common stock was $1.07 and the highest closing price was $10.60.
All stock prices are as adjusted for the 1-for-20 reverse stock
split effective on February 23, 2018.
Some
companies that have had volatile market prices for their securities
have had securities class action lawsuits filed against them. Such
lawsuits, should they be filed against us in the future, could
result in substantial costs and a diversion of management’s
attention and resources. This could have a material adverse effect
on our business, results of operations and financial
condition.
Our failure to maintain compliance with Nasdaq’s continued
listing requirements could result in the delisting of our common
stock.
Our
common stock is currently listed on The Nasdaq Capital Market. In
order to maintain this listing, we must satisfy minimum financial
and other requirements. In the past, we have received a
notification letter from Nasdaq indicating that we were not in
compliance with listing requirements because the minimum bid price
of our common stock closed below $1.00 per share for 30 consecutive
business days. As part of our plan to regain compliance with the
minimum bid price requirement, we effected a 1-for-20 reverse stock
split on February 23, 2018. If we fail to satisfy Nasdaq’s
listing requirements in the future, we expect to take actions to
regain compliance, but we can provide no assurance that any such
action would prevent our common stock from dropping below the
Nasdaq minimum bid price requirement or prevent future
non-compliance with Nasdaq’s listing requirements. If our
common stock is delisted from Nasdaq, the delisting could
substantially decrease trading in our common stock and adversely
affect the market liquidity of our common stock; adversely affect
our ability to obtain financing on acceptable terms, if at all; and
may result in the potential loss of confidence by investors,
suppliers, customers, and employees and fewer business development
opportunities. Additionally, the market price of our common stock
may decline further, and stockholders may lose some or all of their
investment.
We are likely to attempt to raise additional capital through
issuances of debt or equity securities, which may cause our stock
price to decline, dilute the ownership interests of our existing
stockholders, and/or limit our financial flexibility.
Historically
we have financed our operations through the issuance of equity
securities and debt financings, and we expect to continue to do so
for the foreseeable future. As of December 31, 2018, we had $12.4
million of cash and cash equivalents on hand. Based on our current
operating plans, we believe our existing cash and cash equivalents
are sufficient to continue to fund operations through the first
quarter of calendar year 2020. To the extent that we raise
additional funds by issuing equity securities, our stockholders may
experience significant dilution of their ownership interests. Debt
financing, if available, may involve restrictive covenants that
limit our financial flexibility or otherwise restrict our ability
to pursue our business strategies. Additionally, if we issue shares
of common stock, or securities convertible or exchangeable for
common stock, the market price of our existing common stock may
decline. There can be no assurance that we will be successful in
obtaining any additional capital resources in a timely manner, on
favorable terms, or at all.
We have issued in the past, and may issue in the future,
substantial amounts of instruments that are convertible into or
exercisable for common stock, and our existing stockholders may
face substantial dilution if such instruments are converted or
exercised.
As of
March 27, 2019, we
had outstanding preferred stock, warrants, options, securities
purchase agreements, and other instruments that are convertible
into or exercisable for an aggregate of 11,437,056 shares of our
common stock, which, if converted or exercised, would represent
approximately 186%
of our current outstanding common stock. These instruments carry a
wide variety of different terms and prices, and there can be no
assurance as to when or whether exercises of these instruments may
occur. If all or any substantial portion of these instruments are
converted or exercised, our existing stockholders may face
substantial dilution of their ownership
interests.