Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all of the other information in this Quarterly
Report on Form 10-Q (Report) and in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal
year ended March 31, 2019 before investing in our securities. The
risks described below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and
results of operations could be materially and adversely
affected.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of one or more of our current drug
candidates and we cannot be certain that we will be able to obtain
regulatory approval for, or successfully commercialize any of our
product candidates.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
currently depends heavily on the successful development,
manufacturing, regulatory approval and commercialization of one or
more of our current drug candidates, as well as, but to a more
limited extent, our ability to acquire, license or produce, develop
and commercialize additional product candidates. Each of our
current drug candidates will require substantial additional
nonclinical and clinical development, manufacturing and regulatory
approval before any of them may be commercialized, and there can be
no assurance that any of them will ever achieve regulatory
approval. Any new chemical entity (NCE)we may produce through drug rescue activities
will require substantial nonclinical development, all phases of
clinical development, manufacturing and regulatory approval before
it may be commercialized. The nonclinical and clinical development
of our product candidates are, and the manufacturing and marketing
of our product candidates will be, subject to extensive and
rigorous review and regulation by numerous government authorities
in the U.S. and in other countries where we intend to test and, if
approved, market any product candidate. Before obtaining regulatory
approvals for the commercial sale of any product candidate, we must
demonstrate through numerous nonclinical and clinical studies that
the product candidate is safe and effective for use in each target
indication. Research and development of product candidates in the
pharmaceutical industry is a long, expensive and uncertain process,
and delay or failure can occur at any stage of any of nonclinical
or clinical studies. This process takes many years and may also
include post-marketing studies, surveillance obligations and drug
safety programs, which would require the expenditure of substantial
resources beyond the proceeds we have raised to date. Of the large
number of drug candidates in development in the U.S., only a small
percentage will successfully complete the required FDA regulatory
approval process and will be commercialized. Accordingly, we cannot
assure you that any of our current drug candidates or any future
product candidates will be successfully developed or commercialized
in the U.S. or any market outside the U.S.
We are not permitted to market our product candidates in the U.S.
until we receive approval of a New Drug Application
(NDA) from the FDA, or in any foreign countries until
we receive the requisite approval from such countries. Obtaining
FDA approval of a NDA is a complex, lengthy, expensive and
uncertain process. The FDA may refuse to permit the filing of our
NDA, delay, limit or deny approval of a NDA for many reasons,
including, among others:
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if we submit a NDA and it is reviewed by a FDA advisory committee,
the FDA may have difficulties scheduling an advisory committee
meeting in a timely manner or the advisory committee may recommend
against approval of our application or may recommend that the FDA
require, as a condition of approval, additional nonclinical or
clinical studies, limitations on approved labeling or distribution
and use restrictions;
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a FDA advisory committee may recommend, or the FDA may require, a
Risk Evaluation and Mitigation Strategies (REMS) safety program as a condition of approval or
post-approval;
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a FDA advisory committee or the FDA or applicable regulatory agency
may determine that there is insufficient evidence of overall
effectiveness or safety in a NDA and require additional clinical
studies;
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the FDA or the applicable foreign regulatory agency may determine
that the manufacturing processes or facilities of third-party
contract manufacturers with which we contract do not conform to
applicable requirements, including current Good Manufacturing
Practices (cGMPs); or
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the FDA or applicable foreign regulatory agency may change its
approval policies or adopt new regulations.
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Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize any current or future drug product
candidate we may develop. Any such setback in our pursuit of
regulatory approval for any product candidate would have a material
adverse effect on our business and prospects.
In addition, we anticipate that certain of our product candidates,
including PH94B and PH10, will be subject to regulation as
combination products, which means that they are composed of both a
drug product and device product. Although we do not contemplate
doing so, if marketed individually, each component would be subject
to different regulatory pathways and reviewed by different centers
within the FDA. Our product candidates that are considered to be
drug-device combination products will require review and
coordination by FDA’s drug and device centers prior to
approval, which may delay approval. A combination product with a drug primary mode of
action generally would be reviewed and approved pursuant to the
drug approval processes under the Federal Food, Drug and Cosmetic
Act of 1938. In reviewing the NDA application for such a product,
however, FDA reviewers in the drug center could consult with their
counterparts in the device center to ensure that the device
component of the combination product met applicable requirements
regarding safety, effectiveness, durability and
performance. Under FDA
regulations, combination products are subject to cGMP requirements
applicable to both drugs and devices, including the Quality System
(QS) regulations applicable to medical devices.
Problems associated with the device component of the combination
product candidate may delay or prevent
approval.
We have been granted Fast Track designation from the FDA for
development of PH94B for the treatment of social anxiety disorder
(SAD) and AV-101 for the adjunctive treatment of major depressive
disorder (MDD) and for the treatment of neuropathc pain (NP).
However, these designations may not actually lead to faster
development or regulatory review or approval processes for PH94B or
AV-101. Further, there is no guarantee the FDA will grant Fast
Track designation for PH94B or AV-101 as a treatment option for
other CNS indications or for any of our other product candidates in
the future.
The Fast Track designation is a program offered by the FDA,
pursuant to certain mandates under the FDA Modernization Act of
1997, designed to facilitate drug development and to expedite the
review of new drugs that are intended to treat serious or
life-threatening conditions. Compounds selected must demonstrate
the potential to address unmet medical needs. The FDA’s Fast
Track designation allows for close and frequent interaction with
the FDA. A designated Fast Track drug may also be considered for
priority review with a shortened review time, rolling submission,
and accelerated approval if applicable. The designation does not,
however, guarantee FDA approval or expedited approval of any
application for the product candidate.
In December 2017, the FDA granted Fast Track designation for
development of AV-101 for the adjunctive (add-on) treatment of MDD
in patients with an inadequate response to current antidepressants.
In September 2018, the FDA granted Fast Track designation for
development of AV-101 for the treatment of NP. In December 2019,
the FDA granted Fast Track designation for development of PH94B for
the treatment of SAD. However, these FDA Fast Track designations
may not lead to a faster development or regulatory review or
approval process for PH94B or AV-101 and the FDA may withdraw Fast
Track designation of PH94B or AV-101 for if it believes that the
respective designation is no longer supported by data from our
clinical development programs.
In addition, we may apply for Fast Track designation for PH94B,
PH10 and AV-101 as a treatment option for other CNS indications,.
The FDA has broad discretion whether or not to grant a Fast Track
designation, and even if we believe PH94B, PH10, AV-101 or other
product candidates may be eligible for this designation, we cannot
be sure that the review or approval will compare to conventional
FDA procedures.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
PH94B, PH10, AV-101 and/or our other future product candidates, if
any, including positive results, may not be predictive of the
results of later-stage clinical trials. PH94B, PH10, AV-101 or any
other future product candidates in later stages of clinical
development may fail to show the desired safety and efficacy
results despite having progressed through nonclinical studies and
initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in later-stage 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.
Moreover, nonclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
nonclinical studies and clinical trials nonetheless failed to
obtain FDA approval. With respect to our current product
candidates, if one or more of the future Phase 3 clinical trials of
PH94B for SAD, any future clinical study of AV-101 or a future
Phase 2 clinical trial of PH10 for MDD fail(s) to produce positive
results, the development timeline and regulatory approval and
commercialization prospects for PH94B, PH10 or AV-101 and,
correspondingly, our business and financial prospects, could be
materially adversely affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early- and late-stage clinical trials
towards regulatory 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 later stage clinical trials, approval and
commercialization, such changes do carry the risk that they will
not achieve these intended objectives.
For example, the results of planned clinical trials may be
adversely affected if we or any of our collaborators seek to
optimize and scale-up production of a product candidate. In such
case, we will need to demonstrate comparability between the newly
manufactured drug substance and/or drug product relative to the
previously manufactured drug substance and/or drug product.
Demonstrating comparability may cause us to incur additional costs
or delay initiation or completion of our clinical trials, including
the need to initiate a dose escalation study and, if unsuccessful,
could require us to complete additional nonclinical or clinical
studies of our product candidates.
If serious adverse events or other undesirable side effects or
safety concerns attributable to future clinical trials of our
product candidates, it may adversely affect or delay our clinical
development and commercialization of PH94B, PH10 or
AV-101.
Undesirable side effects or safety concerns caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt clinical trials and could result in a more
restrictive label or the delay or denial of regulatory
approval. Although no treatment-related serious adverse events
(SAEs) were observed in any clinical trials of our
product candidates to date, if treatment-related SAEs or other
undesirable side effects or safety concerns, or unexpected
characteristics attributable to PH94B, PH10 and/or AV-101 are
observed in any furture clinical trials, including
investigator-sponsored clinical trials, it may adversely affect or
delay our clinical development and commercialization of the
effected product candidate, and the occurrence of these events
could have a material adverse effect on our business and financial
prospects. Results of our future clinical trials could reveal a
high and unacceptable severity and prevalence of adverse side
effects. In such an event, our trials could be suspended or
terminated and the FDA or other regulatory agency could order us to
cease further development of or deny approval of our product
candidates for any or all targeted indications. The drug-related
side effects could affect patient recruitment or the ability of
enrolled patients to complete the trial or result in potential
product liability claims.
Additionally, if any of our product candidates receives marketing
approval and we or others later identify undesirable or
unacceptable side effects or safety concerns caused by these
product candidates, a number of potentially significant negative
consequences could result, including:
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regulatory
authorities may withdraw, suspend, or limit approvals of such
product and require us to take them off the market;
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regulatory
authorities may require the addition of labeling statements,
specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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regulatory
authorities may require a medication guide outlining the risks of
such side effects for distribution to patients, or that we
implement a REMS or REMS-like plan to ensure that the benefits of
the product outweigh its risks;
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may be required to change the way a product is distributed or
administered, conduct additional clinical trials or change the
labeling of a product;
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may be required to conduct additional post-marketing studies or
surveillance;
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may be subject to limitations on how we may promote the
product;
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sales
of the product may decrease significantly;
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may be subject to regulatory investigations, government enforcement
actions, litigation or product liability claims; and
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products may become less competitive or our reputation may
suffer.
Any of these events could prevent us or any collaborators from
achieving or maintaining market acceptance of our product
candidates or could substantially increase commercialization costs
and expenses, which in turn could delay or prevent us from
generating significant revenue from the sale of our product
candidates.
Failures or delays in the commencement or completion of our planned
clinical trials and nonclinical studies of PH94B, PH10, AV-101 or
other our product candidates could result in increased costs to us
and could delay, prevent or limit our ability to generate revenue
and continue our business.
We will need to complete at least two pivotal Phase 3 clinical
studies of PH94B, additional toxicology and other standard
nonclinical and clinical safety studies, as well as certain
standard smaller clinical studies prior to our submission of an NDA
for regulatory approval of PH94B as an on-demand treatment for SAD
or any other CNS indication. For PH10, we will need to complete at
least one additional Phase 2 clinical study, two pivotal Phase 3
clinical trials, additional toxicology and other standard
nonclinical and clinical safety studies, as well as certain
standard smaller clinical studies prior to the submission of an NDA
for regulatory approval of PH10 as treatment for MDD, or any other
CNS indication. For AV-101, for treatment of any CNS indication, we
will need to complete at least two Phase 2 clinical studies, two
pivotal Phase 3 clinical trials, additional toxicology and other
standard nonclinical and clinical safety studies, as well as
certain standard smaller clinical studies prior to the submission
of an NDA for regulatory approval. Successful completion of our
nonclinical and clinical trials is a prerequisite to submitting an
NDA and, consequently, the ultimate approval required before
commercial marketing of any product candidate we may develop. We do
not know whether any of our future-planned nonclinical and clinical
trials of PH94B, PH10, AV-101 or any other product candidate will
be completed on schedule, if at all, as the commencement and
completion of nonclinical and clinical trials can be delayed or
prevented for a number of reasons, including, among
others:
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the regulatory authority may deny permission to proceed with
planned clinical trials or any other clinical trials we may
initiate, or may place a planned or ongoing clinical trial on
hold;
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delays in filing or receiving approvals from regulatory authorities
of additional INDs that may be required;
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negative or ambiguous results from nonclinical or clinical
studies;
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delays in reaching or failing to reach agreement on acceptable
terms with prospective CROs, investigators and clinical trial
sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs, investigators and
clinical trial sites;
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delays in the manufacturing of, or insufficient supply of product
candidates necessary to conduct nonclinical or clinical trials,
including delays in the manufacturing of sufficient supply of drug
substance or finished drug product;
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inability to manufacture or obtain clinical supplies of a product
candidate meeting required quality standards;
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difficulties obtaining Institutional Review Board
(IRB) approval to conduct a clinical trial at a
prospective clinical site or sites;
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challenges in recruiting and enrolling patients to participate in
clinical trials, including the proximity of patients to clinical
trial sites;
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eligibility criteria for a clinical trial, the nature of a clinical
trial protocol, the availability of approved effective treatments
for the relevant disease and competition from other clinical trial
programs for similar indications;
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severe or unexpected adverse drug-related side effects experienced
by patients in a clinical trial;
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delays in validating any endpoints utilized in a clinical
trial;
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the regulatory authority may disagree with our clinical trial
design and our interpretation of data from prior nonclinical
studies or clinical trials, or may change the requirements for
approval even after it has reviewed and commented on the design for
our clinical trials;
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reports from nonclinical or clinical testing of other CNS
indications or therapies that raise safety or efficacy concerns;
and
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difficulties retaining patients who have enrolled in a clinical
trial but may be prone to withdraw due to rigors of the clinical
trial, lack of efficacy, side effects, personal issues or loss of
interest.
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Clinical trials may also be delayed or terminated prior to
completion as a result of ambiguous or negative interim results. In
addition, a clinical trial may be suspended or terminated by us,
the regulatory authority, the IRBs at the sites where the IRBs are
overseeing a clinical trial, a data and safety monitoring board
(DSMB), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
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failure to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
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inspection of the clinical trial operations or trial sites by the
regulatory authority that reveals deficiencies or violations that
require us to undertake corrective action, including the imposition
of a clinical hold;
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unforeseen safety issues, including any that could be identified in
nonclinical carcinogenicity studies, adverse side effects or lack
of effectiveness;
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changes in government regulations or administrative
actions;
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problems with clinical supply materials that may lead to regulatory
actions; and
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lack of adequate funding to continue nonclinical or clinical
studies.
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Changes in regulatory requirements, regulatory guidance or
unanticipated events during our nonclinical studies and clinical
trials of PH94B, PH10, AV-101 or other product candidates may
occur, which may result in changes to nonclinical studies and
clinical trial protocols or additional nonclinical studies and
clinical trial requirements, which could result in increased costs
to us and could delay our development timeline.
Changes in regulatory requirements, guidance or unanticipated
events during our nonclinical studies and clinical trials of PH94B,
PH10, AV-101 or other product candidates may force us to amend
nonclinical studies and clinical trial protocols or the regulatory
authority may impose additional nonclinical studies and clinical
trial requirements. Amendments or changes to our clinical trial
protocols would require resubmission to the regulatory authority
and IRBs for review and approval, which may adversely impact the
cost, timing or successful completion of clinical trials.
Similarly, amendments to our nonclinical studies may adversely
impact the cost, timing, or successful completion of those
nonclinical studies. If we experience delays completing, or if we
terminate, any of our nonclinical studies or clinical trials, or if
we are required to conduct additional nonclinical studies or
clinical trials, the commercial prospects for PH94B, PH10, AV-101
or other product candidates may be harmed and our ability to
generate product revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct our nonclinical and clinical trials of our current
product candidates and will continue to do so for any other future
product candidates. If these third parties do not successfully
carry out their contractual duties and/or meet expected deadlines,
completion of our nonclinical or clinical trials and development of
PH94B, PH10, AV-101 or other future product candidates may be
delayed and we may not be able to obtain regulatory approval for or
commercialize PH94B, PH10, AV-101 or other future product
candidates and our business could be substantially
harmed.
By strategic design, we do not have the extensive internal staff
resources to independently conduct nonclinical and clinical trials
of our product candidates completely on our own. We rely on our
network of strategic relationships with various academic research
centers, medical institutions, nonclinical and clinical
investigators, contract laboratories, CROs and other third parties
to assist us to conduct and complete nonclinical and clinical
trials of our product candidates. We enter into agreements with
third-party CROs to provide monitors for and to manage data for our
clinical trials, as well as provide other services necessary to
prepare for, conduct and complete clinical trials. We rely heavily
on these and other third-parties for execution of nonclinical and
clinical trials for our product candidates and we control only
certain aspects of their activities. As a result, we have less
direct control over the conduct, timing and completion of these
nonclinical and clinical trials and the management of data
developed through nonclinical and clinical trials than would be the
case if we were relying entirely upon our own internal staff
resources. Communicating with outside parties can also be
challenging, potentially leading to mistakes as well as
difficulties in coordinating activities. CROs and other outside
parties may:
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have staffing difficulties and/or undertake obligations beyond
their anticipated capabilities and resources;
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fail to comply with contractual obligations;
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experience regulatory compliance issues;
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undergo changes in priorities or become financially distressed;
or
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form relationships with other entities, some of which may be our
competitors.
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These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted and completed in accordance with the applicable protocol,
legal, regulatory and scientific requirements and standards, and
our reliance on CROs, or independent investigators does not relieve
us of our regulatory responsibilities. We and our CROs, and any
investigator in an investigator-sponsored study are required to
comply with regulations and guidelines, including current Good
Clinical Practice regulations (cGCPs) for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data
and results are scientifically credible and accurate, and that the
trial patients are adequately informed of the potential risks of
participating in clinical trials. These regulations are enforced by
the FDA, the Competent Authorities of the Member States of the
European Economic Area and comparable foreign regulatory
authorities for any products in clinical development. The FDA
enforces cGCP regulations through periodic inspections of clinical
trial sponsors, principal investigators and trial sites. If we, any
of our CROs or any of our third-party collaborators fail to comply
with applicable cGCPs, the clinical data generated in clinical
trials involving our product candidates may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may
require us to perform additional clinical trials before approving
our marketing applications. We cannot assure you that, upon
inspection, the FDA will determine that any of our clinical trials
comply with cGCPs. In addition, our clinical trials must be
conducted with product candidates produced under cGMPs and will
require a large number of test patients. Our failure or the failure
of our CROs or other third-party collaborators to comply with these
regulations may require us to repeat clinical trials, which would
delay the regulatory approval process and could also subject us to
enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
our clinical development strategy involves having CROs and other
third-party investigators and medical institutions conduct clinical
trials of our product candidates. As a result, many important
aspects of our drug development programs are outside of our direct
control. In addition, although CROs, or independent investigators
or medical institutions, as the case may be, may not perform all of
their obligations under arrangements with us or in compliance with
applicable regulatory requirements, under certain circumstances, we
may be responsible and subject to enforcement action that may
include civil penalties up to and including criminal prosecution
for any violations of FDA laws and regulations during the conduct
of clinical trials of our product candidates. If such third parties
do not perform clinical trials of our product candidates in a
satisfactory manner, breach their obligations to us or fail to
comply with applicable regulatory requirements, the development and
commercialization of our product candidates may be delayed or our
development program materially and irreversibly harmed. In certain
cases, including the Baylor Study and other investigator-sponsored
clinical studies, we cannot control the amount and timing of
resources these third-parties devote to clinical trials involving
our product candidates. If we are unable to rely on nonclinical and
clinical data collected by our third-party collaborators, we could
be required to repeat, extend the duration of, or increase the size
of our clinical trials and this could significantly delay
commercialization and require significantly greater
expenditures.
If our relationships with one or more of our third-party
collaborators terminates, we may not be able to enter into
arrangements with alternative third-party
collaborators. If such third-party collaborators,
including our CROs, do not successfully carry out their contractual
duties or obligations or meet expected deadlines, if they need to
be replaced or if the quality or accuracy of the clinical data they
obtain is compromised due to their failure to adhere to applicable
clinical protocols, regulatory requirements or for other reasons,
any clinical trials that such third-parties are associated with may
be extended, delayed or terminated, and we may not be able to
obtain regulatory approval for or successfully develop and
commercialize our product candidates. As a result, we believe that
our financial results and the commercial prospects for our product
candidates in the subject indication would be harmed, our costs
would increase and our ability to generate revenue would be
delayed.
We rely completely on third-parties to manufacture, formulate, hold
and distribute supplies of our product candidates for all
nonclinical and clinical studies, and we intend to continue to rely
on third parties to produce all nonclinical, clinical and
commercial supplies of our product candidates in the
future.
By strategic design, we do not currently have, nor do we plan to
acquire or develop, extensive internal infrastructure or technical
capabilities to manufacture, formulate, hold or distribute supplies
of our product candidates, for use in nonclinical and clinical
studies or commercial scale. As a result, with respect to all
of our product candidates, we rely, and will continue to rely,
completely on CMOs to manufacture API and formulate, hold and
distribute final drug product. The facilities used by our CMOs to
manufacture PH94B, PH10 and AV-101 API and PH94B, PH10 and AV-101
final drug product are subject to a pre-approval inspection by the
FDA and other comparable foreign regulatory agencies to assess
compliance with applicable regulatory guidelines and requirements,
including cGMPs, and may be required to undergo similar inspections
by the FDA or other comparable foreign regulatory agencies, after
we submit INDs, NDAs or relevant foreign regulatory submission
equivalent to the applicable regulatory agency.
We do not directly control the manufacturing process or the supply
or quality of materials used in the manufacturing and formulation
of our product candidates, and, with respect to all of our product
candidates, we are completely dependent on our CMOs to comply with
all applicable cGMPs for the manufacturing of both API and finished
drug product. If our CMOs cannot secure adequate supplies of
suitable raw materials or successfully manufacture our product
candidates, including PH94B, PH10 and AV-101 API and finished drug
product, that conforms to our specifications and the strict
regulatory requirements of the FDA or applicable foreign regulatory
agencies, production of sufficient supplies of our product
candidates, including PH94B, PH10 and AV-101 API and finished drug
product, may be delayed and our CMOs may not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities, or the FDA may take other actions, including the
imposition of a clinical hold. In addition, we have no direct
control over our CMOs’ ability to maintain adequate quality
control, quality assurance and qualified personnel. All of our CMOs
are engaged with other companies to supply and/or manufacture
materials or products for such other companies, which exposes our
CMOs to regulatory risks for the production of such materials and
products. As a result, failure to satisfy the regulatory
requirements for the production of those materials and products may
affect the regulatory clearance of our CMO’s facilities
generally or affect the timing of manufacture of PH94B, PH10 and
AV-101 for required or planned nonclinical and/or clinical studies.
If the FDA or an applicable foreign regulatory agency determines
now or in the future that our CMOs’ facilities are
noncompliant, we may need to find alternative manufacturing
facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market our product candidates.
Our reliance on CMOs also exposes us to the possibility that they,
or third parties with access to their facilities, will have access
to and may appropriate our trade secrets or other proprietary
information.
With respect to PH94B, PH10 and AV-101, we do not yet have
long-term supply agreements in place with our CMOs and each batch
of PH94B, PH10 and AV-101 is or will be individually contracted
under a separate supply agreement. If we engage new CMOs, such
contractors must complete an inspection by the FDA and other
applicable foreign regulatory agencies. We plan to continue to rely
upon CMOs and, potentially, collaboration partners, to manufacture
research and development scale, and, if approved, commercial
quantities of our product candidates. Although we believe our
current scale of API manufacturing for AV-101, and our contemplated
scale of API manufacturing for PH94B and PH10, and the current and
projected supply of PH94B, PH10 and AV-101 API and finished drug
product will be adequate to support our planned nonclinical and
clinical studies of PH94B, PH10 and AV-101, no assurance can be
given that unanticipated supply shortages or CMO-related delays in
the manufacture and formulation of PH94B, PH10 or AV-101 API and/or
finished drug product will not occur in the future.
Additionally, we anticipate that PH94B and PH10 will be considered
drug-device combination products. Third-party manufacturers may not
be able to comply with cGMP requirements applicable to drug/device
combination products, including applicable provisions of the
FDA’s or a comparable foreign regulatory authority’s
drug cGMP regulations, device cGMP requirements embodied in the
Quality System Regulation (QSR) or similar regulatory requirements outside the
U.S. Our failure, or the failure of our third-party manufacturers,
to comply with applicable regulations could result in sanctions
being imposed on us, including clinical holds, fines, injunctions,
civil penalties, delays, suspension or withdrawal of approvals,
license revocation, seizures or recalls of product candidates,
operating restrictions and criminal prosecutions, any of which
could significantly affect supplies of our product candidates. The
facilities used by our CMOs to manufacture our product candidates
must be approved by the FDA anf comparable foreign regulatory
authorities pursuant to inspections that will or may be conducted
after we submit our NDA. We do not control the manufacturing
process of, and are completely dependent on, our CMO partners for
compliance with cGMPs and QSRs. If our CMOs cannot successfully
manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or other comparable
foreign regulatory authorities, they will not be able to secure
and/or maintain regulatory approval for their manufacturing
facilities. In addition, we have no control over the ability of our
contract manufacturers to maintain adequate quality control,
quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority does not approve these
facilities for the manufacture of our product candidates or if it
withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or
market our product candidates, if approved. CMOs may face
manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor
may not be able to maintain compliance with the applicable cGMP and
QSR requirements. Any failure to comply with cGMP or QSR
requirements or other FDA, EMA and comparable foreign regulatory
requirements could adversely affect our clinical research
activities and our ability to develop our product candidates and
market our products following approval.
Even if we receive marketing approval for PH94B, PH10, AV-101 or
any other product candidate in the U.S., we may never receive
regulatory approval to market PH94B, PH10, AV-101 or any other
product candidate outside of the U.S.
In order to market PH94B, PH10, AV-101 or any other product
candidate outside of the U.S., we must establish and comply with
the numerous and varying safety, efficacy and other regulatory
requirements of other countries. Approval procedures vary among
countries and can involve additional product candidate testing and
additional administrative review periods. The time required to
obtain approvals in other countries might differ from that required
to obtain FDA approval. The marketing approval processes in other
countries may implicate all of the risks detailed above regarding
FDA approval in the U.S. as well as other risks. In particular, in
many countries outside of the U.S., products must receive pricing
and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial
delays in bringing products to market in such countries. Marketing
approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in
one country may have a negative effect on the regulatory process in
others. Failure to obtain marketing approval in other countries or
any delay or other setback in obtaining such approval would impair
our ability to market our product candidates in such foreign
markets. Any such impairment would reduce the size of our potential
market, which could have a material adverse impact on our business,
results of operations and prospects.
If any of our product candidates are ultimately regulated as
controlled substances, we, our CMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates in the U.S. or
any market outside the U.S., the U.S. Drug Enforcement
Administration (DEA) or its foreign counterpart may need to determine
whether such product candidates will be considered to be a
controlled substance, taking into account the recommendation of the
FDA or its foreign counterpart, as the case may be. This may be
a lengthy process that could delay our marketing of a product
candidate and could potentially diminish any regulatory exclusivity
periods for which we may be eligible, which would increase the cost
associated with commercializing such products and, in turn, may
have an adverse impact on our results of operations. Although we
currently do not know whether the DEA or any foreign counterpart
will consider any of our current or future product candidate to be
controlled substances, we cannot yet give any assurance that such
product candidates, including PH94B, PH10 and AV-101 will not be
regulated as controlled substances.
If any of our product candidates are regulated as controlled
substances, depending on the DEA controlled substance schedule in
which the product candidates are placed or that of its foreign
counterpart, we, our CMOs, and any future distributers,
prescribers, and dispensers of the scheduled product candidates may
be subject to significant regulatory requirements, such as
registration, security, recordkeeping, reporting, storage,
distribution, importation, exportation, inventory, quota and other
requirements administered by the DEA or a foreign counterpart of
the DEA as the case may be. Moreover, if any of our product
candidates are regulated as controlled substances, we and our CMOs
would be subject to initial and periodic DEA inspection. If we or
our CMOs are not able to obtain or maintain any necessary DEA
registrations or comparable foreign registrations, we may not be
able to commercialize any product candidates that are deemed to be
controlled substances or we may need to find alternative CMOs,
which would take time and cause us to incur additional costs,
delaying or limit our commercialization efforts.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates, should
they be deemed to contain controlled substances. Failure to comply
with the applicable controlled substance laws and regulations can
also result in administrative, civil or criminal enforcement. The
DEA or its foreign counterparts may seek civil penalties, refuse to
renew necessary registrations, or initiate administrative
proceedings to revoke those registrations. In some circumstances,
violations could result in criminal proceedings or consent decrees.
Individual states also independently regulate controlled
substances.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have any internal resources for the sale,
marketing and distribution of pharmaceutical products, and we may
not create such internal capabilities in the foreseeable future.
Therefore, to market our product candidates, if approved by the FDA
or any other regulatory body, we must make contractual arrangements
with third parties to perform services related to sales, marketing,
managerial and other non-technical capabilities relating to the
commercialization of our product candidates, or establish those
capabilities prior to market approval. If we are unable to
establish adequate contractual arrangements for such sales,
marketing and distribution capabilities, or if we are unable to do
so on commercially reasonable terms, or if we are unable to
establish such capabilities on our own, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
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the efficacy and safety of our product candidates as demonstrated
in clinical trials, and, if required by any applicable regulatory
authority in connection with the approval for the applicable
indications, to provide patients with incremental health benefits,
as compared with other available therapies;
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limitations or warnings contained in the labeling approved for our
product candidates by the FDA or other applicable regulatory
authorities;
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the clinical indications for which our product candidates are
approved;
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availability of alternative treatments already approved or expected
to be commercially launched in the near future;
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the potential and perceived advantages of our product candidates
over current treatment options or alternative treatments, including
future alternative treatments;
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the willingness of the target patient population to try new
therapies and of physicians to prescribe these
therapies;
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the strength of marketing and distribution support and timing of
market introduction of competitive products;
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publicity concerning our products or competing products and
treatments;
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pricing and cost effectiveness;
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the effectiveness of our sales and marketing
strategies;
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our ability to increase awareness of our product candidates through
marketing efforts;
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our ability to obtain sufficient third-party coverage or
reimbursement; or
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the willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
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If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt nonclinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
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regulatory authorities may withdraw or limit their approval of such
product candidates;
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regulatory authorities may require the addition of labeling
statements, such as a “black box” warning or a
contraindication;
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we may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
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we may be subject to regulatory investigations and government
enforcement actions;
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we may decide to remove such product candidates from the
marketplace;
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we could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
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our reputation may suffer.
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We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA and other
regulatory authorities have significant post-marketing authority,
including, for example, the authority to require labeling changes
based on new safety information and to require post-marketing
studies or clinical trials to evaluate serious safety risks related
to the use of a drug. The FDA and other regulatory authorities also
have the authority to require, as part of an NDA or post-approval,
the submission of a REMS or comparable safety program. Any REMS or
comparable safety program required by the FDA or other regulatory
authority may lead to increased costs to assure compliance with new
post-approval regulatory requirements and potential requirements or
restrictions on the sale of approved products, all of which could
lead to lower sales volume and revenue.
Manufacturers of drug and device products and their facilities are
subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates, or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
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issue warning letters or untitled letters;
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seek an injunction or impose civil or criminal penalties or
monetary fines;
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suspend or withdraw marketing approval;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to
applications submitted by us;
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suspend or impose restrictions on operations, including costly new
manufacturing requirements; or
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seize or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
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Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceutical industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to and compete with our product candidates or
address similar markets. It is probable that the number of
companies seeking to develop product candidates similar to and
competitive with our product candidates will increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of
pharmacological action and safety profile as our
orally-administered AV-101 or our intranasally-administered PH10.
However, new antidepressant products with other mechanisms of
pharmacological action or products approved for other indications,
including the FDA-approved anesthetic ketamine hydrochloride
administered intravenously, are being or may be used off-label for
treatment of MDD, as well as other CNS indications for which AV-101
or PH10 may have therapeutic potential. Additionally, other
non-pharmaceutical treatment options, such psychotherapy and
electroconvulsive therapy (ECT) are used before or instead of standard
antidepressant medications to treat patients with MDD. Management
is also unaware of any FDA-approved rapid-onset, on-demand
treatment for SAD having the same mechanism of pharmacological
action and safety profile as our PH94B.
In the field of new generation, oral adjunctive treatments for
adult patients with MDD with an inadequate response to standard
FDA-approved ADs, we believe our principal competitors may be
Axsome’s AX-05, Alkermes’ ALKS-5461, Allergan’s
AGN-241751 and Sage’s Sage-217. Additional potential
competitors may include, but not be limited to, academic and
private commercial clinics providing intravenous ketamine therapy
on an off-label basis and Janssen’s intranasally-administered
Spravato (esketamine). With respect to PH94B and current
FDA-approved treatment options for SAD in the U.S., our competition
may include, but is not limited to, certain current generic ADs
approved by the FDA for treatment of SAD and certain classes of
drugs used on an off-label basis for treatment of SAD, including
benzodiazepines such as alprazolam, and beta blockers such as
propranolol.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery, and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. With respect to AV-101 and PH10, we
believe that a range of pharmaceutical and biotechnology companies
have programs to develop drug candidates for the treatment of
depression, including MDD, Parkinson’s disease
levodopa-induced dyskinesia, neuropathic pain, epilepsy, and other
neurological conditions and diseases, including, but not limited
to, Abbott Laboratories, Acadia, Allergan, Alkermes, Aptynix,
AstraZeneca, Axsome, Eli Lilly, GlaxoSmithKline, IntraCellular,
Janssen, Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer, Relmada,
Roche, Sage, Sumitomo Dainippon, and Takeda, as well as any
affiliates of the foregoing companies. With respect to
PH94B, in addition to potential competition from certain current
FDA-approved antidepressants and off-label use of benzodiazepines
and beta blockers, we believe additional drug candidates in
development for SAD may include, but potentially not be limited to,
an oral fatty acid amide hydrolase inhibitor in development by
Janssen. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being
concentrated among a smaller number of our competitors. Our
commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are more
convenient or are less expensive than any products that we may
develop. Our competitors also may obtain FDA or other regulatory
approval for their products more rapidly than we may obtain
approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter
the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of nonclinical and
clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential
markets for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate
to patients, the potential of competing products, the existence of
uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to
the merits of the challenge and industry and market conditions
generally. The collaborator may also consider alternative product
candidates or technologies for similar indications that may be
available to collaborate on and whether such collaboration could be
more attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. 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. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates, or 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.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. We may fail to pursue
additional development opportunities for PH94B, PH10 or AV-101, or
identify additional product candidates for clinical development for
a number of reasons. Our research methodology may be unsuccessful
in identifying new product candidates or our product candidates may
be shown to have harmful side effects or may have other
characteristics that may make the products unmarketable or unlikely
to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of PH94B, PH10 and AV-101, with
additional limited focus on NCE drug rescue and, through a
third-party collaboration, regenerative medicine. As a result, we
may forego or delay pursuit of opportunities with other product
candidates or for other potential CNS-related indications for
PH94B, PH10 and/or AV-101 that later prove to have greater
commercial potential. Our resource allocation decisions may cause
us to fail to capitalize on viable commercial drugs 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 drugs. 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 future collaboration,
licensing or other royalty arrangements in cases in which it would
have been more advantageous for us to retain sole development and
commercialization rights to such product candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our product candidates, we may be subject
to additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
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The federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal
healthcare programs such as Medicare and Medicaid.
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The federal False Claims Act imposes criminal and civil penalties,
including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to
avoid, decrease, or conceal an obligation to pay money to the
federal government.
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The federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission
of individually identifiable health information.
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The federal false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or
services.
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The federal transparency requirements, sometimes referred to as the
“Sunshine Act,” under the Patient Protection and
Affordable Care Act, require manufacturers of drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance
Program to report to the Department of Health and Human Services
information related to physician payments and other transfers of
value and physician ownership and investment
interests.
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Analogous state laws and regulations, such as state anti-kickback
and false claims laws and transparency laws, may apply to sales or
marketing arrangements and claims involving healthcare items or
services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require
pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant
compliance.
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Guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to
payments to physicians and other healthcare providers or marketing
expenditures and drug pricing.
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Foreign
Corrupt Practices Act and its application to marketing and selling
practices as well as to clinical trials.
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Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business are found to be out
of compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as PH94B, PH10 and AV-101, if approved. In particular, a
product may not be promoted for uses that are not approved by the
FDA or such other regulatory agencies as reflected in the
product’s approved labeling. For example, if we receive FDA
marketing approval for PH94B as a treatment of SAD, physicians may
prescribe PH94B to their patients in a manner that is inconsistent
with the FDA-approved label. However, if we are found to have
promoted such off-label uses, we may become subject to significant
liability. The federal government has levied large civil and
criminal fines against companies for alleged improper off-label
promotion and has enjoined several companies from engaging in
off-label promotion. The FDA has also requested that companies
enter into consent decrees or imposed permanent injunctions under
which specified promotional conduct is 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 and financial
condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the United States healthcare
industry and elsewhere. Government authorities and these
third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
medications. We cannot be sure that reimbursement will be available
for our product candidates and, if reimbursement is available, the
level of such reimbursement. Reimbursement may impact the demand
for, or the price of, our product candidates. If reimbursement is
not available or is available only at limited levels, we may not be
able to successfully commercialize our product
candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates. Even if we have obtained FDA Orphan Drug
designation for a product candidate, there may be limits to the
regulatory exclusivity afforded by such designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our current or future product candidates. Even
if we obtain Orphan Drug designation from the FDA for a product
candidate, there are limitations to the exclusivity afforded by
such designation. In the U.S., the company that first obtains FDA
approval for a designated orphan drug for the specified rare
disease or condition receives orphan drug marketing exclusivity for
that drug for a period of seven years. This orphan drug exclusivity
prevents the FDA from approving another application, including a
full NDA to market the same drug for the same orphan indication,
except in very limited circumstances, including when the FDA
concludes that the later drug is safer, more effective or makes a
major contribution to patient care. For purposes of small molecule
drugs, the FDA defines “same drug” as a drug that
contains the same active moiety and is intended for the same use as
the drug in question. To obtain Orphan Drug status for a drug that
shares the same active moiety as an already approved drug, it must
be demonstrated to the FDA that the drug is safer or more effective
than the approved orphan designated drug, or that it makes a major
contribution to patient care. In addition, a designated orphan drug
may not receive orphan drug exclusivity if it is approved for a use
that is broader than the indication for which it received orphan
designation. In addition, orphan drug exclusive marketing rights in
the U.S. may be lost if the FDA later 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 or if another drug
with the same active moiety is determined to be safer, more
effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
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our customers’ ability to obtain reimbursement for our
product candidates in foreign markets;
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our inability to directly control commercial activities because we
are relying on third parties;
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the burden of complying with complex and changing foreign
regulatory, tax, accounting and legal requirements;
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different medical practices and customs in foreign countries
affecting acceptance in the marketplace;
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import or export licensing requirements;
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longer accounts receivable collection times;
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longer lead times for shipping;
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language barriers for technical training;
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reduced protection of intellectual property rights, different
standards of patentability and different availability of prior art
in some foreign countries as compared with the U.S.;
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the existence of additional potentially relevant third party
intellectual property rights;
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foreign currency exchange rate fluctuations; and
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the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
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Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new therapeutic product candidates, including conducting
clinical trials and other areas required for the successful
development and commercialization of therapeutic products, which
makes it difficult to assess our future viability.
We are a development stage biopharmaceutical company. We currently
have no approved products and currently generate no revenues, and
we have not yet fully demonstrated an ability to overcome many of
the fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with
collaborators:
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develop and obtain required regulatory approvals for
commercialization of PH94B, PH10, AV-101 and/or other product
candidates;
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maintain, leverage and expand our intellectual property
portfolio;
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establish and maintain sales, distribution and marketing
capabilities, and/or enter into strategic partnering arrangements
to access such capabilities;
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gain market acceptance for our product candidates; and
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obtain adequate capital resources and manage our spending as costs
and expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
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Our future success is highly dependent upon our ability to
successfully develop and commercialize any of our current product
candidates, acquire or license additional product candidates, or
discover, as well as produce, develop and commercialize proprietary
NCEs using our stem cell technology, and we cannot provide any
assurance that we will successfully develop and commercialize
PH94B, PH10, AV-101 or acquire or license additional product
candidates or discover and develop NCEs, or that, if produced,
PH94B, PH10, AV-101 or any other product candidate will be
successfully commercialized.
Business development and research and development programs designed
to identify, acquire or license additional product candidates, or,
as the case may be, produce DR NCEs require substantial technical,
financial and human resources, whether or not any additional
product candidate is acquired or licensed or NCEs are ultimately
identified and produced.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize PH94B, PH10, AV-101, drug rescue NCEs and/or other
product candidates if and when they are acquired and developed, or
we may seek to establish those commercial capabilities
ourselves. If we enter into arrangements with third
parties to perform sales, marketing and distribution services for
our products, the resulting revenues or the profitability from
these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we
may not be successful entering into arrangements with third parties
to sell, market and distribute PH94B, PH10, AV-101, any drug rescue
NCEs or other product candidates or may be unable to do so on terms
that are favorable to us. We likely will have little
control over such third parties, and any of these third parties may
fail to devote the necessary resources and attention to sell,
market and distribute our products effectively. If we do
not establish sales, marketing and distribution capabilities
successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our product
candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
acquisition of additional product candidates or the assessment of
potential NCEs and no operating history with respect to the
production of NCEs, and we may never be able to produce a
NCE.
If we are unable to develop and commercialize PH94B, PH10,
AV-101 or acquire or license additional product candidates, or
produce suitable NCEs, we may not be able to generate sufficient
revenues to execute our business plan, which likely would result in
significant harm to our financial position and results of
operations, which could adversely impact our stock
price.
With respect to drug rescue, there are a number of factors, in
addition to the utility of CardioSafe 3D, that may impact our ability to identify
and produce, develop or out-license and commercialize NCEs,
independently or with partners, including:
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our ability to identify potential candidates in the public domain,
obtain sufficient quantities of them, and assess them using our
bioassay systems;
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if we seek to rescue drug candidates that are not available to us
in the public domain, the extent to which third parties may be
willing to out-license or sell certain candidates to us on
commercially reasonable terms;
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our medicinal chemistry collaborator’s ability to design and
produce proprietary NCEs based on the novel biology and
structure-function insight we provide
using CardioSafe 3D;
and
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financial resources available to us to develop and commercialize
lead NCEs internally, or, if we sell or out-license them to
partners, the resources such partners choose to dedicate to
development and commercialization of any NCEs they acquire or
license from us.
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Even if we do acquire additional product candidates or produce
proprietary NCEs, we can give no assurance that we will be able to
develop and commercialize them as marketable drugs, on our own or
in collaboration with others. Before we generate any revenues from
PH94B, PH10, AV-101 or additional acquired or licensed products
candidates or any NCEs, we or our potential collaborators must
complete preclinical and clinical development programs, submit
clinical and manufacturing data to the FDA, qualify a third party
CMO, receive regulatory approval in one or more jurisdictions,
satisfy the FDA that our CMO is capable of manufacturing the
product in compliance with cGMP, build a commercial organization,
make substantial investments and undertake significant marketing
efforts ourselves or in partnership with others. We are not
permitted to market or promote any of our product candidates before
we receive regulatory approval from the FDA or comparable foreign
regulatory authorities, and we may never receive such regulatory
approval for any of our product candidates.
If
CardioSafe 3D fails to predict accurately
and efficiently the cardiac effects, both toxic and nontoxic, of
drug rescue candidates and drug rescue NCEs, then our drug rescue
programs will be adversely affected.
Success of our subsidiary, VistaStem, is partly dependent on our
ability to use CardioSafe 3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of
drug rescue candidates and drug rescue NCEs. If CardioSafe 3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our business will be adversely
affected.
CardioSafe 3D may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
Drug rescue programs are highly dependent
upon CardioSafe 3D being more accurate, efficient and
clinically predictive than long-established surrogate safety
models, including animal cells and live animals, and immortalized,
primary and transformed cells, currently used by pharmaceutical
companies and others. We cannot give assurance
that CardioSafe 3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If CardioSafe 3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for drug rescue will be
limited and our business will be adversely
affected.
We may invest in producing drug rescue NCEs for which there proves
to be no demand.
To generate revenue from our drug rescue activities, we must
produce proprietary NCEs for which there proves to be demand within
the healthcare marketplace, and, if we intend to out-license a
particular NCE for development and commercialization prior to
market approval, then also among pharmaceutical companies and other
potential collaborators. However, we may produce NCEs for which
there proves to be no or limited demand in the healthcare market
and/or among pharmaceutical companies and others. If we
misinterpret market conditions, underestimate development costs
and/or seek to rescue the wrong drug rescue candidates, we may fail
to generate sufficient revenue or other value, on our own or in
collaboration with others, to justify our investments, and our
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our hPSC technology is technically complex, and the time and
resources necessary to develop various human cell types and
customized bioassay systems, although not significant at present,
are difficult to predict in advance. We might decide to devote
significant additional personnel and financial resources to
research and development activities designed to expand, in the case
of DR, and explore, in the case of drug discovery and RM, potential
applications of our stem cell technology platform. In particular,
we may conduct exploratory nonclinical RM programs involving blood,
bone, cartilage, and/or liver cells. Although we and our
third-party collaborators have developed proprietary protocols to
produce multiple differentiated cell types, we could encounter
difficulties in differentiating and producing sufficient quantities
of particular cell types, even when following these proprietary
protocols. These difficulties could result in delays in production
of certain cells, assessment of certain drug rescue candidates and
drug rescue NCEs, design and development of certain human cellular
assays and performance of certain exploratory nonclinical RM
studies. In the past, our stem cell research and development
projects have been significantly delayed when we encountered
unanticipated difficulties in differentiating hPSCs into heart and
liver cells. Although we have overcome such difficulties in the
past, we may have similar delays in the future, and we may not be
able to overcome them or obtain any benefits from our future stem
cell technology research and development activities. Any delay or
failure by us, for example, to produce functional, mature blood,
bone, cartilage, and liver cells could have a substantial and
material adverse effect on our potential drug discovery, drug
rescue and RM business opportunities and results of
operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (hESCs). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the U.S. and elsewhere voice opposition to hESC
technology and practices. We may use hESCs derived from excess
fertilized eggs that have been created for clinical use
in in
vitro fertilization
(IVF) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the DR
capabilities of our technology, which would have a material adverse
effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and such regulation varies widely from country to
country. Government-imposed restrictions with respect to use of
hESCs in research and development could have a material adverse
effect on us by harming our ability to establish critical
collaborations, delaying or preventing progress in our research and
development, and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells (iPSCs) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized in vitro assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs to comply with current
or future environmental, health and safety laws and regulations.
These current or future laws and regulations may impair our
research, development, or production efforts. Failure to comply
with these laws and regulations also may result in substantial
fines, penalties, or other sanctions, which could have a material
adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the U.S. and abroad that involve matters central to
such research and development activities, including obligations to
seek informed consent from donors for the use of their blood and
other tissue to produce, or have produced for us, iPSCs, as well as
state and federal laws that protect the privacy of such donors.
U.S. federal and state and foreign laws and regulations are
constantly evolving and can be subject to significant change. If we
engage in iPSC-related research and development activities in
countries other than the U.S., we may become subject to foreign
laws and regulations relating to human-subjects research and other
laws and regulations that are often more restrictive than those in
the U.S. In addition, both the application and interpretation of
these laws and regulations are often uncertain, particularly in the
rapidly evolving stem cell technology sector. Compliance with these
laws and regulations can be costly, can delay or impede our
research and development activities, result in negative publicity,
increase our operating costs, require significant management time
and attention and subject us to claims or other remedies, including
fines or demands that we modify or cease existing business
practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including CardioSafe 3D, are not currently sold, for research
purposes or any other purpose, to biotechnology or pharmaceutical
companies, government research institutions, academic and nonprofit
research institutions, medical research organizations or stem cell
banks, and they are not therapeutic procedures. As a result, they
are not subject to regulation as biological products or drugs by
the FDA or comparable agencies in other countries. However, if, in
the future, we seek to include human cells we derive from hPSCs in
therapeutic applications or product candidates, such applications
and/or product candidates would be subject to the FDA’s pre-
and post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing RM
applications, such as tissue engineering or organ replacement, we
would first need to obtain FDA pre-market clearance or approval.
Obtaining such clearance or approval from the FDA is expensive,
time-consuming and uncertain, generally requiring many years to
obtain, and requiring detailed and comprehensive scientific and
clinical data. Notwithstanding the time and expense, these efforts
may not result in FDA approval or clearance. Even if we were to
obtain regulatory approval or clearance, it may not be for the uses
that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock and could cause you to
lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of approximately $24.6
million and $14.3 million during our fiscal years ended March 31,
2019 and 2018, respectively, and approximately $17.5 million for
the nine months ended December 31, 2019. At December 31, 2019, we
had an accumulated deficit of approximately $198.6 million. We do
not know whether or when we will become profitable. Substantially
all of our operating losses have resulted from costs incurred in
connection with our research and development programs and from
general and administrative costs associated with our operations. We
expect to incur increasing levels of operating losses over the next
several years and for the foreseeable future. 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. We expect our research and development expenses to
significantly increase in connection with nonclinical studies and
clinical trials of our product candidates. In addition, if we
obtain marketing approval for our product candidates, we may incur
significant sales, marketing and outsourced-manufacturing expenses
should we elect not to collaborate with one or more third parties
for such services and capabilities. As a public company, we incur
additional costs associated with operating as a public company. As
a result, we expect to continue to incur significant and increasing
operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with developing
pharmaceutical products, we are unable to predict the extent of any
future losses or when we will become profitable, if at all. Even if
we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, consisting of receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH. We have not yet
commercialized any product or generated any revenues from product
sales, and we do not know when, or if, we will generate any revenue
from product sales. We do not expect to generate significant
revenue unless and until we obtain marketing approval of, and begin
to experience sales of, PH94B, PH10, AV-101 or another future
product candidate, or we enter into one or more development and
commercialization agreements with respect to PH94B, PH10, AV-101 or
one or more other future product candidates. Our ability to
generate revenue depends on a number of factors, including, but not
limited to, our ability to:
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initiate and successfully complete nonclinical and clinical trials
that meet their prescribed endpoints;
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initiate and successfully complete all safety studies required to
obtain U.S. and foreign marketing approval for our product
candidates;
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timely complete and compose successful regulatory submissions such
as NDAs or comparable documents for both the U.S. and foreign
jurisdictions;
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commercialize our product candidates, if approved, by developing a
sales force or entering into collaborations with third parties for
sales and marketing capabilities; and
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achieve market acceptance of our product candidates in the medical
community and with third-party payors.
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Unless we enter into a commercialization collaboration or
partnership with respect to the commercialization of our product
candidates, we expect to incur significant sales and marketing
costs as we prepare to commercialize our product candidates. Even
if we initiate and successfully complete pivotal clinical trials of
our product candidates, and our product candidates are approved for
commercial sale, and despite expending these costs, our product
candidates may not be commercially successful. We may not achieve
profitability soon after generating product sales, if ever. If we
are unable to generate product revenue, we will not become
profitable and may be unable to continue operations without
continued funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2019 included in our Annual Report on Form 10-K for the
year ended March 31, 2019 were prepared assuming we will continue
to operate as a going concern, although we and our auditors have
indicated that our continuing losses and negative cash flows from
operations raise substantial doubt about our ability to continue as
such. Because we continue to experience net operating losses, our
ability to continue as a going concern is subject to our ability to
obtain necessary funding from outside sources, including obtaining
additional funding from this offering as well as future sales of
our securities or potentially obtaining loans and grant awards from
financial institutions and/or government agencies where possible.
Our continued net operating losses increase the difficulty in
completing such sales or securing alternative sources of funding,
and there can be no assurances that we will be able to obtain any
future funding on favorable terms or at all. If we are unable to
obtain sufficient financing from the sale of our securities or from
alternative sources, we may be required to reduce, defer, or
discontinue certain or all of our research and development
activities or we may not be able to continue as a going
concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the drug rescue capabilities
of VistaStem’s stem cell technology platform. In particular,
we have expended substantial resources on research and development
of methods and processes relating to the production of AV-101 API
and drug product, advancing AV-101 through IND-enabling preclinical
development, Phase 1 clinical safety studies, and into ongoing
Phase 2 clinical development, including the Elevate Study completed
in 2019, as well as research and development and regulatory
expenses related to the production of PH94B and PH10 and our stem
cell technology platform, including development
of CardioSafe 3D for DR and our cardiac stem cell
technology for potential RM applications in connection with the
Bluerock/Bayer Agreement, and we expect to continue to expend
substantial resources for the foreseeable future developing and
commercializing our product candidates on our own or in
collaborations. These expenditures will include costs associated
with general and administrative costs, facilities costs, research
and development, acquiring new technologies, manufacturing product
candidates, conducting nonclinical experiments and clinical trials
and obtaining regulatory approvals, as well as commercializing any
products approved for sale.
At December 31, 2019, we had cash and cash equivalents of
approximately $1.1 million. We do not believe this amount, plus the
approximate $2.68 million proceeds of our January 2020 Offering, is
sufficient to enable us to fund our planned operations for at least
the twelve months following the issuance of the financial
statements included elsewhere in this Report. We expect to seek
additional capital to produce PH94B study material, conduct PH94B
pivotal Phase 3 clinical trials, produce additional AV-101
study material for future nonclinical and clinical studies, conduct
AV-101 Phase 3-enabling toxicology studies, conduct pivotal Phase 3
clinical studies of AV-101 in MDD, conduct AV-101 Phase 2 studies
in LID, MDD, NP and SI, produce PH10 study material and conduct a
Phase 2b clinical trial of PH10 in MDD, acquire or license and
conduct research and development of additional product
candidates and to fund our internal operations.
Further, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell a product candidate to a
third-party, (ii) enter into additional license arrangements
involving our stem cell technology, or (iii) obtain approval from
the FDA or other regulatory authorities and successfully
commercialize, on our own or through a future collaboration, one or
more of our product candidates.
As the outcome of our ongoing research and development activities,
including the outcome of future anticipated clinical trials is
highly uncertain, we cannot reasonably estimate the actual amounts
necessary to successfully complete the development and
commercialization of our product candidates, on our own or in
collaboration with others. As with prior periods, we will continue
to incur costs associated with other development programs for
PH94B, PH10 and AV-101. In addition, other unanticipated costs may
arise. As a result of these and other factors, we will need to seek
additional capital in the near term to meet our future operating
requirements, including capital necessary to develop, obtain
regulatory approval for, and to commercialize our product
candidates, and may seek additional capital in the event there
exists favorable market conditions or strategic considerations even
if we believe we have sufficient funds for our current or future
operating plans. We have completed in the past, and are currently
considering a range of potential financing transactions, including
public or private equity or debt financings, government or other
third-party funding, marketing and distribution arrangements and
other collaborations, strategic alliances and licensing
arrangements or a combination of these approaches, and we may
complete additional financing arrangements later in 2019 and
thereafter. Raising funds in the current economic environment may
present additional challenges. Even if we believe we have
sufficient funds for our current or future operating plans, we may
seek additional capital if market conditions are favorable or if we
have specific strategic considerations.
Our future capital requirements depend on many factors,
including:
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the number and characteristics of the product candidates we
pursue;
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the scope, progress, results and costs of researching and
developing our product candidates, and conducting preclinical and
clinical studies;
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the timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
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the cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
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the cost of manufacturing our product candidates and any products
we successfully commercialize;
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our ability to establish and maintain strategic partnerships,
licensing or other collaborative arrangements and the financial
terms of such agreements;
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market acceptance of our product candidates;
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the effect of competing technological and market
developments;
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our ability to obtain government funding for our research and
development programs;
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the costs involved in obtaining, maintaining and enforcing patents
to preserve our intellectual property;
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the costs involved in defending against such claims that we
infringe third-party patents or violate other intellectual property
rights and the outcome of such litigation;
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the timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
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the extent to which we may acquire or invest in additional
businesses, product candidates and technologies.
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Any additional fundraising efforts will divert certain members of
our management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, our ability to engage in certain
types of capital raising transactions may be limited by the Listing
Rules of the Nasdaq Stock Market and/or General Instruction I.B.6
of Form S-3 so long as the market value of our common stock held by
non-affiliates remains below $75 million. We cannot guarantee that
future financing will be available in sufficient amounts, in a
timely manner, or on terms acceptable to us, if at all. The terms
of any future financing may adversely affect the holdings or the
rights of our stockholders and the issuance of additional
securities, whether equity or debt, by us, or the possibility of
such issuance, may cause the market price of our shares to decline.
The sale of additional equity securities and the conversion,
exchange or exercise of certain of our outstanding securities will
dilute all of our stockholders. The incurrence of debt could result
in increased fixed payment obligations and we could be required to
agree to certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to
acquire, sell or license intellectual property rights 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 collaborative partners or otherwise at an
earlier stage than otherwise would be desirable and we may be
required to relinquish rights to some of our technologies or
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.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified
material weaknesses in our internal control over financial
reporting, and our business and stock price may be adversely
affected if we do not adequately address those weaknesses or if we
have other material weaknesses or significant deficiencies in our
internal control over financial reporting.
We have identified material weaknesses in our internal control over
financial reporting. In particular, we concluded that (i) the size
of our staff does not permit appropriate segregation of duties to
(a) permit appropriate review of accounting transactions and/or
accounting treatment by multiple qualified individuals, and (b)
prevent one individual from overriding the internal control system
by initiating, authorizing and completing all transactions, and
(ii) we utilize accounting software that does not prevent erroneous
or unauthorized changes to previous reporting periods and/or can be
adjusted so as to not provide an adequate auditing trail of entries
made in the accounting software.
The existence of any additional
material weaknesses in our internal controls, or significant
deficiencies, or the absence of formalized policies and procedures
could result in errors in our financial statements, and substantial
costs and resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause substantial dilution to our
existing stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2019 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be substantially diluted. In
addition, the terms of any such securities may include liquidation
or other preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (NINDS) and the NIMH, and the California Institute for
Regenerative Medicine (CIRM). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2019, we had federal and state net operating
loss carryforwards of approximately $109.0 million and $63.6
million, respectively, which begin to expire in fiscal
2020. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the Code), changes in our ownership may limit the amount
of our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize our product candidates.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer, Chief Financial Officer, and Vice President
– Corporate Development as well as our other employees,
consultants and scientific collaborators. As of the date of this
Annual Report, we have nine full-time employees, which may make us
more reliant on our individual employees than companies with a
greater number of employees. The loss of services of any of these
individuals could delay or prevent the successful development of
our product candidates or disrupt our administrative
functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel should we elect
to expand our research and development and administrative
activities. We may not be able to attract and retain quality
personnel on acceptable terms.
In addition, we rely on a broad and diverse range of strategic
consultants and advisors, including manufacturing, nonclinical and
clinical development, and regulatory advisors and CROs, to assist
us in designing and implementing our research and development and
regulatory strategies and plans for our product candidates. Our
consultants and advisors may be employed by employers other than us
and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to
us.
As we seek to advance development of our product candidates, we may
need to expand our research and development capabilities and/or
contract with third parties to provide these capabilities for us.
As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners and other
third parties. Future growth will impose significant added
responsibilities on members of management. Our future financial
performance and our ability to develop and commercialize our
product candidates and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that
end, we must be able to manage our research and development efforts
effectively and hire, train and integrate additional management,
administrative and technical personnel. The hiring, training and
integration of new employees may be more difficult, costly and/or
time-consuming for us because we have fewer resources than a larger
organization. We may not be able to accomplish these tasks, and our
failure to accomplish any of them could prevent us from
successfully growing the Company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
As we develop our product candidates. either on our own or in
collaboration with others, we will face inherent risks of product
liability as a result of the required clinical testing of such
product candidates, and will face an even greater risk if we or our
collaborators commercialize any such product candidates. For
example, we may be sued if PH94B, PH10, AV-101, any NCE, other
product candidate, or RM product candidate we develop allegedly
causes injury or is found to be otherwise unsuitable during product
testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability, and a breach
of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or
be required to limit commercialization of our product candidates.
Even successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
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decreased demand for product candidates that we may
develop;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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a diversion of management's time and our resources;
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substantial monetary awards to trial participants or patients;
or
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product recalls, withdrawals or labeling, marketing or promotional
restrictions.
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Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
general and product liability insurance, any claim that may be
brought against us could result in a court judgment or settlement
in an amount that is not covered, in whole or in part, by our
insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and
we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or
that are not covered by our insurance, and we may not have, or be
able to obtain, sufficient capital to pay such
amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by the Nasdaq Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on the Nasdaq Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and the Nasdaq
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our business and
operations would suffer in the event of cybersecurity or other
system failures. Our business depends on complex information
systems, and any failure to successfully maintain these systems or
implement new systems to handle our changing needs could result in
a material disruption of our product candidates’ development
programs or otherwise materially harm our
operations.
In the ordinary course of our business, we collect and store
sensitive data, including intellectual property, our proprietary
business information and that of our suppliers, as well as
personally identifiable information of employees. Similarly, our
third-party CROs, CMOs and other contractors and consultants
possess certain of our sensitive data. The secure maintenance of
this information is material to our operations and business
strategy. Despite the implementation of security measures, our
internal computer systems and those of our third-party CROs, CMOs
and other contractors and consultants are vulnerable to attacks by
hackers, damage from computer viruses, unauthorized access, breach
due to employee error, malfeasance or other disruptions, natural
disasters, terrorism and telecommunication and electrical failures.
Any such attack or breach could compromise our networks and the
information stored there could be accessed, publicly disclosed,
lost or stolen. The legislative and regulatory landscape for
privacy and data protection continues to evolve, and there has been
an increasing amount of focus on privacy and data protection issues
with the potential to affect our business, including recently
enacted laws in a majority of states requiring security breach
notification. Thus, any access, disclosure or other loss of
information, including our data being breached at our partners or
third-party providers, could result in legal claims or proceedings
and liability under laws that protect the privacy of personal
information, disruption of our operations, and damage to our
reputation, which could adversely affect our business.
While we have not experienced any such system failure, accident, or
security breach to date, if such an event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our programs. For example, the loss of clinical trial
data for PH94B, PH10, AV-101 or other product candidates 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 results in a
loss of or damage to our data or applications or other data or
applications relating to our technology or product candidates, or
inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development
of our product candidates could be delayed.
We may acquire businesses or product candidates, or form strategic
alliances, in the future, and we may not realize the benefits of
such acquisitions.
We may acquire additional businesses or product candidates, form
strategic alliances or create joint ventures with third parties
that we believe will complement or augment our existing business.
If we acquire businesses with promising markets or technologies, we
may not be able to realize the benefit of acquiring such businesses
if we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
product candidates resulting from a strategic alliance, licensing
transaction or acquisition that delay or prevent us from realizing
their expected benefits or enhancing our business. We cannot assure
you that, following any such acquisition or licensing transaction,
we will achieve the expected synergies to justify the
transaction.
Current politics in the U.S. could diminish the value of the
pharmaceutical industry, thereby diminishing the value of our
securities.
The current political environment in the U.S. has led many
incumbents and political candidates to propose various measures to
reduce the prices for pharmaceuticals. As we near the U.S.
presidential 2020 elections, it is likely that these proposals will
receive increasing publicity which, in turn, may cause the
investing public to reduce the perceived value of pharmaceutical
companies. Any decrease in the overall perception of the
pharmaceutical industry may have an adverse impact on our share
price and may limit our ability to raise capital needed to continue
our drug development programs.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our product candidates, their compositions and
formulations, their methods of use and methods of manufacturing and
any other inventions we consider important to the development of
our business. We also rely on trade secrets to protect aspects of
our business that are not amenable to, or that we do not consider
appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, to preserve the
confidentiality of our trade secrets and to operate without
infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on know-how, continuing
technological innovation and in-licensing opportunities to develop,
strengthen and maintain the proprietary position of our product
candidates. We own and have licensed patents and patent
applications related to product candidates PH94B, PH10, AV-101 and
also to hPSC technology.
Although we own and have licensed issued and allowed patents and
patent applications relating to PH94B, PH10 and AV-101 in the U.S.,
selected countries in the EU and other jurisdictions, we cannot yet
provide any assurances that any of our pending U.S. and additional
foreign patent applications will mature into issued patents and, if
they do, that any of our patents will include claims with a scope
sufficient to protect our product candidates or otherwise provide
any competitive advantage.
Moreover, other parties may have developed technologies that may be
related or competitive to our approach and may have filed or may
file patent applications and may have received or may receive
patents that may overlap or conflict with our patent properties,
for example, either by claiming the same methods or formulations or
by claiming subject matter that could dominate our patent position.
Such third-party patent positions may limit or even eliminate our
ability to obtain or maintain patent protection.
The uncertainty about adequate protection includes changes to the
patent laws through either legislative action to change statutory
patent law or court action that may reinterpret existing law in
ways affecting the scope or validity of issued patents. Moreover,
relevant laws differ from country-to-country.
The patent positions of biotechnology and pharmaceutical companies,
including our patent portfolio with respect to our product
candidates, involve complex legal and factual questions, and,
therefore, the issuance, scope, validity and enforceability of any
additional patent claims that we may obtain cannot be predicted
with certainty.
Our ability to obtain valid and enforceable patents depends in
large measure on whether the differences between our technology and
the prior art allow our inventions to be patentable over
relevant prior art. Such prior art includes scientific
publications, investment blogs, granted patents and published
patent applications. Patent uncertainty cannot be eliminated
because of the potential existence of other prior art about which
we are currently unaware that may be relevant to our patent
applications and patents, which may prevent a pending patent
application from being granted or result in an issued patent being
held invalid or unenforceable.
In addition, some patent-related uncertainty exists because of the
challenge in finding and addressing all of the relevant and
material prior art in the biotechnology and pharmaceutical
fields. For example, there are numerous reports in the scientific
literature of compounds that target similar cellular receptors as
certain of our product candidates or that were evaluated in early
(often pre-clinical) studies. In addition, even some reports in the
trade press and public announcements made by us before the filing
date of our AV-101 patent applications mentioned that AV-101 was in
development for certain therapeutic purposes. For example, we
published a web post on the NIH clinical trials website prior to
our filing of our initial AV-101 patent applications, which
describes unit doses for a then future study, but does not mention
treatment of depression and does not provide any preclinical or
clinical study data relating to depression or any other medical
condition, disease or disorder. This post was not submitted to the
United States Patent and Trademark Office (USPTO) in our two granted U.S. patents related to (i)
unit dose formulations of AV-101 effective to treat depression and
(ii) methods of treating depression with AV-101, respectively.
However, it was submitted in two depression-related AV-101 patent
applications that have similar claims and we have received Notices
of Allowance from the USPTO in those applications We are
considering entering this web post in the record of the
aforementioned two issued U.S. patents. Another source of
uncertainty pertains to patent properties that were in-licensed by
us for which prior art submissions were under the control of the
licensor. We rely on these licensors to have satisfied the relevant
disclosure obligations.
In the event any previously published prior art is deemed to be
invalidating prior art, it may cause certain of our issued
patents to be invalid and/or unenforceable which would cause us to
lose at least part, and perhaps all, of the patent protection on
our product candidates. Such a loss of patent protection would have
a material adverse impact on our business.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The USPTO, the European Patent Office (EPO) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Even if patents do successfully issue, third parties may challenge
the validity, enforceability or scope of such issued patents or any
other issued patents we own or license, which may result in such
patents being narrowed, invalidated or held
unenforceable.
United States and foreign patents and patent applications may be
subject to various types of infringement and validity proceedings,
including interference proceedings, ex parte reexamination, inter
partes review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, invalidity
actions, or comparable proceedings lodged in various foreign, both
national and regional, patent offices or courts. These proceedings
could result in loss of the patent or denial of the patent
application or loss or reduction in the scope of one or more of the
claims of the patent or patent in such a way that they no longer
cover our product candidates or competitive
products.
Furthermore, though an issued patent is presumed valid and
enforceable, its issuance is not conclusive as to its validity or
its enforceability and it may not provide us with adequate
proprietary protection or competitive advantages against
competitors with similar products. Even if a patent issues and is
held to be valid and enforceable, competitors may be able to design
around our patents, for example, by using pre-existing or newly
developed technology. Other parties may develop and obtain patent
protection for more effective technologies, designs or
methods.
If we or one of our licensing partners initiated legal proceedings
against a third-party to enforce a patent covering one of our
product candidates, including patents related to PH94B, PH10 or
AV-101, the defendant could counterclaim that the patent covering
our product candidate is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a
validity challenge include alleged failures to meet any of several
statutory requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or made a misleading
statement during prosecution. Third parties may also raise similar
claims before administrative bodies in the United States or abroad,
even outside the context of litigation. 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 our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
In addition, such patent-related proceedings may be costly. Thus,
any patent properties that we may own or exclusively license
ultimately may not provide commercially meaningful protection
against competitors. Furthermore, an adverse decision in an
interference proceeding can result in a third party receiving the
patent right sought by us, which in turn could affect our ability
to develop, market or otherwise commercialize our product
candidates.
We may not be able to prevent the unauthorized disclosure or use of
our technical knowledge or trade secrets by consultants, vendors,
or former or current employees. The laws of some foreign countries
do not protect our proprietary rights to the same extent as the
laws of the United States, and we may encounter significant
problems in protecting our proprietary rights in these countries.
If these developments were to occur, they could have a material
adverse effect on our sales.
Our ability to enforce our patent rights also depends on our
ability to detect infringement. It is difficult to detect
infringers who do not advertise the components or manufacturing
processes that are used in their products. Moreover, it may be
difficult or impossible to obtain evidence of infringement in a
competitor’s or potential competitor’s product. Any
litigation to enforce or defend our patent rights, even if we were
to prevail, could be costly and time-consuming and would divert the
attention of our management and key personnel from our business
operations. We may not prevail in any lawsuits that we initiate and
the damages or other remedies awarded if we were to prevail may not
be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
Overall, the degree of future protection for our proprietary rights
is uncertain, and we cannot ensure that:
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any issued patents related to PH94B, PH10, AV-101 or any
pending patent applications, if issued and challenged by others,
will include or maintain claims having a scope sufficient to
protect PH94B, PH10, AV-101 or any other products or product
candidates against generic or other competition, particularly
considering that any patent rights to these compounds
per se
have expired;
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any of our pending patent applications will issue as patents at
all;
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we will be able to successfully commercialize our product
candidates, if approved, before our relevant patents
expire;
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we were the first to make the inventions covered by each of our
patents and pending patent applications;
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we were the first to file patent applications for these
inventions;
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others will not develop similar or alternative technologies that do
not infringe our patents;
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others will not use pre-existing technology to effectively compete
against us;
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any of our patents, if issued, will ultimately be found to be valid
and enforceable, including on the basis of prior art relating to
our patent applications and patents;
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any patents currently held or issued to us in the future will
provide a basis for an exclusive market for our commercially viable
products, will provide us with any competitive advantages or will
not be challenged by third parties;
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we will develop additional proprietary technologies or product
candidates that are separately patentable; or
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our commercial activities or products will not infringe upon the
patents or proprietary rights of others.
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We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees, collaborators and consultants who are parties to these
agreements breach or violate the terms of these agreements, we may
not discover or have adequate remedies for any such breach or
violation, and we could lose our trade secrets through such
breaches or violations. Further, our trade secrets could otherwise
become known or be independently discovered by our
competitors.
Third parties may initiate legal proceedings against us alleging
that we infringe their intellectual property rights, which may
prevent or delay our product development efforts and stop us from
commercializing candidate products or increase the costs of
commercializing them, if approved. Also, we may file counterclaims
or initiate other legal proceedings against third parties to
challenge the validity or scope of their intellectual property
rights, the outcomes of which also would be uncertain and could
have a material adverse effect on the success of our
business.
We cannot assure that our business, product candidates and methods
do not or will not infringe the patents or other intellectual
property rights of third parties. Third parties may initiate legal
proceedings against us or our licensors or collaborators alleging
that we or our licensors or collaborators infringe their
intellectual property rights. In addition, we or our licensors or
collaborators may file counterclaims in such proceedings or
initiate separate legal proceedings against third parties to
challenge the validity or scope of their intellectual property
rights, including in oppositions, interferences,
reexaminations, inter partes
reviews or derivation proceedings
before the United States or other
jurisdictions.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. Success also will depend on our ability to prevail
in litigation if we are sued for infringement or to resolve
litigation matters with rights and at costs favorable to
us.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of their business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that later result in issued patents
that our product candidates may infringe, or that such third
parties assert are infringed by our technologies.
The foregoing types of proceedings can be expensive and
time-consuming and many of our own or our licensors’ or
collaborators’ adversaries in these proceedings may have the
ability to dedicate substantially greater resources to prosecuting
these legal actions than we or our licensors or collaborators
can. Our defense of litigation or other proceedings may fail
and, even if successful, may result in substantial costs and
distract our management and other employees. We may not be able to
prevent, alone or with our licensors, misappropriation of our
intellectual property rights, particularly in countries where the
laws may not protect those rights as fully as in the United States
or European Union.
The outcome of intellectual property litigation is subject to
uncertainties that cannot be adequately quantified in advance. 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 product
candidates, products or methods either do not infringe the patent
claims of the relevant patent or that the patent claims are
invalid, and we may not be able to do this. 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 financial resources to bring these actions to a
successful conclusion.
An unfavorable outcome in the foregoing kinds of proceedings could
require us or our licensors or collaborators to cease using the
related technology or developing or commercializing our product
candidates, or to attempt to license rights to it from the
prevailing party. Our business could be harmed if the prevailing
party does not offer us or our licensors or collaborators a license
on commercially reasonable terms or at all. Even if we or our
licensors or collaborators obtain a license, it may be
non-exclusive, thereby giving our competitors access to the same
technologies licensed to us or our licensors or
collaborators.
In addition, 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 harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcomes are
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to have willfully infringed a third
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim is
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Patent litigation is costly and time-consuming. We may not have
sufficient resources to bring these actions to a successful
conclusion. Even if we are successful in these proceedings, we may
incur substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products.
In addition, intellectual property litigation or claims could force
us to do one or more of the following:
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cease developing, selling or otherwise commercializing our product
candidates;
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pay substantial damages for past use of the asserted intellectual
property;
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obtain a license from the holder of the asserted intellectual
property, which license may not be available on reasonable terms,
if at all; and
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in the case of trademark claims, redesign, or rename, some or all
of our product candidates to avoid infringing the intellectual
property rights of third parties, which may not be possible and,
even if possible, could be costly and time-consuming.
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Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
The Company may be subject to claims challenging the inventorship
or ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign their intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. 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, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. 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.
We do not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the U.S. could be less extensive than those
in the United States, assuming that rights are obtained in the U.S.
In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and
state laws in the U.S. Consequently, we may not be able to prevent
third parties from practicing our inventions in all countries
outside the U.S., or from selling or importing products made using
our inventions in and into the United States or other
jurisdictions. The statutory deadlines for pursuing patent
protection in individual foreign jurisdictions are based on the
priority date of each of our patent applications. For the pending
patent applications relating to AV-101, as well as for other of the
patent families that we own or license, the relevant statutory
deadlines have not yet expired. Thus, for each of the patent
families that we believe provide coverage for our lead product
candidates or technologies, we will need to decide whether and
where to pursue protection outside the U.S.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the U.S. 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. Even
if we pursue and obtain issued patents in particular jurisdictions,
our patent claims or other intellectual property rights may not be
effective or sufficient to prevent third parties from so
competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the U.S. Many
companies have encountered significant problems in protecting and
defending intellectual property rights in certain foreign
jurisdictions. The legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and
other intellectual property protection, especially those relating
to biotechnology and pharmaceuticals. This could make it difficult
for us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties
under certain circumstances. In addition, many countries limit the
enforceability of patents against third parties, including
government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must
ultimately be sought on a country-by-country basis, which is an
expensive and time-consuming process with uncertain outcomes.
Accordingly, we may choose not to seek patent protection in certain
countries, and we will not have the benefit of patent protection in
such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, 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 harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put 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 are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
For our PH10, PH94B and certain stem cell technologies, we are a
party to a number of license agreements under which we are granted
rights to intellectual properties that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. 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. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
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the scope of rights granted under the license agreement and other
interpretation-related issues;
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whether and 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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our right to sublicense patent and other rights to third parties
under collaborative development relationships;
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our diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
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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 partners.
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If disputes over intellectual property that we have 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.
We have entered into several licenses, both in-license agreements
and out-license agreements, to support and leverage our various
stem cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or will
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(Bayh-Dole
Act). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental
purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. Also, the U.S. government may acquire title to these
inventions in any country in which a patent application is not
filed within specified time limits.
Intellectual property generated under a government funded program
is further subject to certain reporting requirements, compliance
with which may require us, or the applicable licensor, to expend
substantial resources. In addition, the U.S. government requires
that any products embodying the subject invention or produced
through the use of the subject invention be manufactured
substantially in the U.S. The manufacturing preference requirement
can be waived if the owner of the intellectual property can show
that reasonable but unsuccessful efforts have been made to grant
licenses on similar terms to potential licensees that would be
likely to manufacture substantially in the U.S. or that under the
circumstances domestic manufacture is not commercially feasible.
This preference for U.S. manufacturers may limit our ability to
contract with non-U.S. product manufacturers for products covered
by such intellectual property.
In the event we apply for additional U.S. government funding, and
we discover compounds or drug candidates as a result of such
funding, intellectual property rights to such discoveries may be
subject to the applicable provisions of the Bayh-Dole
Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
In the U.S., depending upon the timing, duration and specifics of
FDA marketing approval of our product candidates, one or more of
the U.S. patents we own or license may be eligible for limited
patent term restoration under the Drug Price Competition and Patent
Term Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension, for example, if the active ingredient of
PH94B, PH10 or AV-101 is used in another drug company’s
product candidate and that product candidate is the first to obtain
FDA approval.
Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable
to obtain patent term extension or restoration or the term of any
such extension is less than we request, our competitors may obtain
approval of competing products following our patent expiration, and
our ability to generate revenues could be materially adversely
affected.
Similar kinds of patent term and regulatory and data protection
periods are available outside of the U.S. We will pursue such
opportunities to extend the exclusivity of our products, but we
cannot predict the availability of such exclusivity pathways or
that we will be successful in pursuing them.
Changes in U.S.
patent law
could diminish the value of patents in general, thereby impairing
our ability to protect our products.
As is the case with other pharmaceutical and biotechnology
companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in
the biotechnology industry involve both technological and legal
complexity, and is therefore costly, time-consuming and inherently
uncertain. In addition, the U.S. in recent years enacted and is
currently implementing wide-ranging patent reform legislation: the
Leahy-Smith America Invents Act, referred to as the America Invents
Act. The America Invents Act includes a number of significant
changes to U.S. patent law. These include provisions that affect
the way patent applications will be prosecuted and may also affect
patent litigation. It is not yet clear what, if any, impact the
America Invents Act will have on the operation of our business.
However, the America Invents Act and its implementation could
increase the uncertainties and costs surrounding the prosecution of
our patent applications and the enforcement or defense of any
patents that may issue from our patent applications, all of which
could have a material adverse effect on our business and financial
condition.
In addition, recent U.S. Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. The
full impact of these decisions is not yet known. For example, on
March 20, 2012 in Mayo Collaborative Services,
DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories,
Inc., the Court held that
several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not
patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in Association for Molecular
Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic
DNA are not patentable, but claims to complementary DNA molecules
are patent eligible because they are not a natural product. The
effect of the decision on patents for other isolated natural
products is uncertain.
Additionally, on March 4, 2014, the USPTO issued a memorandum
to patent examiners providing guidance for examining claims that
recite laws of nature, natural phenomena or natural products under
the Myriad and Prometheus decisions. This guidance did not limit
the application of Myriad to DNA but, rather, applied the decision
to other natural products. Further, in 2015,
in Ariosa Diagnostics, Inc. v.
Sequenom, Inc., the Court of
Appeals for the Federal Circuit held that methods for detecting
fetal genetic defects were not patent eligible subject matter.
Other more recent court decisions and related USPTO examination
guidelines must be taken into account, particularly as they relate
to changes in what types of inventions are eligible for patent
protection. Foreign patent and intellectual property laws also are
evolving and are not predictable as to their impact on the Company
and other biopharmaceutical companies.
In addition to increasing uncertainty regarding our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the U.S. Congress, the
federal courts and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce any patents that may
issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
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others may be able to develop and/or practice technology that is
similar to our technology or aspects of our technology but that is
not covered by the claims of patents, should such patents issue
from our patent applications;
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we might not have been the first to make the inventions covered by
a pending patent application that we own;
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we might not have been the first to file patent applications
covering an invention;
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others may independently develop similar or alternative
technologies without infringing our intellectual property
rights;
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pending patent applications that we own or license may not lead to
issued patents;
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patents, if issued, that we own or license may not provide us with
any competitive advantages, or may be held invalid or unenforceable
or be narrowed, as a result of legal challenges by our
competitors;
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third parties may compete with us in jurisdictions where we do not
pursue and obtain patent protection;
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we may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
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the patents of others may have an adverse effect on our
business.
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Should any of these events occur, they could significantly harm our
business and results of operations.
With regard to our stem cell technology, if, instead of identifying
DR candidates based on information available to us in the public
domain, we seek to in-license DR candidates from biotechnology,
medicinal chemistry and pharmaceutical companies, academic,
governmental and nonprofit research institutions, including the
NIH, or other third parties, there can be no assurances that we
will obtain material ownership or economic participation rights
over intellectual property we may derive from such licenses or
similar rights to the DR NCEs that we may produce and develop. If
we are unable to obtain ownership or substantial economic
participation rights over intellectual property related to DR NCEs
we produce and develop, our DR business may be adversely
affected.
Risks Related to our Securities
If we fail to comply with the continued listing requirements of the
Nasdaq Capital Market, our common stock may be delisted and the
price of our common stock and our ability to access the capital
markets could be negatively impacted.
On January 31, 2020, we were notified by the Nasdaq Stock Market,
LLC (Nasdaq) that we were not in compliance with the minimum
bid price requirements set forth in Nasdaq Listing Rule
5550(a)(2) for continued listing on the Nasdaq Capital
Market. Nasdaq Listing Rule 5550(a)(2) requires listed
securities to maintain a minimum bid price of $1.00 per share, and
Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet
the minimum bid price requirement exists if the deficiency
continues for a period of 30 consecutive business days. The
notification provided that we had 180 calendar days, or until July
29, 2020, to regain compliance with Nasdaq Listing Rule
5550(a)(2). To regain compliance, the bid price of our common stock
must have a closing bid price of at least $1.00 per share for a
minimum of 10 consecutive business days. If we do not regain
compliance by July 29, 2020, an additional 180 days may be
granted to regain compliance, so long as we meet
the Nasdaq Capital Market continued listing requirements
(except for the bid price requirement) and
notify Nasdaq in writing of our intention to cure the
deficiency during the second compliance period. If we do not
qualify for the second compliance period or fail to regain
compliance during the second 180-day period,
then Nasdaq will notify us of its determination to delist
our common stock, at which point we will have an opportunity to
appeal the delisting determination to a hearings
panel.
No assurance can be given that we will meet applicable Nasdaq
continued listing standards. Failure to meet applicable Nasdaq
continued listing standards could result in a delisting of our
common stock, which could materially reduce the liquidity of our
common stock and result in a corresponding material reduction in
the price of our common stock. In addition, delisting could harm
our ability to raise capital through alternative financing sources
on terms acceptable to us, or at all, and may result in the
inability to advance our drug development programs, potential loss
of confidence by investors and employees, and fewer business
development opportunities.
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be highly volatile. The
market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
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plans for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
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the failure of the FDA or other regulatory authority to approve our
product candidates;
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announcements of new products, technologies, commercial
relationships, acquisitions or other events by us or our
competitors;
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the success or failure of other CNS therapies;
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regulatory or legal developments in the U.S. and other
countries;
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announcements regarding our intellectual property
portfolio;
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failure of our product candidates, if approved, to achieve
commercial success;
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fluctuations in stock market prices and trading volumes of similar
companies;
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general market conditions and overall fluctuations in U.S. equity
markets;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts’
estimates of our financial performance;
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changes in accounting principles;
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our ability to raise additional capital and the terms on which we
can raise it;
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sales or purchases of large blocks of our common stock, including
sales or purchases by our executive officers, directors and
significant stockholders;
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establishment
of short positions by holders or non-holders of our stock or
warrants;
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additions or departures of key personnel;
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discussion of us or our stock price by the press and by online
investor communities; and
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other risks and uncertainties described in these risk
factors.
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Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain situations in which the market
price of a stock has been volatile, holders of that stock have
instituted securities class action litigation against the company
that issued the stock. If any of our stockholders were to bring a
lawsuit against us, the defense and disposition of the lawsuit
could be costly and divert the time and attention of our management
and harm our operating results. Additionally, if the trading volume
of our common stock remains low and limited there will be an
increased level of volatility and you may not be able to generate a
return on your investment.
A portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near
future. Future sales of shares by existing stockholders could cause
our stock price to decline, even if our business is doing
well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
A limited number of institutional stockholders could limit your
ability to influence the outcome of key transactions, including
changes in control.
A limited number of institutional stockholders own a substantial
portion of our outstanding preferred stock, consisting of shares of
our Series A Preferred, Series B Preferred, and Series C Preferred,
all of which is convertible, at the option of the holders (but
subject to certain beneficial ownership restrictions), into a
substantial number of shares of our common
stock. Accordingly, should a few of these institutional
holders convert their shares of preferred stock into common stock,
such stockholders may exert influence over us and over the outcome
of any corporate actions requiring approval of holders of our
common stock, including the election of directors and amendments to
our organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of the Company, even if such a change of control is
approved by our Board and would benefit our other stockholders.
Furthermore, the interests of such institutional stockholders may
not always coincide with your interests or the interests of other
common stockholders and an institutional holder may act in a manner
that advances its best interests and not necessarily those of other
stockholders.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation, as amended
(the Articles), permit us to issue up to 10.0 million shares of
preferred stock. Our Board has authorized the issuance of (i)
500,000 shares of Series A Preferred, all of which shares are
issued and outstanding at December 31, 2019; (ii) 4.0 million
shares of Series B 10% Convertible Preferred stock, of which
approximately 1.2 million shares remain issued and outstanding at
December 31, 2019; and (iii) 3.0 million shares of Series C
Convertible Preferred Stock, of which approximately 2.3 million
shares are issued and outstanding at December 31, 2019. Our Board
could authorize the issuance of additional series of preferred
stock in the future and such preferred stock could grant holders
preferred rights to our assets upon liquidation, the right to
receive dividends before dividends would be declared to holders of
our common stock, and the right to the redemption of such shares,
possibly together with a premium, prior to the redemption of the
common stock. In the event and to the extent that we do issue
additional preferred stock in the future, the rights of holders of
our common stock could be impaired thereby, including without
limitation, with respect to liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (Exchange
Act), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of resources that we could otherwise use to
achieve our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.