(Name, address, including zip code and
telephone number, including area code, of agent for service)
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
RISK FACTORS
Investing in our common stock involves
a high degree of risk. Prior to making a decision about investing in our common stock, you should consider carefully the specific
factors discussed below, together with all of the other information contained in this prospectus. If any of the following risks
actually occurs, our business, financial condition, results of operations and future prospects would likely be materially and
adversely affected. This could cause the market price of our common stock to decline and could cause you to lose all or part of
your investment.
We have a limited operating history, have incurred losses,
and can give no assurance of profitability.
We are a commercial-stage healthcare company with a limited
operating history. Prior to implementing our commercial strategy in the fourth calendar quarter of 2015, we did not have a focus
on profitability. As a result, we have not generated substantial revenue to date and are not profitable, and have incurred losses
in each year since our inception. Our net loss for the years ended June 30, 2017 and 2016 was $22.5 million and $28.2 million,
respectively. We have not demonstrated the ability to be a profit-generating enterprise to date. With the financing that occurred
in August 2017 of $11.8 million, we believe that we can get to cash flow break even and profitability but we still expect to incur
substantial losses during fiscal 2018. Even though we expect to have revenue growth in the next several fiscal years, it is uncertain
that the revenue growth will be significant enough to offset our expenses and generate a profit in the future. Our ability to
generate significant revenue is uncertain, and we may never achieve profitability. We have a very limited operating history on
which investors can evaluate our potential for future success. Potential investors should evaluate us in light of the expenses,
delays, uncertainties, and complications typically encountered by early-stage healthcare businesses, many of which will be beyond
our control. These risks include the following:
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uncertain market acceptance
of our products and product candidates;
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lack of sufficient capital;
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U.S. regulatory approval of our products and
product candidates;
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foreign regulatory approval of our products
and product candidates;
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unanticipated problems, delays, and expense
relating to product development and implementation;
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lack of sufficient intellectual property;
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the ability to attract and retain qualified
employees;
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competition; and
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technological changes.
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As a result of our limited operating history, and the increasingly
competitive nature of the markets in which we compete, our historical financial data, is of limited value in anticipating future
operating expenses. Our planned expense levels will be based in part on our expectations concerning future operations, which is
difficult to forecast accurately based on our limited operating history and the recentness of the acquisition of our products
Natesto, MiOXSYS, ProstaScint and Fiera. We may be unable to adjust spending in a timely manner to compensate for any unexpected
budgetary shortfall.
We have not received any substantial revenues from the commercialization
of our current products to date and might not receive significant revenues from the commercialization of our current products
or our product candidates in the near term. Even though ProstaScint and Natesto are each an approved drug that we are marketing,
we only acquired ProstaScint in May 2015 and Natesto in April 2016. In addition, we only acquired Fiera in May 2017 and launched
our MiOXSYS device in early fiscal 2017. As a result, we have limited experience on which to base the revenue we could expect
to receive from sales of these products. To obtain revenues from our products and product candidates, we must succeed, either
alone or with others, in a range of challenging activities, including expanding markets for our existing products and completing
clinical trials of our product candidates, obtaining positive results from those clinical trials, achieving marketing approval
for those product candidates, manufacturing, marketing and selling our existing products and those products for which we, or our
collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products
from private insurance or government payors. We, and our collaborators, if any, may never succeed in these activities and, even
if we do, or one of our collaborators does, we may never generate revenues that are sufficient enough for us to achieve profitability.
We may need to raise additional funding, which may not
be available on acceptable terms, or at all. Failure to obtain necessary capital when needed may force us to delay, limit or terminate
our product expansion and development efforts or other operations.
We are expending resources to expand the market for Natesto,
MiOXSYS and Fiera, none of which might be as successful as we anticipate or at all and all of which might take longer and be more
expensive to market than we anticipate. We also are currently advancing our MiOXSYS device through clinical development. Developing
product candidates is expensive, lengthy and risky, and we expect to incur research and development expenses in connection with
our ongoing clinical development activities with the MiOXSYS System. As of June 30, 2017, our cash, cash equivalents and restricted
cash totaling $878,000, available to fund our operations offset by an aggregate $3.0 million in accounts payable and other and
accrued liabilities. In November 2016, we conducted a public offering of our common stock and warrants from which we received
net cash proceeds of approximately $7.6 million. We closed on a private placement of common stock, Series A preferred stock and
warrants in August 2017 from which we received gross proceeds of approximately $11.8 million. Our operating plan may change as
a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public
or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require
additional capital to continue the expansion of marketing efforts for Natesto, ProstaScint and Fiera and to obtain regulatory
approval for, and to commercialize, our current product candidate, the MiOXSYS System. Raising funds in the current economic environment,
as well our lack of operating history, 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.
Any additional fundraising efforts may divert our management
from their day-to-day activities, which may adversely affect our ability to expand any existing product or develop and commercialize
our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms
acceptable to us, if at all. Moreover, the terms of any 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 or convertible securities would dilute all of our stockholders.
The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain
restrictive covenants, such as limitations on our ability to incur additional debt, 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 funding on a timely basis, we may
be unable to expand the market for Natesto, MiOXSYS or Fiera and/or be required to significantly curtail, delay or discontinue
one or more of our research or development programs for the MiOXSYS system, or any future product candidate or expand our operations
generally or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial
condition and results of operations.
If we do not obtain the capital necessary to fund our
operations, we will be unable to successfully expand the commercialization of Natesto, ProstaScint and Fiera and to develop, obtain
regulatory approval of, and commercialize, our current product candidate, the MiOXSYS System.
The expansion of marketing and commercialization activities
for our existing products and the development of pharmaceutical products, medical diagnostics and medical devices is capital-intensive.
We anticipate we may require additional financing to continue to fund our operations. Our future capital requirements will depend
on, and could increase significantly as a result of, many factors including:
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the costs, progress and timing
of our efforts to expand the marketing of Natesto, ProstaScint and Fiera;
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progress in, and the costs of, our pre-clinical
studies and clinical trials and other research and development programs;
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the costs of securing manufacturing arrangements
for commercial production;
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the scope, prioritization and number of our
research and development programs;
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the achievement of milestones or occurrence
of other developments that trigger payments under any collaboration agreements we obtain;
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the costs of establishing,
expanding or contracting for sales and marketing capabilities for any existing products and if we obtain regulatory clearances
to market our current product candidate, the MiOXSYS system;
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the extent to which we are obligated to reimburse,
or entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any; and
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the costs involved in filing, prosecuting, enforcing
and defending patent claims and other intellectual property rights.
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If funds are not available, we may be required to delay, reduce
the scope of, or eliminate one or more of our commercialization efforts or our technologies, research or development programs.
We will incur increased costs associated with, and our
management will need to devote substantial time and effort to, compliance with public company reporting and other requirements.
As a public company, we incur significant legal, accounting
and other expenses. In addition, the rules and regulations of the SEC and any national securities exchange to which we may be
subject in the future impose numerous requirements on public companies, including requirements relating to our corporate governance
practices, with which we will need to comply. Further, we will continue to be required to, among other things, file annual, quarterly
and current reports with respect to our business and operating results. Based on currently available information and assumptions,
we estimate that we will incur up to approximately $500,000 in expenses on an annual basis as a direct result of the requirements
of being a publicly traded company. Our management and other personnel will need to devote substantial time to gaining expertise
regarding operations as a public company and compliance with applicable laws and regulations, and our efforts and initiatives
to comply with those requirements could be expensive.
If we fail to establish and maintain proper internal
controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Pursuant to Section 404 of the Sarbanes-Oxley Act, our management conducted
an assessment of the effectiveness of our internal control over financial reporting for the year ended June 30, 2017, and concluded
that such control was effective.
However, if in the future we were to conclude that our internal
control over financial reporting were not effective, we cannot be certain as to the timing of completion of our evaluation, testing
and remediation actions or their effect on our operations because there is presently no precedent available by which to measure
compliance adequacy. As a consequence, we may not be able to complete any necessary remediation process in time to meet our deadline
for compliance with Section 404 of the Sarbanes-Oxley Act. Also, there can be no assurance that we will not identify one or more
material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley
Act. The presence of material weaknesses could result in financial statement errors which, in turn, could require us to restate
our operating results.
If we are unable to conclude that we have effective internal
control over financial reporting or if our independent auditors are unwilling or unable to provide us, when required, with an
attestation report on the effectiveness of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley
Act, investors may lose confidence in our operating results, our stock price could decline and we may be subject to litigation
or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley
Act, we may not be able to obtain listing on a securities exchange such as the NASDAQ Capital Market or the NYSE American, LLC.
Risks Related to Product Development,
Regulatory Approval and Commercialization
Natesto, MiOXSYS, ProstaScint and Fiera may prove to
be difficult to effectively commercialize as planned.
Various commercial, regulatory, and manufacturing factors may
impact our ability to maintain or grow revenues from sales of Natesto, MiOXSYS, ProstaScint and Fiera. Specifically, we may encounter
difficulty by virtue of:
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our
inability to adequately market and increase sales of any of these products;
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our
inability to secure continuing prescribing of any of these products by current or previous users of the product;
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our
inability to effectively transfer and scale manufacturing as needed to maintain an adequate commercial supply of these products;
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reimbursement
and medical policy changes that may adversely affect the pricing, profitability or commercial appeal of Natesto, MiOXSYS,
or ProstaScint; and
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our
inability to effectively identify and align with commercial partners outside the United States, or the inability of those
selected partners to gain the required regulatory, reimbursement, and other approvals needed to enable commercial success
of MiOXSYS, ProstaScint or Fiera.
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We have limited experience selling our current products
as they were acquired from other companies or were recently approved for sale. As a result, we may be unable to successfully commercialize
our products and product candidates.
Despite our management’s extensive experience in launching
and managing commercial-stage healthcare companies, we have limited marketing, sales and distribution experience with our current
products. Our ability to achieve profitability depends on attracting and retaining customers for our current products, and building
brand loyalty for Natesto, MiOXSYS, ProstaScint and Fiera. To successfully perform sales, marketing, distribution and customer
support functions, we will face a number of risks, including:
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our ability
to attract and retain skilled support team, marketing staff and sales force necessary to increase the market for our approved
products and to maintain market acceptance for our product candidates;
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the ability of our
sales and marketing team to identify and penetrate the potential customer base; and
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the difficulty of establishing
brand recognition and loyalty for our products.
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In addition, we may seek to enlist one or more third parties
to assist with sales, distribution and customer support globally or in certain regions of the world. If we do seek to enter into
these arrangements, we may not be successful in attracting desirable sales and distribution partners, or we may not be able to
enter into these arrangements on favorable terms, or at all. If our sales and marketing efforts, or those of any third-party sales
and distribution partners, are not successful, our currently approved products may not achieve increased market acceptance and
our product candidates may not gain market acceptance, which would materially impact our business and operations.
We cannot be certain that we will be able to obtain regulatory
approval for, or successfully commercialize, any of our current or future product candidates.
We may not be able to develop our current or any future product
candidates. Our product candidates will require substantial additional clinical development, testing, and regulatory approval
before we are permitted to commence commercialization. The clinical trials 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 United States 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 pre-clinical
testing and clinical trials that the product candidate is safe and effective for use in each target indication. This process can
take many years and may include post-marketing studies and surveillance, which will require the expenditure of substantial resources.
Of the large number of drugs in development in the U.S., only a small percentage successfully completes the FDA regulatory approval
process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development
and clinical programs, we cannot assure you that any of our product candidates will be successfully developed or commercialized.
We are not permitted to market a product in the U.S. until
we receive approval of a New Drug Application, or an NDA, for that product from the FDA, or in any foreign countries until we
receive the requisite approval from such countries. Obtaining approval of an NDA is a complex, lengthy, expensive and uncertain
process, and the FDA may delay, limit or deny approval of any product candidate for many reasons, including, among others:
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we may not be able to demonstrate
that a product candidate is safe and effective to the satisfaction of the FDA;
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the results of our clinical trials may not meet
the level of statistical or clinical significance required by the FDA for marketing approval;
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the FDA may disagree with the number, design,
size, conduct or implementation of our clinical trials;
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the FDA may require that we conduct additional
clinical trials;
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the FDA may not approve the formulation, labeling
or specifications of any product candidate;
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the clinical research organizations, or CROs,
that we retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our
clinical trials;
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the FDA may find the data from pre-clinical
studies and clinical trials insufficient to demonstrate that a product candidate’s clinical and other benefits outweigh
its safety risks, such as the risk of drug abuse by patients or the public in general;
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the FDA may disagree with our interpretation
of data from our pre-clinical studies and clinical trials;
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the FDA may not accept data generated at our
clinical trial sites;
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if an NDA, if and when submitted, is reviewed
by an 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 pre-clinical studies or clinical trials, limitations on approved labeling or distribution and use
restrictions;
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the FDA may require development of a Risk Evaluation
and Mitigation Strategy, or REMS, as a condition of approval or post-approval;
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the FDA may not approve the manufacturing processes
or facilities of third-party manufacturers with which we contract; or
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the FDA may change its approval policies or
adopt new regulations.
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These same risks apply to applicable foreign regulatory agencies
from which we may seek approval for any of our product candidates.
Any of these factors, many of which are beyond our control,
could jeopardize our ability to obtain regulatory approval for and successfully market any product candidate. Moreover, because
a substantial portion of our business is or may be dependent upon our product candidates, any such setback in our pursuit of initial
or additional regulatory approval would have a material adverse effect on our business and prospects.
If we fail to successfully acquire new products, we may
lose market position.
Acquiring new products is an important factor in our planned
sales growth, including products that already have been developed and found market acceptance. If we fail to identify existing
or emerging consumer markets and trends and to acquire new products, we will not develop a strong revenue source to help pay for
our development activities as well as possible acquisitions. This failure would delay implementation of our business plan, which
could have a negative adverse effect on our business and prospects.
If we do not secure collaborations with strategic partners
to test, commercialize and manufacture product candidates, we may not be able to successfully develop products and generate meaningful
revenues.
We may enter into collaborations with third parties to conduct
clinical testing, as well as to commercialize and manufacture our products and product candidates. If we are able to identify
and reach an agreement with one or more collaborators, our ability to generate revenues from these arrangements will depend on
our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. Collaboration
agreements typically call for milestone payments that depend on successful demonstration of efficacy and safety, obtaining regulatory
approvals, and clinical trial results. Collaboration revenues are not guaranteed, even when efficacy and safety are demonstrated.
Further, the economic environment at any given time may result in potential collaborators electing to reduce their external spending,
which may prevent us from developing our product candidates.
Even if we succeed in securing collaborators, the collaborators
may fail to develop or effectively commercialize our products or product candidates. Collaborations involving our product candidates
pose a number of risks, including the following:
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collaborators may not have
sufficient resources or may decide not to devote the necessary resources due to internal constraints such as budget limitations,
lack of human resources, or a change in strategic focus;
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collaborators may believe our intellectual property
is not valid or is unenforceable or the product candidate infringes on the intellectual property rights of others;
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collaborators may dispute their responsibility
to conduct development and commercialization activities pursuant to the applicable collaboration, including the payment of
related costs or the division of any revenues;
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collaborators may decide to pursue a competitive
product developed outside of the collaboration arrangement;
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collaborators may not be able to obtain, or
believe they cannot obtain, the necessary regulatory approvals;
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collaborators may delay the development or commercialization
of our product candidates in favor of developing or commercializing their own or another party’s product candidate;
or
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collaborators may decide to terminate or not
to renew the collaboration for these or other reasons.
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As a result, collaboration agreements may not lead to development
or commercialization of our product candidates in the most efficient manner or at all. For example, our former collaborator that
licensed our former product candidate, Zertane conducted clinical trials which we believe demonstrated efficacy in treating PE,
but the collaborator undertook a merger that we believe altered its strategic focus and thereafter terminated the collaboration
agreement. The Merger also created a potential conflict with a principal customer of the acquired company, which sells a product
to treat premature ejaculation in certain European markets.
Collaboration agreements are generally terminable without cause
on short notice. Once a collaboration agreement is signed, it may not lead to commercialization of a product candidate. We also
face competition in seeking out collaborators. If we are unable to secure collaborations that achieve the collaborator’s
objectives and meet our expectations, we may be unable to advance our products or product candidates and may not generate meaningful
revenues.
We or our strategic partners may choose not to continue
an existing product or choose not to develop a product candidate at any time during development, which would reduce or eliminate
our potential return on investment for that product.
At any time and for any reason, we or our strategic partners
may decide to discontinue the development or commercialization of a product or product candidate. If we terminate a program in
which we have invested significant resources, we will reduce the return, or not receive any return, on our investment and we will
have missed the opportunity to have allocated those resources to potentially more productive uses. If one of our strategic partners
terminates a program, we will not receive any future milestone payments or royalties relating to that program under our agreement
with that party. As an example, we discontinued the development of Zertane in June 2016 and sold Primsol in March 2017.
Our pre-commercial product candidates are expected to
undergo clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for which there is
a high risk of failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to
the FDA and other regulators, we or our collaborators may incur additional costs or experience delays in completing, or ultimately
be unable to complete, the development and commercialization of these product candidates.
Pre-clinical testing and clinical trials are long, expensive
and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical studies will be conducted
as planned or completed on schedule, if at all. It may take several years to complete the pre-clinical testing and clinical development
necessary to commercialize a drug, and delays or failure can occur at any stage. Interim results of clinical trials do not necessarily
predict final results, and success in pre-clinical testing and early clinical trials does not ensure that later clinical trials
will be successful. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks
in advanced clinical trials even after promising results in earlier trials and we cannot be certain that we will not face similar
setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the
design of a clinical trial may not become apparent until the clinical trial is well advanced. An unfavorable outcome in one or
more trials would be a major set-back for that product candidate and for us. Due to our limited financial resources, an unfavorable
outcome in one or more trials may require us to delay, reduce the scope of, or eliminate one or more product development programs,
which could have a material adverse effect on our business, prospects and financial condition and on the value of our common stock.
In connection with clinical testing and trials, we face a number
of risks, including:
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a product candidate is ineffective,
inferior to existing approved medicines, unacceptably toxic, or has unacceptable side effects;
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patients may die or suffer other adverse effects
for reasons that may or may not be related to the product candidate being tested;
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the results may not confirm the positive results
of earlier testing or trials; and
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the results may not meet the level of statistical
significance required by the FDA or other regulatory agencies to establish the safety and efficacy of the product candidate.
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If we do not successfully complete pre-clinical and clinical
development, we will be unable to market and sell products derived from our product candidates and generate revenues. Even if
we do successfully complete clinical trials, those results are not necessarily predictive of results of additional trials that
may be needed before an NDA may be submitted to the FDA. Although there are a large number of drugs in development in the United
States and other countries, only a small percentage result in the submission of an NDA to the FDA, even fewer are approved for
commercialization, and only a small number achieve widespread physician and consumer acceptance following regulatory approval.
If our clinical trials are substantially delayed or fail to prove the safety and effectiveness of our product candidates in development,
we may not receive regulatory approval of any of these product candidates and our business, prospects and financial condition
will be materially harmed.
Delays, suspensions and terminations in any clinical
trial we undertake could result in increased costs to us and delay or prevent our ability to generate revenues.
Human clinical trials are very expensive, time-consuming, and
difficult to design, implement and complete. Should we undertake the development of a pharmaceutical product candidate, we would
expect the necessary clinical trials to take up to 24 months to complete, but the completion of trials for any product candidates
may be delayed for a variety of reasons, including delays in:
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demonstrating sufficient
safety and efficacy to obtain regulatory approval to commence a clinical trial;
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reaching agreement on acceptable terms with
prospective CROs and clinical trial sites;
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validating test methods to support quality testing
of the drug substance and drug product;
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obtaining sufficient quantities
of the drug substance or device parts;
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manufacturing sufficient quantities of a product
candidate;
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obtaining approval of an IND from the FDA;
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obtaining institutional review board approval
to conduct a clinical trial at a prospective clinical trial site;
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determining dosing and clinical design and making
related adjustments; and
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patient enrollment, which is a function of many
factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial
sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial.
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The commencement and completion of clinical trials for our
product candidates may be delayed, suspended or terminated due to a number of factors, including:
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lack of effectiveness of
product candidates during clinical trials;
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adverse events, safety issues or side effects
relating to the product candidates or their formulation or design;
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inability to raise additional capital in sufficient
amounts to continue clinical trials or development programs, which are very expensive;
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the need to sequence clinical trials as opposed
to conducting them concomitantly in order to conserve resources;
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our inability to enter into collaborations relating
to the development and commercialization of our product candidates;
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failure by us or our collaborators to conduct
clinical trials in accordance with regulatory requirements;
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our inability or the inability of our collaborators
to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials;
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governmental or regulatory delays and changes
in regulatory requirements, policy and guidelines, including mandated changes in the scope or design of clinical trials or
requests for supplemental information with respect to clinical trial results;
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failure of our collaborators to advance our
product candidates through clinical development;
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delays in patient enrollment, variability in
the number and types of patients available for clinical trials, and lower-than anticipated retention rates for patients in
clinical trials;
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difficulty in patient monitoring and data collection
due to failure of patients to maintain contact after treatment;
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a regional disturbance where we or our collaborative
partners are enrolling patients in our clinical trials, such as a pandemic, terrorist activities or war, or a natural disaster;
and
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varying interpretations of our data, and regulatory
commitments and requirements by the FDA and similar foreign regulatory agencies.
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Many of these factors may also ultimately lead to denial of
an NDA for a product candidate. If we experience delay, suspensions or terminations in a clinical trial, the commercial prospects
for the related product candidate will be harmed, and our ability to generate product revenues will be delayed.
In addition, we may encounter delays or product candidate rejections
based on new governmental regulations, future legislative or administrative actions, or changes in FDA policy or interpretation
during the period of product development. If we obtain required regulatory approvals, such approvals may later be withdrawn. Delays
or failures in obtaining regulatory approvals may result in:
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varying interpretations of
data and commitments by the FDA and similar foreign regulatory agencies; and
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diminishment of any competitive advantages that
such product candidates may have or attain.
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Furthermore, if we fail to comply with applicable FDA
and other regulatory requirements at any stage during this regulatory process, we may encounter or be subject to:
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diminishment of any competitive
advantages that such product candidates may have or attain;
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delays or termination in clinical trials or
commercialization;
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refusal by the FDA or similar foreign regulatory
agencies to review pending applications or supplements to approved applications;
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product recalls or seizures;
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suspension of manufacturing;
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withdrawals of previously approved marketing
applications; and
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fines, civil penalties, and criminal prosecutions.
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The medical device regulatory clearance or approval process
is expensive, time consuming and uncertain, and the failure to obtain and maintain required clearances or approvals could prevent
us from broadly commercializing the MiOXSYS System for clinical use.
The MiOXSYS System is subject to 510k clearance by the FDA
prior to its marketing for commercial use in the United States, and to regulatory approvals beyond CE marking required by certain
foreign governmental entities prior to its marketing outside the United States. In addition, any changes or modifications to a
device that has received regulatory clearance or approval that could significantly affect its safety or effectiveness, or would
constitute a major change in its intended use, may require the submission of a new application for 510k clearance, pre-market
approval, or foreign regulatory approvals. The 510k clearance and pre-market approval processes, as well as the process of obtaining
foreign approvals, can be expensive, time consuming and uncertain. It generally takes from four to twelve months from submission
to obtain 510k clearance, and from one to three years from submission to obtain pre-market approval; however, it may take longer,
and 510k clearance or pre-market approval may never be obtained. We have limited experience in filing FDA applications for 510k
clearance and pre-market approval. In addition, we are required to continue to comply with applicable FDA and other regulatory
requirements even after obtaining clearance or approval. There can be no assurance that we will obtain or maintain any required
clearance or approval on a timely basis, or at all. Any failure to obtain or any material delay in obtaining FDA clearance or
any failure to maintain compliance with FDA regulatory requirements could harm our business, financial condition and results of
operations.
The approval process for pharmaceutical and medical device
products outside the United States varies among countries and may limit our ability to develop, manufacture and sell our products
internationally. Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from
being marketed abroad.
In order to market and sell our products in the European Union
and many other jurisdictions, we, and our collaborators, must obtain separate marketing approvals and comply with numerous and
varying regulatory requirements. The approval procedure varies among countries and may involve additional testing. We may conduct
clinical trials for, and seek regulatory approval to market, our product candidates in countries other than the United States.
Depending on the results of clinical trials and the process for obtaining regulatory approvals in other countries, we may decide
to first seek regulatory approvals of a product candidate in countries other than the United States, or we may simultaneously
seek regulatory approvals in the United States and other countries. If we or our collaborators seek marketing approval for a product
candidate outside the United States, we will be subject to the regulatory requirements of health authorities in each country in
which we seek approval. With respect to marketing authorizations in Europe, we will be required to submit a European Marketing
Authorisation Application, or MAA, to the European Medicines Agency, or EMA, which conducts a validation and scientific approval
process in evaluating a product for safety and efficacy. The approval procedure varies among regions and countries and may involve
additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.
Obtaining regulatory approvals from health authorities in countries
outside the United States is likely to subject us to all of the risks associated with obtaining FDA approval described above.
In addition, marketing approval by the FDA does not ensure approval by the health authorities of any other country, and approval
by foreign health authorities does not ensure marketing approval by the FDA.
Even if we, or our collaborators, obtain marketing approvals
for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we or they market our
products, which could materially impair our ability to generate revenue.
Even if we receive regulatory approval for a product candidate,
this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage relative
to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we can market a product or
the patient population that may utilize the product, or may be required to carry a warning in its labeling and on its packaging.
Products with black box warnings are subject to more restrictive advertising regulations than products without such warnings.
These restrictions could make it more difficult to market any product candidate effectively. Accordingly, assuming we, or our
collaborators, receive marketing approval for one or more of our product candidates, we, and our collaborators expect to continue
to expend time, money and effort in all areas of regulatory compliance.
Any
of our products and product candidates for which we, or our collaborators, obtain marketing approval in the future could be subject
to post-marketing restrictions or withdrawal from the market and we, and our collaborators, may be subject to substantial penalties
if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products
following approval.
Any of our approved products and product candidates for which
we, or our collaborators, obtain marketing approval, as well as the manufacturing processes, post approval studies and measures,
labeling, advertising and promotional activities for such products, among other things, are or will be subject to continual requirements
of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing
information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality
assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians
and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on
the indicated uses for which the product may be marketed or to the conditions of approval, including the FDA requirement to implement
a REMS to ensure that the benefits of a drug outweigh its risks.
The FDA may also impose requirements for costly post-marketing
studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including
the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they
are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved
labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or
our collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their
approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the
FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead
to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection
laws.
If we do not achieve our projected development and commercialization
goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed, and our business
will be harmed.
We sometimes estimate for planning purposes the timing of the
accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include
our expectations regarding the commencement or completion of scientific studies and clinical trials, the submission of regulatory
filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones,
such as the initiation or completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing
approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All
of such milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably
from our estimates, including:
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our available capital resources
or capital constraints we experience;
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the rate of progress, costs and results of our
clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians
and collaborators, and our ability to identify and enroll patients who meet clinical trial eligibility criteria;
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our receipt of approvals from the FDA and other
regulatory agencies and the timing thereof;
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other actions, decisions or rules issued by
regulators;
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our ability to access sufficient, reliable and
affordable supplies of compounds used in the manufacture of our product candidates;
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the efforts of our collaborators with respect
to the commercialization of our products; and
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the securing of, costs related to, and timing
issues associated with, product manufacturing as well as sales and marketing activities.
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If we fail to achieve announced milestones in the timeframes
we announce and expect, the commercialization of our product candidates may be delayed and our business, prospects and results
of operations may be harmed.
We rely on third parties to conduct our clinical trials
and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing
product candidates.
We rely, and will rely in the future, on medical institutions,
clinical investigators, contract research organizations, contract laboratories, and collaborators to perform data collection and
analysis and others to carry out our clinical trials. Our development activities or clinical trials conducted in reliance on third
parties may be delayed, suspended, or terminated if:
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the third
parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines;
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we replace a third party;
or
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the quality or accuracy of the data obtained
by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other
reasons.
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Third party performance failures may increase our development
costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product candidates.
While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative
sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.
Even if collaborators with which we contract in the future
successfully complete clinical trials of our product candidates, those product candidates may not be commercialized successfully
for other reasons.
Even if we contract with collaborators that successfully complete
clinical trials for one or more of our product candidates, those candidates may not be commercialized for other reasons, including:
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failure to receive regulatory
clearances required to market them as drugs;
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being subject to proprietary rights held by
others;
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being difficult or expensive to manufacture
on a commercial scale;
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having adverse side effects that make their
use less desirable; or
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failing to compete effectively with products
or treatments commercialized by competitors.
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Any third-party manufacturers we engage are subject to
various governmental regulations, and we may incur significant expenses to comply with, and experience delays in, our product
commercialization as a result of these regulations.
The manufacturing processes and facilities of third-party manufacturers
we have engaged for our current approved products are, and any future third-party manufacturer will be, required to comply with
the federal Quality System Regulation, or QSR, which covers procedures and documentation of the design, testing, production, control,
quality assurance, labeling, packaging, sterilization, storage and shipping of devices. The FDA enforces the QSR through periodic
unannounced inspections of manufacturing facilities. Any inspection by the FDA could lead to additional compliance requests that
could cause delays in our product commercialization. Failure to comply with applicable FDA requirements, or later discovery of
previously unknown problems with the manufacturing processes and facilities of third-party manufacturers we engage, including
the failure to take satisfactory corrective actions in response to an adverse QSR inspection, can result in, among other things:
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administrative or judicially
imposed sanctions;
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injunctions or the imposition of civil penalties;
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recall or seizure of the product in question;
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total or partial suspension of production or
distribution;
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the FDA’s refusal to grant pending future
clearance or pre-market approval;
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withdrawal or suspension of marketing clearances
or approvals;
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clinical holds;
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warning letters;
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refusal to permit the export of the product
in question; and
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criminal prosecution.
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Any of these actions, in combination or alone, could prevent
us from marketing, distributing or selling our products, and would likely harm our business.
In addition, a product defect or regulatory violation could
lead to a government-mandated or voluntary recall by us. We believe the FDA would request that we initiate a voluntary recall
if a product was defective or presented a risk of injury or gross deception. Regulatory agencies in other countries have similar
authority to recall drugs or devices because of material deficiencies or defects in design or manufacture that could endanger
health. Any recall would divert our management attention and financial resources, expose us to product liability or other claims,
and harm our reputation with customers.
We face substantial competition from companies with considerably
more resources and experience than we have, which may result in others discovering, developing, receiving approval for, or commercializing
products before or more successfully than us.
We compete with companies that design, manufacture and market
already-existing and new urology and sexual wellbeing products. We anticipate that we will face increased competition in the future
as new companies enter the market with new technologies and/or our competitors improve their current products. One or more of
our competitors may offer technology superior to ours and render our technology obsolete or uneconomical. Most of our current
competitors, as well as many of our potential competitors, have greater name recognition, more substantial intellectual property
portfolios, longer operating histories, significantly greater resources to invest in new technologies, more substantial experience
in product marketing and new product development, greater regulatory expertise, more extensive manufacturing capabilities and
the distribution channels to deliver products to customers. If we are not able to compete successfully, we may not generate sufficient
revenue to become profitable. Our ability to compete successfully will depend largely on our ability to:
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expand the market for our
approved products, especially Natesto, MiOXSYS and Fiera;
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successfully commercialize our product candidates
alone or with commercial partners;
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discover and develop product candidates that
are superior to other products in the market;
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obtain required regulatory approvals;
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attract and retain qualified personnel; and
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obtain patent and/or other proprietary protection
for our product candidates.
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Established pharmaceutical companies devote significant financial
resources to discovering, developing or licensing novel compounds that could make our products and product candidates obsolete.
Our competitors may obtain patent protection, receive FDA approval, and commercialize medicines before us. Other companies are
or may become engaged in the discovery of compounds that may compete with the product candidates we are developing.
Natesto competes in a large, growing market. The U.S. prescription
testosterone market is comprised primarily of topically applied treatments in the form of gels, solutions, and patches. Testopel®
and Aveed®, injectable products typically implanted directly under the skin by a physician, are also FDA-approved. AndroGel
is the market-leading TRT and is marketed by AbbVie.
For the MiOXSYS System and ProstaScint, we compete with companies
that design, manufacture and market already existing and new in-vitro diagnostics and diagnostic imaging systems and radio-imaging
agents for cancer detection. Additionally, with respect to Fiera, we compete with numerous companies who produce sexual wellbeing
related products. There are any number of products available on the market that could compete with Fiera.
We anticipate that we will face increased competition in the
future as new companies enter the market with new technologies and our competitors improve their current products. One or more
of our competitors may offer technology superior to ours and render our technology obsolete or uneconomical. Most of our current
competitors, as well as many of our potential competitors, have greater name recognition, more substantial intellectual property
portfolios, longer operating histories, significantly greater resources to invest in new technologies, more substantial experience
in new product development, greater regulatory expertise, more extensive manufacturing capabilities and the distribution channels
to deliver products to customers. If we are not able to compete successfully, we may not generate sufficient revenue to become
profitable.
Any new product we develop or commercialize that competes with
a currently-approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety in order
to address price competition and be commercially successful. If we are not able to compete effectively against our current and
future competitors, our business will not grow and our financial condition and operations will suffer.
Government restrictions on pricing and reimbursement,
as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate revenues.
The continuing efforts of the government, insurance companies,
managed care organizations and other payors of health care costs to contain or reduce costs of health care may adversely affect
one or more of the following:
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our or our collaborators’
ability to set a price we believe is fair for our approved products;
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our ability to generate revenue from our approved
products and achieve profitability; and
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the availability of capital.
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The 2010 enactments of the Patient Protection and Affordable
Care Act, or PPACA, and the Health Care and Education Reconciliation Act, or the Health Care Reconciliation Act, significantly
impacted the provision of, and payment for, health care in the United States. Various provisions of these laws are designed to
expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide health care benefits,
prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide additional support
for medical research. Amendments to the PPACA and/or the Health Care Reconciliation Act, as well as new legislative proposals
to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could
influence the purchase of medicines and medical devices and reduce demand and prices for our products and product candidates,
if approved. This could harm our or our collaborators’ ability to market any approved products and generate revenues. As
we expect to receive significant revenues from reimbursement of our Natesto and ProstaScint products by commercial third-party
payors and government payors, cost containment measures that health care payors and providers are instituting and the effect of
further health care reform could significantly reduce potential revenues from the sale of any of our products and product candidates
approved in the future, and could cause an increase in our compliance, manufacturing, or other operating expenses. In addition,
in certain foreign markets, the pricing of prescription drugs and devices is subject to government control and reimbursement may
in some cases be unavailable. We believe that pricing pressures at the federal and state level, as well as internationally, will
continue and may increase, which may make it difficult for us to sell any approved product at a price acceptable to us or any
of our future collaborators.
In addition, in some foreign countries, the proposed pricing
for a drug or medical device must be approved before it may be lawfully marketed. The requirements governing pricing vary widely
from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal
products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products
for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct
or indirect controls on the profitability of the company placing the medicinal product on the market. A member state may require
that physicians prescribe the generic version of a drug instead of our approved branded product. There can be no assurance that
any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement
and pricing arrangements for any of our products or product candidates. Historically, pharmaceutical products launched in the
European Union do not follow price structures of the United States and generally tend to have significantly lower prices.
Our financial results will depend on the acceptance among
hospitals, third-party payors and the medical community of our products and product candidates.
Our future success depends on the acceptance by our target
customers, third-party payors and the medical community that our products and product candidates are reliable, safe and cost-effective.
Many factors may affect the market acceptance and commercial success of our products and product candidates, including:
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our ability to convince our
potential customers of the advantages and economic value our products and product candidates over existing technologies and
products;
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the relative convenience and ease of our products
and product candidates over existing technologies and products;
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the introduction of new technologies and competing
products that may make our products and product candidates less attractive for our target customers;
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our success in training medical personnel on
the proper use of our products and product candidates;
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the willingness of third-party payors to reimburse
our target customers that adopt our products and product candidates;
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the acceptance in the medical community of our
products and product candidates;
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the extent and success of our marketing and
sales efforts; and
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general economic conditions.
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If third-party payors do not reimburse our customers
for the products we sell or if reimbursement levels are set too low for us to sell one or more of our products at a profit, our
ability to sell those products and our results of operations will be harmed.
While Natesto and ProstaScint are already FDA-approved and
generating revenues in the U.S., they may not receive, or continue to receive, physician or hospital acceptance, or they may not
maintain adequate reimbursement from third party payors. Additionally, even if one of our product candidates is approved and reaches
the market, the product may not achieve physician or hospital acceptance, or it may not obtain adequate reimbursement from third
party payors. In the future, we might possibly sell other product candidates to target customers substantially all of whom receive
reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare, Medicaid,
other domestic and foreign government programs, private insurance plans and managed care programs. Reimbursement decisions by
particular third-party payors depend upon a number of factors, including each third-party payor’s determination that use
of a product is:
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a covered benefit under its
health plan;
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appropriate and medically necessary for the
specific indication;
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cost effective; and
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neither experimental nor investigational.
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Third-party payors may deny reimbursement for covered products
if they determine that a medical product was not used in accordance with cost-effective diagnosis methods, as determined by the
third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to reimburse for procedures and
devices deemed to be experimental.
Obtaining coverage and reimbursement approval for a product
from each government or third-party payor is a time consuming and costly process that could require us to provide supporting scientific,
clinical and cost-effectiveness data for the use of our potential product to each government or third-party payor. We may not
be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. In addition, eligibility for
coverage does not imply that any product will be covered and reimbursed in all cases or reimbursed at a rate that allows our potential
customers to make a profit or even cover their costs.
Third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for medical products and services. Levels of reimbursement
may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may adversely affect
the demand for and reimbursement available for any product or product candidate, which in turn, could negatively impact pricing.
If our customers are not adequately reimbursed for our products, they may reduce or discontinue purchases of our products, which
would result in a significant shortfall in achieving revenue expectations and negatively impact our business, prospects and financial
condition.
Manufacturing risks and inefficiencies may adversely
affect our ability to produce our products.
As part of the acquisition of ProstaScint from Jazz Pharmaceuticals,
we terminated the relationship with the third-party manufacturer of ProstaScint. We have initiated the process of transferring
the manufacturing to Biovest International, which we believe is a qualified manufacturer and with whom we have entered into a
Master Services Agreement. Although this contract is currently on hold as we evaluate our strategic options for the ProstaScint
product. In the event that this manufacturing transfer does not occur or we do not find a replacement manufacturer by the time
our current inventory expires, which could adversely impact our continued sales of ProstaScint or its disposition should we elect
to do so, we may not be able to supply sufficient quantities and on a timely basis, while maintaining product quality, acceptable
manufacturing costs and complying with regulatory requirements, such as quality system regulations. In addition, we expect to
engage third parties to manufacture components of the MiOXSYS and RedoxSYS systems. We have an agreement for supplies of Natesto
with Acerus, from whom we license Natesto. We have an agreement with a third party manufacturer for our Fiera product as well.
For any future product, we expect to use third-party manufacturers because we do not have our own manufacturing capabilities.
In determining the required quantities of any product and the manufacturing schedule, we must make significant judgments and estimates
based on inventory levels, current market trends and other related factors. Because of the inherent nature of estimates and our
limited experience in marketing our current products, there could be significant differences between our estimates and the actual
amounts of product we require. If we do not effectively maintain our supply agreements for Natesto and Fiera, we will face difficulty
finding replacement suppliers, which could harm sales of those products. If we do not effectively transition sites with our manufacturing
and development partners to enable to production scale of ProstaScint, or if we do not secure collaborations with manufacturing
and development partners to enable production to scale of the MiOXSYS System, we may not be successful in selling ProstaScint
or in commercializing the MiOXSYS System in the event we receive regulatory approval of the MiOXSYS System. If we fail in similar
endeavors for future products, we may not be successful in establishing or continuing the commercialization of our products and
product candidates.
Reliance on third-party manufacturers entails risks to which
we would not be subject if we manufactured these components ourselves, including:
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reliance on third parties
for regulatory compliance and quality assurance;
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possible breaches of manufacturing agreements
by the third parties because of factors beyond our control;
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possible regulatory violations or manufacturing
problems experienced by our suppliers; and
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possible termination or non-renewal of agreements
by third parties, based on their own business priorities, at times that are costly or inconvenient for us.
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Further, if we are unable to secure the needed financing to
fund our internal operations, we may not have adequate resources required to effectively and rapidly transition our third party
manufacturing. We may not be able to meet the demand for our products if one or more of any third-party manufacturers is unable
to supply us with the necessary components that meet our specifications. It may be difficult to find alternate suppliers for any
of our products or product candidates in a timely manner and on terms acceptable to us.
Any third-party manufacturers we engage are subject to
various governmental regulations, and we may incur significant expenses to comply with, and experience delays in, our product
commercialization as a result of these regulations.
The manufacturing processes and facilities of third-party manufacturers
we engage for our current and any future FDA-approved products are required to comply with the federal Quality System Regulation,
or QSR, which covers procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging,
sterilization, storage and shipping of devices. The FDA enforces the QSR through periodic unannounced inspections of manufacturing
facilities. Any inspection by the FDA could lead to additional compliance requests that could cause delays in our product commercialization.
Failure to comply with applicable FDA requirements, or later discovery of previously unknown problems with the manufacturing processes
and facilities of third-party manufacturers we engage, including the failure to take satisfactory corrective actions in response
to an adverse QSR inspection, can result in, among other things:
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administrative or judicially
imposed sanctions;
|
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|
injunctions or the imposition of civil penalties;
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|
recall or seizure of the product in question;
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total or partial suspension of production or
distribution;
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the FDA’s refusal to grant pending future
clearance or pre-market approval;
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withdrawal or suspension of marketing clearances
or approvals;
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clinical holds;
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warning letters;
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refusal to permit the export of the product
in question; and
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criminal prosecution.
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Any of these actions, in combination or alone, could prevent
us from marketing, distributing or selling our products, and would likely harm our business.
In addition, a product defect or regulatory violation could
lead to a government-mandated or voluntary recall by us. We believe the FDA would request that we initiate a voluntary recall
if a product was defective or presented a risk of injury or gross deception. Regulatory agencies in other countries have similar
authority to recall drugs or devices because of material deficiencies or defects in design or manufacture that could endanger
health. Any recall would divert our management attention and financial resources, expose us to product liability or other claims,
and harm our reputation with customers.
Our future growth depends, 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 will depend, in part, on our ability
to commercialize our products and product candidates in foreign markets for which we intend to primarily rely on collaboration
with third parties. If we commercialize our products or product candidates in foreign markets, we would be subject to additional
risks and uncertainties, including:
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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 in some foreign countries, and related prevalence of generic alternatives to our products;
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foreign currency exchange rate fluctuations;
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our customers’ ability to obtain reimbursement
for our products in foreign markets; 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 products or 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 subject to various regulations pertaining to the
marketing of our approved products.
We are subject to various federal and state laws pertaining
to healthcare fraud and abuse, including prohibitions on the offer of payment or acceptance of kickbacks or other remuneration
for the purchase of our products, including inducements to potential patients to request our products and services. Additionally,
any product promotion educational activities, support of continuing medical education programs, and other interactions with health-care
professionals must be conducted in a manner consistent with the FDA regulations and the Anti-Kickback Statute. The Anti-Kickback
Statute prohibits persons or entities from knowingly and willfully soliciting, receiving, offering or providing remuneration,
directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good
or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. Violations
of the Anti-Kickback Statute can also carry potential federal False Claims Act liability. Additionally, many states have adopted
laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for healthcare items
or services reimbursed by any third party payer, not only the Medicare and Medicaid programs, and do not contain identical safe
harbors. These and any new regulations or requirements may be difficult and expensive for us to comply with, may adversely impact
the marketing of our existing products or delay introduction of our product candidates, which may have a material adverse effect
on our business, operating results and financial condition.
Our products and product candidates may cause undesirable
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 side effects 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 by the FDA or other regulatory authorities.
Further, if a product candidate receives marketing approval
and we or others identify undesirable side effects caused by the product after the approval, or if drug abuse is determined to
be a significant problem with an approved product, a number of potentially significant negative consequences could result, including:
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regulatory authorities may
withdraw or limit their approval of the product;
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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 the product
is distributed or administered, conduct additional clinical trials or change the labeling of the product;
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we may decide to remove the product from the
marketplace;
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we could be sued and held liable for injury
caused to individuals exposed to or taking the product; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the affected product candidate and could substantially increase the costs of commercializing an affected
product or product candidates and significantly impact our ability to successfully commercialize or maintain sales of our product
or product candidates and generate revenues.
Natesto contains, and future other product candidates
may contain, controlled substances, the manufacture, use, sale, importation, exportation, prescribing and distribution of which
are subject to regulation by the DEA.
Natesto, which is approved by the FDA, is regulated by the
DEA as a Schedule III controlled substance. Before any commercialization of any product candidate that contains a controlled substance,
the DEA will need to determine the controlled substance schedule, taking into account the recommendation of the FDA. 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. Natesto is, and our other product candidates may, if approved, be regulated as “controlled
substances” as defined in the Controlled Substances Act of 1970, or CSA, and the implementing regulations of the DEA, which
establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, inventory, quota
and other requirements administered by the DEA. These requirements are applicable to us, to our third-party manufacturers and
to distributors, prescribers and dispensers of our product candidates. The DEA regulates the handling of controlled substances
through a closed chain of distribution. This control extends to the equipment and raw materials used in their manufacture and
packaging, in order to prevent loss and diversion into illicit channels of commerce. A number of states and foreign countries
also independently regulate these drugs as controlled substances.
The DEA regulates controlled substances as Schedule I, II,
III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold
in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered
to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances.
Natesto is regulated by the DEA as a Schedule III controlled
substance. Consequently, the manufacturing, shipping, storing, selling and using of the products are subject to a high degree
of regulation. Also, distribution, prescribing and dispensing of these drugs are highly regulated.
Annual registration is required for any facility that manufactures,
distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location,
activity and controlled substance schedule.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates containing controlled substances. Failure to comply with these laws and
regulations could also result in withdrawal of our DEA registrations, disruption in manufacturing and distribution activities,
consent decrees, criminal and civil penalties and state actions, among other consequences.
If testosterone replacement therapies are found, or are
perceived, to create health risks, our ability to sell Natesto could be materially adversely affected and our business could be
harmed.
Recent publications have suggested potential health risks associated
with testosterone replacement therapy, such as increased cardiovascular disease risk, including increased risk of heart attack
or stroke, fluid retention, sleep apnea, breast tenderness or enlargement, increased red blood cells, development of clinical
prostate disease, including prostate cancer, and the suppression of sperm production. Prompted by these events, the FDA held a
T-class Advisory Committee meeting on September 17, 2014 to discuss this topic further. The FDA has also asked health care professionals
and patients to report side effects involving prescription testosterone products to the agency.
At the T-class Advisory Committee meeting held on September
17, 2014, the Advisory Committee discussed (i) the identification of the appropriate patient population for whom testosterone
replacement therapy should be indicated and (ii) the potential risk of major adverse cardiovascular events, defined as non-fatal
stroke, non-fatal myocardial infarction and cardiovascular death associated with testosterone replacement therapy.
At the meeting, the Advisory Committee voted that the FDA should
require sponsors of testosterone products to conduct a post marketing study (e.g. observational study or controlled clinical trial)
to further assess the potential cardiovascular risk.
It is possible that the FDA’s evaluation of this topic
and further studies on the effects of testosterone replacement therapies could demonstrate the risk of major adverse cardiovascular
events or other health risks or could impose requirements that impact the marketing and sale of Natesto, including:
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mandate that certain warnings
or precautions be included in our product labeling;
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require that our product carry a “black
box warning”; and
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limit use of Natesto to certain populations,
such as men without specified conditions.
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Demonstrated testosterone replacement therapy safety risks,
as well as negative publicity about the risks of hormone replacement therapy, including testosterone replacement, could hurt sales
of and impair our ability to successfully relaunch Natesto, which could have a materially adverse impact on our business.
FDA action regarding testosterone replacement therapies
could add to the cost of producing and marketing Natesto.
The FDA is requiring post-marketing safety studies for all
testosterone replacement therapies approved in the U.S. to assess long-term cardiovascular events related to testosterone use.
Depending on the total cost and structure of the FDA’s proposed safety studies there may be a substantial cost associated
with conducting these studies. Pursuant to our license agreement with Acerus Pharmaceuticals, Acerus is obligated to reimburse
us for the entire cost of any studies required for Natesto by the FDA. However, in the event that Acerus is not able to reimburse
us for the cost of any required safety studies, we may be forced to incur this cost, which could have a material adverse impact
on our business and results of operations.
Our approved products may not be accepted by physicians,
patients, or the medical community in general.
Even if the medical community accepts a product as safe and
efficacious for its indicated use, physicians may choose to restrict the use of the product if we or any collaborator is unable
to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our product is preferable to
any existing medicines or treatments. We cannot predict the degree of market acceptance of any of our approved products, which
will depend on a number of factors, including, but not limited to:
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the efficacy and safety of
the product;
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the approved labeling for the product and any
required warnings;
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the advantages and disadvantages of the product
compared to alternative treatments;
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our and any collaborator’s ability to
educate the medical community about the safety and effectiveness of the product;
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the reimbursement policies of government and
third-party payors pertaining to the product; and
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the market price of our product relative to
competing treatments.
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We may use hazardous chemicals and biological materials
in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and
costly.
Our research and development processes may involve the controlled
use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk of accidental contamination
or discharge and any resultant injury from these materials. We may be sued for any injury or contamination that results from our
use or the use by third parties of these materials, and our liability may exceed any insurance coverage and our total assets.
Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials
and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters.
Compliance with environmental laws and regulations may be expensive and may impair our research and development efforts. If we
fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up
costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition,
we cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing
and future laws and regulations are interpreted and enforced.
Intellectual Property Risks Related
to Our Business
Our ability to compete may decline if we do not adequately
protect our proprietary rights or if we are barred by the patent rights of others.
Our commercial success depends on obtaining and maintaining
proprietary rights to our products and product candidates as well as successfully defending these rights against third-party challenges.
We will only be able to protect our products and product candidates from unauthorized use by third parties to the extent that
valid and enforceable patents, or effectively protected trade secrets, cover them. Our ability to obtain patent protection for
our products and product candidates is uncertain due to a number of factors, including that:
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we may not have been the
first to make the inventions covered by pending patent applications or issued patents;
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we may not have been the first to file patent
applications for our products and product candidates;
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others may independently
develop identical, similar or alternative products, compositions or devices and uses thereof;
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our disclosures in patent applications may not
be sufficient to meet the statutory requirements for patentability;
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any or all of our pending patent applications
may not result in issued patents;
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we may not seek or obtain patent protection
in countries that may eventually provide us a significant business opportunity;
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any patents issued to us may not provide a basis
for commercially viable products, may not provide any competitive advantages, or may be successfully challenged by third parties;
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our compositions, devices and methods may not
be patentable;
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others may design around our patent claims to
produce competitive products which fall outside of the scope of our patents; or
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others may identify prior art or other bases
which could invalidate our patents.
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Even if we have or obtain patents covering our products and
product candidates, we may still be barred from making, using and selling them because of the patent rights of others. Others
may have filed, and in the future may file, patent applications covering products that are similar or identical to ours. There
are many issued U.S. and foreign patents relating to chemical compounds, therapeutic products, diagnostic devices, personal care
products and devices and some of these relate to our products and product candidates. These could materially affect our ability
to sell our products and develop our product candidates. Because patent applications can take many years to issue, there may be
currently pending applications unknown to us that may later result in issued patents that our products and product candidates
may infringe. These patent applications may have priority over patent applications filed by us.
Obtaining and maintaining a patent portfolio entails significant
expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, various other governmental
fees on patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the cost
associated with complying with numerous procedural provisions during the patent application process. We may or may not choose
to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain
payments or noncompliance with certain requirements in the patent process 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. If we choose to forgo patent
protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer.
Legal actions to enforce our patent rights can be expensive
and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could
also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation
or other actions against those that have infringed on our patents, or used them without authorization, due to the associated expense
and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully,
our competitive position could suffer, which could harm our business, prospects, financial condition and results of operations.
Pharmaceutical and medical device patents and patent
applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact
our patent position.
The patent positions of pharmaceutical and medical device companies
can be highly uncertain and involve complex legal and factual questions. The interpretation and breadth of claims allowed in some
patents covering pharmaceutical compositions may be uncertain and difficult to determine, and are often affected materially by
the facts and circumstances that pertain to the patented compositions and the related patent claims. The standards of the United
States Patent and Trademark Office, or USPTO, are sometimes uncertain and could change in the future. Consequently, the issuance
and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S.
patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to re-examination
proceedings, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject to opposition or comparable
proceedings in the corresponding foreign patent office, which could result in either 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 application. In addition, such
interference, re-examination, post-grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights
under any issued patents may not provide us with sufficient protection against competitive products or processes.
In addition, changes in or different interpretations of patent
laws in the United States and foreign countries may permit others to use our discoveries or to develop and commercialize our technology
and products and product candidates without providing any compensation to us, or may limit the number of patents or claims we
can obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and those countries
may lack adequate rules and procedures for defending our intellectual property rights.
If we fail to obtain and maintain patent protection and trade
secret protection of our products and product candidates, we could lose our competitive advantage and competition we face would
increase, reducing any potential revenues and adversely affecting our ability to attain or maintain profitability.
Developments in patent law could have a negative impact
on our business.
From time to time, the United States Supreme Court, other federal
courts, the United States Congress or the USPTO may change the standards of patentability and any such changes could have a negative
impact on our business.
In addition, the Leahy-Smith America Invents Act, or the America
Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include
a transition from a “first-to-invent” system to a “first-to-file” system, changes the way issued patents
are challenged, and changes the way patent applications are disputed during the examination process. These changes may favor larger
and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has
developed regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive
changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions, became effective
on March 16, 2013. Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain
patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact the America Invents Act
will ultimately have on the cost of prosecuting our patent applications, our ability to obtain patents based on our discoveries
and our ability to enforce or defend any patents that may issue from our patent applications, all of which could have a material
adverse effect on our business.
If we are unable to protect the confidentiality of our
trade secrets, our business and competitive position would be harmed.
In addition to patent protection, because we operate in the
highly technical field of discovery and development of therapies and medical devices, we rely in part on trade secret protection
in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We expect to enter
into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific and commercial
collaborators, sponsored researchers, and other advisors. These agreements generally require that the other party keep confidential
and not disclose to third parties all confidential information developed by the party or made known to the party by us during
the course of the party’s relationship with us. These agreements also 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.
In addition to contractual measures, we try to protect the
confidential nature of our proprietary information using physical and technological security measures. Such measures may not,
for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate
protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating
our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate
remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can
be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may
be less willing to protect trade secrets. Trade secrets may be independently developed by others in a manner that could prevent
legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or
misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.
We may not be able to enforce our intellectual
property rights throughout the world.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States. 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 pharmaceuticals and medical devices. This could make it difficult for us to stop the infringement of some 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. 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.
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. Accordingly, our efforts
to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions
by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and
the enforcement of intellectual property.
Third parties may assert ownership or commercial rights
to inventions we develop.
Third parties may in the future make claims challenging the
inventorship or ownership of our intellectual property. We have or expect to have written agreements with collaborators that provide
for the ownership of intellectual property arising from our collaborations. These agreements provide that we must negotiate certain
commercial rights with collaborators with respect to joint inventions or inventions made by our collaborators that arise from
the results of the collaboration. In some instances, there may not be adequate written provisions to address clearly the resolution
of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient ownership
and commercial rights to the inventions that result from our use of a third-party collaborator’s materials where required,
or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’s samples,
we may be limited in our ability to capitalize on the market potential of these inventions. In addition, we may face claims by
third parties that our agreements with employees, contractors, or consultants obligating them to assign intellectual property
to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result in ownership
disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial
value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be
precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property. Either outcome
could have an adverse impact on our business.
Third parties may assert that our employees or consultants
have wrongfully used or disclosed confidential information or misappropriated trade secrets.
We might employ individuals who were previously employed at
universities or other biopharmaceutical or medical device companies, including our competitors or potential competitors. Although
we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work
for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other
third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual property rights or personnel. 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.
A dispute concerning the infringement or misappropriation
of our proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could
harm our business.
There is significant litigation in the pharmaceutical and medical
device industries regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual
property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties
based on claims that our products or product candidates infringe the intellectual property rights of others. If our development
and commercialization activities are found to infringe any such patents, we may have to pay significant damages or seek licenses
to such patents. A patentee could prevent us from using the patented drugs, compositions or devices. We may need to resort to
litigation to enforce a patent issued to us, to protect our trade secrets, or to determine the scope and validity of third-party
proprietary rights. From time to time, we may hire scientific personnel or consultants formerly employed by other companies involved
in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of
trade secret misappropriation or other similar claims as a result of prior affiliations. If we become involved in litigation,
it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We may
not be able to afford the costs of litigation. Any adverse ruling or perception of an adverse ruling in defending ourselves against
these claims could have a material adverse impact on our cash position and stock price. Any legal action against us or our collaborators
could lead to:
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payment of damages, potentially
treble damages, if we are found to have willfully infringed a party’s patent rights;
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injunctive or other equitable relief that may
effectively block our ability to further develop, commercialize, and sell products; or
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we or our collaborators having to enter into
license arrangements that may not be available on commercially acceptable terms, if at all, all of which could have a material
adverse impact on our cash position and business, prospects and financial condition. As a result, we could be prevented from
commercializing our products and product candidates.
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Risks Related to Our Organization, Structure
and Operation
We intend to acquire, through asset purchases or in-licensing,
businesses or products, or form strategic alliances, in the future, and we may not realize the intended benefits of such acquisitions
or alliances.
We intend to acquire, through asset purchases or in-licensing,
additional businesses or products, form strategic alliances and/or create joint ventures with third parties that we believe will
complement or augment our existing business. If we acquire businesses or assets with promising markets or technologies, we may
not be able to realize the benefit of acquiring such businesses or assets 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 products resulting from a strategic alliance 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 alliance, we will achieve the expected
synergies to justify the transaction. These risks apply to our acquisition of ProstaScint in May 2015, Natesto in April 2016 and
Fiera in May 2017. As an example, we acquired Primsol in October 2015, but sold it in March 2017. Depending on the success or
lack thereof of any of our existing or future acquired products and product candidates, we might seek to out-license, sell or
otherwise dispose of any of those products or product candidates, which could adversely impact our operations if the dispositions
triggers a loss, accounting charge or other negative impact.
In fiscal 2017, the great majority of our net revenue
and gross accounts receivable were due to three significant customers, the loss of which could materially and adversely affect
our results of operations.
During fiscal 2017 and fiscal 2016, three customers accounted
for 74% and one customer that accounted for 86%, respectively, of our net revenue. At June 30, 2017 and 2016, the same customers
accounted for 60% and 69%, respectively, of our gross accounts receivable. Although we expect to increase revenue and not be as
reliant on only a few customers, at least for fiscal 2018, and perhaps beyond, the loss of any of these customers could have a
material adverse effect on our results of operations.
We will need to develop and expand our company, and we
may encounter difficulties in managing this development and expansion, which could disrupt our operations.
As of June 30, 2017, we had 60 full-time employees, and in
connection with being a public company, we expect to continue to increase our number of employees and the scope of our operations.
To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and
financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management
may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount
of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion
of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give
rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.
The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects,
such as the planned expanded commercialization of our approved products and the development of our product candidates. If our
management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected,
our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our
future financial performance and our ability to expand the market for our approved products and develop our product candidates,
if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion
of our company.
We depend on key personnel and attracting qualified management
personnel and our business could be harmed if we lose personnel and cannot attract new personnel.
Our success depends to a significant degree upon the technical
and management skills of our directors, officers and key personnel. Any of our directors could resign from our board at any time
and for any reason. Although our executive officers Joshua Disbrow, Jarrett Disbrow and Gregory Gould have employment agreements,
the existence of an employment agreement does not guarantee the retention of the executive officer for any period of time, and
each agreement obligates us to pay the officer lump sum severance of two years of salary if we terminate him without cause, as
defined in the agreement, which could hurt our liquidity. The loss of the services of any of these individuals would likely have
a material adverse effect on us. Our success also will depend upon our ability to attract and retain additional qualified management,
marketing, technical, and sales executives and personnel. We do not maintain key person life insurance for any of our officers
or key personnel. The loss of any of our directors or key executives, or the failure to attract, integrate, motivate, and retain
additional key personnel could have a material adverse effect on our business.
We compete for such personnel, including directors, against
numerous companies, including larger, more established companies with significantly greater financial resources than we possess.
There can be no assurance that we will be successful in attracting or retaining such personnel, and the failure to do so could
have a material adverse effect on our business, prospects, financial condition, and results of operations.
Product liability and other lawsuits could divert our
resources, result in substantial liabilities and reduce the commercial potential of our product candidates.
The risk that we may be sued on product liability claims is
inherent in the development and commercialization of pharmaceutical, medical device and personal care products and devices. Side
effects of, or manufacturing defects in, products that we develop and commercialized could result in the deterioration of a patient’s
condition, injury or even death. Once a product is approved for sale and commercialized, the likelihood of product liability lawsuits
increases. Claims may be brought by individuals seeking relief for themselves or by individuals or groups seeking to represent
a class. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition,
if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further
commercialization of the affected products.
We may be subject to legal or administrative proceedings and
litigation other than product liability lawsuits which may be costly to defend and could materially harm our business, financial
condition and operations.
Although we maintain general liability, clinical trial liability
and product liability insurance, this insurance may not fully cover potential liabilities. In addition, inability to obtain or
maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product or other legal
or administrative liability claims could prevent or inhibit the commercial production and sale of any of our products and product
candidates that receive regulatory approval, which could adversely affect our business. Product liability claims could also harm
our reputation, which may adversely affect our collaborators’ ability to commercialize our products successfully.
Our internal computer systems, or those of our third-party
contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development
programs.
Despite the implementation of security measures, our internal
computer systems and those of our third-party contractors and consultants are vulnerable to damage from computer viruses, unauthorized
access, natural disasters, terrorism, war and telecommunication and electrical failures. While we do not believe that we have
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 loss of clinical trial data for our product candidates which 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.
Our ability to use our net operating loss carryforwards
and certain other tax attributes may be limited.
As of June 30, 2017, we had federal net operating loss carryforwards
of approximately $42.3 million. The available net operating losses, if not utilized to offset taxable income in future periods,
will begin to expire in 2032 and will completely expire in 2036. Under the Internal Revenue Code of 1986, as amended (the “Code”)
and the regulations promulgated thereunder, including, without limitation, the consolidated income tax return regulations, various
corporate changes could limit our ability to use our net operating loss carryforwards and other tax attributes (such as research
tax credits) to offset our income. Because Ampio’s equity ownership interest in our company fell to below 80% in January
2016, we were deconsolidated from Ampio’s consolidated federal income tax group. As a result, certain of our net operating
loss carryforwards may not be available to us and we may not be able to use them to offset our U.S. federal taxable income. As
a consequence of the deconsolidation, it is possible that certain other tax attributes and benefits resulting from U.S. federal
income tax consolidation may no longer be available to us. Our company and Ampio do not have a tax sharing agreement that could
mitigate the loss of net operating losses and other tax attributes resulting from the deconsolidation or our incurrence of liability
for the taxes of other members of the consolidated group by reason of the joint and several liability of group members. In addition
to the deconsolidation risk, an “ownership change” (generally a 50% change (by value) in equity ownership over a three-year
period) under Section 382 of the Code could limit our ability to offset, post-change, our U.S. federal taxable income. Section
382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with
pre-ownership change net operating loss carryforwards and certain recognized built-in losses. We believe that the August 2017
financing created over a 50% change in our equity ownership so our current tax loss carryforward will be limited in the future.
Either the deconsolidation or the ownership change scenario could result in increased future tax liability to us.
Our outstanding warrants may result in dilution
to our stockholders and may impede our ability to raise equity capital.
The exercise of some or all of our outstanding warrants to
purchase our common stock may dilute the ownership interests of existing stockholders. In particular, on August 15, 2017, we had
outstanding warrants to purchase up to an aggregate of 6,600,719 shares. Included in these warrants are warrants that we issued
in August 2017 to purchase up to an aggregate of 5,920,001 shares of common stock (the August 2017 warrants), with a current exercise
price of $3.60 per share, that contain certain price adjustment and anti-dilution provisions. Until such time as our common stock
is listed on any NASDAQ or NYSE exchange, these anti-dilution provisions may be triggered upon any future issuance by us of securities
convertible into shares of our common stock or any rights, warrants or options to purchase shares of our common stock at a price
per share below the then-exercise price of the warrants, subject to some exceptions.
To the extent that these anti-dilution provisions are triggered
in the future, we would be required to reduce the exercise price of all of the warrants on a full-ratchet basis, which would have
a dilutive effect on our stockholders. In addition, any sales in the public market of the shares of our common stock issuable
upon such exercise could adversely affect prevailing market prices of our common stock.
Furthermore, the existence of these August 2017 warrants may encourage
short selling by market participants because the anticipated exercise of such warrants for shares of our common stock could depress
the market price of our common stock.
The anti-dilution provisions of the August 2017 warrants also may
impede our ability to raise equity capital in the future due to the limitation on issuing any common stock or securities convertible
into common stock at a price less than $3.60 per share. On September 21, 2017, the closing price of our common stock as reported
on the OTCQX was $4.00. Should we be unable to list our common stock on any NASDAQ or NYSE exchange and should our common stock
price remain at or near that level, any equity financing in the future may be too onerous due to the anti-dilution protection
afforded the August 2017 warrants.
Several stockholders potentially own a significant percentage
of our stock and could be able to exert significant control over matters subject to stockholder approval.
At August 15, 2017, eight entities who invested in our August 2017
common and preferred stock and warrant financing own common and/or preferred stock and warrants that potentially would enable
them to beneficially own in excess of 4.99% or 9.99% of our common stock. The preferred stock and warrants held by these investors
contain a provision that prohibits the conversion or exercise of the preferred stock or warrants should the holder beneficially
own in excess of 4.99% or 9.99%, as elected by the investor, after giving effect to such conversion or exercise. However, the
significant ownership potential of these investors, and the significant investment that they have made in our company, could give
these stockholders the ability to influence us through their ownership positions, even if they are prohibited from converting
or exercising their preferred stock or warrants to acquire more than 4.99% or 9.99% of our common stock at any time. Further,
this significant ownership potential may prevent or discourage unsolicited acquisition proposals or offers for our common stock
that you may feel are in your best interest as one of our stockholders.
Restrictions under our August 2017 Securities Purchase Agreement
may limit our ability to raise funds and operate our business.
The August 2017 Securities Purchase Agreement contains covenants
described below that may restrict our ability to finance future operations or capital needs or to engage in other business activities.
For the 24 months following the Effective Date, as defined in the
Securities Purchase Agreement, upon any issuance by us of any common stock or common stock equivalents for cash consideration
or indebtedness or a combination thereof (a “Subsequent Financing”), each investor in the offering will have the right
to participate in up to an amount of the Subsequent Financing equal to 35% of the Subsequent Financing on the same terms, conditions
and price provided for in the Subsequent Financing. The “Effective Date” is the earliest of the date that (a) the
initial registration statement registering all of the shares of common stock and the shares of common stock into which the Series
A Preferred Stock is convertible and the warrants (collectively, the “Securities”) are exercisable has been declared
effective by the SEC, (b) all of the Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without
the requirement for our company to be in compliance with the current public information required under Rule 144 and without volume
or manner-of-sale restrictions or (c) following the one year anniversary of August 15, 2017, all of the Securities may be sold
pursuant to an exemption from registration under Section 4(1) of the Securities Act of 1933, as amended (the “Securities
Act”), without volume or manner-of-sale restrictions.
Until the later of (i) 270 days after the Effective Date and (ii)
365 days from August 15, 2017, without the consent of investors that purchased at least 51% of the shares of common stock in the
offering, we may not issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common
stock or common stock equivalents, or file any registration statement covering the issuance or resale of any shares of common
stock or common stock equivalents. If the value weighted average price of our common stock exceeds $1.00 (as adjusted for stock
splits, stock dividends and similar corporate events) for five or more consecutive trading days, this right will terminate.
Until such time as no investor in the August 2017 offering holds
any of the warrants, we are prohibited from effecting or entering into an agreement to affect any issuance by us of our common
stock or common stock equivalents involving a Variable Rate Transaction, as defined in the Securities Purchase Agreement. “Variable
Rate Transaction” means a transaction in which we (i) issue any debt or equity securities that are convertible into common
stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with,
the trading prices of or quotations for the shares of our common stock at any time after the initial issuance of such debt or
equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after
the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly
related to our business or the market for our common stock or (ii) enter into any transaction under, any agreement, including,
but not limited to, an equity line of credit, an “at-the-market” offering or similar agreement, whereby we may issue
securities at a future determined price.
The restrictions and covenants in the August 2017 Securities Purchase
Agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations,
engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may
be affected by events beyond our control and we may not be able to meet those covenants.
Risks Related to Securities Markets and
Investment in our Securities
There is a limited trading market for our common stock, which
could make it difficult to liquidate an investment in our common stock, in a timely manner.
Our common stock is currently traded on the OTCQX. Because there
is a limited public market for our common stock, investors may not be able to liquidate their investment whenever desired. We
cannot assure that we will maintain an active trading market for our common stock and the lack of an active public trading market
could mean that investors may be exposed to increased risk. In addition, if we failed to meet the criteria set forth in SEC regulations,
various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers
and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock,
which may further affect its liquidity.
Our ability to uplist our common stock to the NASDAQ or NYSE
American is subject to us meeting applicable listing criteria.
We intend to apply for our common stock to be listed on the NASDAQ
or NYSE American, each a national securities exchange. Each exchange requires companies desiring to list their common stock to
meet certain listing criteria including total number of stockholders; minimum stock price, total value of public float, and in
some cases total shareholders’ equity and market capitalization. Our failure to meet such applicable listing criteria could
prevent us from listing our common stock on either exchange. In the event we are unable to uplist our common stock, our common
stock will continue to trade on the OTCQX market, which is generally considered less liquid and more volatile than the either
exchange. Our failure to uplist our common stock could make it more difficult for you to trade our common stock shares, could
prevent our common stock trading on a frequent and liquid basis and could result in the value of our common stock being less than
it would be if we were able to uplist.
If we apply and our common stock is accepted for uplisting
on the NASDAQ or NYSE American, our failure to meet the continued listing requirements of such exchange could result in a delisting
of our common stock.
If our common stock were to be uplisted on the NASDAQ or NYSE American,
and thereafter we fail to satisfy the continued listing requirements of such exchange, such as the corporate governance requirements
or the minimum closing bid price requirement, the exchange may take steps to delist our common stock. Such a delisting would likely
have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when
you wish to do so. In the event of a delisting, we anticipate that we would take actions to restore our compliance with applicable
exchange requirements, such as stabilize our market price, improve the liquidity of our common stock, prevent our common stock
from dropping below such exchange’s minimum bid price requirement, or prevent future non-compliance with such exchange’s
listing requirements.
If we fail to comply with the continued trading standards
of the OTCQX U.S. Premier tier, it may result in our common stock moving tiers in the OTC Markets.
Our common stock is currently quoted for trading on the OTCQX U.S.
Premier tier, and the continued quotation of our common stock on the OTCQX U.S. Premier tier is subject to our compliance with
a number of standards. These standards include the requirement of our common stock to have a minimum bid price of $1.00 per share
as of the close of business for at least one of every thirty consecutive calendar days.
Future sales and issuances of our equity securities or rights
to purchase our equity securities, including pursuant to equity incentive plans, would result in additional dilution of the percentage
ownership of our stockholders and could cause our stock price to fall.
To the extent we raise additional capital by issuing equity securities,
our stockholders may experience substantial dilution. We may, as we have in the past, sell common stock, convertible securities
or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common
stock, convertible securities or other equity securities in more than one transaction, investors may be further diluted by subsequent
sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior
to existing stockholders.
Pursuant to our 2015 Stock Plan, our Board of Directors is currently
authorized to award up to a total of 3.0 million shares of common stock or options to purchase shares of common stock to our officers,
directors, employees and non-employee consultants. As of June 30, 2017, options to purchase 38,263 shares of common stock issued
under our 2015 Stock Plan at a weighted average exercise price of $16.31 per share were outstanding. In addition, at June 30,
2017, there were outstanding warrants to purchase an aggregate of 286,049 shares of our common stock at a weighted average exercise
price of $50.29. Stockholders will experience dilution in the event that additional shares of common stock are issued under our
2015 Stock Plan, or options issued under our 2015 Stock Plan are exercised, or any warrants are exercised for shares of our common
stock.
Our share price is volatile and may be influenced by numerous
factors, some of which are beyond our control.
The trading price of our common stock is likely to be highly volatile,
and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to
the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:
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the
products or product candidates we acquire for commercialization;
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the
products and product candidates we seek to pursue, and our ability to obtain rights to
develop, commercialize and market those product candidates;
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our
decision to initiate a clinical trial, not to initiate a clinical trial or to terminate
an existing clinical trial;
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actual
or anticipated adverse results or delays in our clinical trials;
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our
failure to expand the market for our currently approved products or commercialize our
product candidates, if approved;
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unanticipated
serious safety concerns related to the use of any of our product candidates;
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overall
performance of the equity markets and other factors that may be unrelated to our operating
performance or the operating performance of our competitors, including changes in market
valuations of similar companies;
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conditions
or trends in the healthcare, biotechnology and pharmaceutical industries;
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introduction
of new products offered by us or our competitors;
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announcements
of significant acquisitions, strategic partnerships, joint ventures or capital commitments
by us or our competitors;
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our
ability to maintain an adequate rate of growth and manage such growth;
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issuances
of debt or equity securities;
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sales
of our common stock by us or our stockholders in the future, or the perception that such
sales could occur;
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trading
volume of our common stock;
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ineffectiveness
of our internal control over financial reporting or disclosure controls and procedures;
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general
political and economic conditions;
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effects
of natural or man-made catastrophic events;
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other
events or factors, many of which are beyond our control;
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adverse
regulatory decisions;
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additions
or departures of key scientific or management personnel;
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changes
in laws or regulations applicable to our product candidates, including without limitation
clinical trial requirements for approvals;
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disputes
or other developments relating to patents and other proprietary rights and our ability
to obtain patent protection for our product candidates;
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our
dependence on third parties, including CROs and scientific and medical advisors;
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our
ability to uplist our common stock to a national securities exchange;
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failure
to meet or exceed any financial guidance or expectations regarding development milestones
that we may provide to the public;
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actual
or anticipated variations in quarterly operating results; and
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failure
to meet or exceed the estimates and projections of the investment community.
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In addition, the stock market in general, and the stocks of small-cap
healthcare, biotechnology and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors
may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of
any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,”
could have a dramatic and material adverse impact on the market price of our common stock.
FINRA sales practice requirements may limit a stockholder’s
ability to buy and sell our stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted
rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing
that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that
there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. Because
these FINRA requirements are applicable to our common stock, they may make it more difficult for broker-dealers to recommend that
at least some of their customers buy our common stock, which may limit the ability of our stockholders to buy and sell our common
stock and could have an adverse effect on the market for and price of our common stock.
If securities or industry analysts do not publish research
or publish inaccurate or unfavorable research about our business, our stock price and any trading volume could decline.
Any trading market for our common stock that may develop will depend
in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry
analysts do not currently, and may never, publish research on us or our business. If no securities or industry analysts commence
coverage of our company, the trading price for our stock could be negatively affected. If securities or industry analysts initiate
coverage, and one or more of those analysts downgrade our stock or publish inaccurate or unfavorable research about our business,
our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports
on us regularly, demand for our stock could decrease, which might cause our stock price and any trading volume to decline.
We have a substantial number of shares of authorized but
unissued capital stock, and if we issue additional shares of our capital stock in the future, our existing stockholders will be
diluted.
Our Certificate of Incorporation authorize the issuance of up to
100.0 million shares of our common stock and up to 50.0 million shares of preferred stock with the rights, preferences and privileges
that our Board of Directors may determine from time to time. At the next annual shareholders meeting, we may seek approval to
increase our authorized common shares from 100.0 million common shares authorized to 200.0 million or 300.0 million shares. As
of June 30, 2017, we had 824,831 shares of our common stock issued and outstanding, which represents less than 1% of our total
authorized shares of common stock. In addition to capital raising activities, which we expect to continue to pursue to raise the
funding we will need in order to continue our operations, other possible business and financial uses for our authorized capital
stock include, without limitation, future stock splits, acquiring other companies, businesses or products in exchange for shares
of our capital stock, issuing shares of our capital stock to partners or other collaborators in connection with strategic alliances,
attracting and retaining employees by the issuance of additional securities under our equity compensation plans, or other transactions
and corporate purposes that our Board of Directors deems are in the best interest of our company. Additionally, shares of our
capital stock could be used for anti-takeover purposes or to delay or prevent changes in control or our management. Any future
issuances of shares of our capital stock may not be made on favorable terms or at all, they may not enhance stockholder value,
they may have rights, preferences and privileges that are superior to those of our common stock, and they may have an adverse
effect on our business or the trading price of our common stock. The issuance of any additional shares of our common stock will
reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common
stock. Additionally, any such issuance will reduce the proportionate ownership and voting power of all of our current stockholders.
Future sales and issuances of our common stock or rights
to purchase common stock, including pursuant to our equity incentive plan or otherwise, could result in dilution of the percentage
ownership of our stockholders and could cause our stock price to fall.
We could need significant additional capital in the future to continue
our planned operations. To raise capital, we may sell common stock, convertible securities or other equity securities in one or
more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or
other equity securities in more than one transaction, investors in a prior transaction may be materially diluted by subsequent
sales. Additionally, any such sales may result in material dilution to our existing stockholders, and new investors could gain
rights, preferences and privileges senior to those of holders of our common stock. Further, any future sales of our common stock
by us or resales of our common stock by our existing stockholders could cause the market price of our common stock to decline.
Any future grants of options, warrants or other securities exercisable or convertible into our common stock, or the exercise or
conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market price of our
common stock.
Some provisions of our charter documents
and applicable Delaware law may discourage an acquisition of us by others, even if the acquisition may be beneficial to some of
our stockholders.
Provisions in our Certificate of Incorporation and Amended and
Restated Bylaws, as well as certain provisions of Delaware law, could make it more difficult for a third-party to acquire us,
even if doing so may benefit some of our stockholders. These provisions include:
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the
authorization of 50.0 million shares of “blank check” preferred stock, the
rights, preferences and privileges of which may be established and shares of which may
be issued by our Board of Directors at its discretion from time to time and without stockholder
approval;
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limiting
the removal of directors by the stockholders;
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allowing
for the creation of a staggered board of directors;
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eliminating
the ability of stockholders to call a special meeting of stockholders; and
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establishing
advance notice requirements for nominations for election to the board of directors or
for proposing matters that can be acted upon at stockholder meetings.
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These provisions may frustrate or prevent any attempts by our stockholders
to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors,
which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware
General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations
with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder,
unless such transactions are approved by the board of directors. This provision could have the effect of discouraging, delaying
or preventing someone from acquiring us or merging with us, whether or not it is desired by or beneficial to our stockholders.
Any provision of our Certificate of Incorporation or Bylaws or
of Delaware law that is applicable to us that has the effect of delaying or deterring a change in control could limit the opportunity
for our stockholders to receive a premium for their shares of our common stock in the event that a potentially beneficial acquisition
is discouraged, and could also affect the price that some investors are willing to pay for our common stock.
The elimination of personal liability against our directors
and officers under Delaware law and the existence of indemnification rights held by our directors, officers and employees may
result in substantial expenses.
Our Certificate of Incorporation and our Bylaws eliminate the personal
liability of our directors and officers to us and our stockholders for damages for breach of fiduciary duty as a director or officer
to the extent permissible under Delaware law. Further, our Certificate of Incorporation and our Bylaws and individual indemnification
agreements we intend to enter with each of our directors and executive officers provide that we are obligated to indemnify each
of our directors or officers to the fullest extent authorized by the Delaware law and, subject to certain conditions, advance
the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those
indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage awards against
our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage us or
our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary
duties, even if such actions might otherwise benefit our stockholders.
We do not intend to pay cash dividends on our capital stock
in the foreseeable future.
We have never declared or paid any dividends on our common stock
and do not anticipate paying any dividends in the foreseeable future. Any future payment of cash dividends in the future would
depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate laws, results of operations,
anticipated cash requirements and other factors and will be at the discretion of our Board of Directors. Our stockholders should
not expect that we will ever pay cash or other dividends on our outstanding capital stock.
Risks Relating to the Offering by the Selling
Stockholders
If the selling stockholders sell a large number of shares
all at once or in blocks, the market price of our shares would most likely decline.
Up to 9,844,684 shares of common stock may be resold by certain
stockholder through this prospectus. Should the selling stockholders decide to sell their shares at a price below the market price
as quoted on OTCQX, or any exchange on which our common stock might be listed in the future, the price may continue to decline.
A steep decline in the price of our common stock upon being quoted on OTCQX, or any exchange on which our common stock might be
listed in the future, would adversely affect our ability to raise additional equity capital, and even if we were successful in
raising such capital, the terms of such raise may be substantially dilutive to current stockholders.
We may become obligated to pay liquidated damages if we fail
to file, obtain effectiveness and maintain effectiveness of a registration statement under a registration rights agreement we
entered into with the selling stockholders.
We have granted to the selling stockholders resale registration
rights pursuant to the terms of a registration rights agreement. In addition to the registration rights, the selling stockholders
are entitled to receive liquidated damages upon the occurrence of a number of events relating to filing, becoming effective and
maintaining an effective registration statement covering the securities being registered. The liquidated damages will be payable
upon the occurrence of each of those events and each monthly anniversary thereof until cured. The amount of liquidated damages
payable per monthly period is equal to 2.0% of the aggregate purchase price paid by each selling stockholder.