Item 1.
Business
Overview
We are a commercial-stage specialty
healthcare company focused on acquiring, developing and commercializing novel products in the field of urology. We have multiple
urology-focused products on the market, and we seek to build a portfolio of novel therapeutics that serve large medical needs
in the field of urology. We are concentrating on hypogonadism, prostate cancer, male infertility and, recently, female sexual
wellbeing and intimacy and plan to expand into other urological indications for which we believe there are significant medical
needs.
We acquired exclusive U.S. rights
to Natesto
®
(testosterone) nasal gel, a novel formulation of testosterone delivered via a discreet, easy-to-use
nasal gel, and we launched Natesto in the United States with our direct sales force in late summer 2016. Natesto is approved by
the U.S. Food and Drug Administration, or FDA, for the treatment of hypogonadism (low testosterone) in men and is the only testosterone
replacement therapy, or TRT, delivered via a nasal gel. Natesto offers multiple advantages over currently available TRTs and competes
in a $2.0 billion market. Importantly, as Natesto is delivered via the nasal mucosa and not the skin, there is no risk of testosterone
transference to others, a known potential side effect and black box warning associated with all other topically applied TRTs,
including the market leader AndroGel
®
.
Outside the U.S. we market MiOXSYS
®
,
a novel in vitro diagnostic device that is currently CE marked (which generally enables it to be sold within the European Economic
Area) and for which we intend to initiate a final clinical study to enable FDA clearance in the U.S. Our MiOXSYS system
is a novel, point-of-care semen analysis system with the potential to become a standard of care in the diagnosis and management
of male infertility. Male infertility is a prevalent and underserved condition and oxidative stress is widely implicated in its
pathophysiology. MiOXSYS was developed from our core oxidation-reduction potential research platform known as RedoxSYS
®
.
We are advancing MiOXSYS toward FDA clearance.
We currently market ProstaScint
®
(capromab pendetide), the only radioimaging agent indicated to detect the prostate specific membrane antigen, or PSMA, in
the assessment and staging of prostate cancer. ProstaScint is approved by the FDA for use in both newly diagnosed, high-risk prostate
cancer patients and patients with recurrent prostate cancer.
On May 5, 2017, we acquired Nuelle,
Inc, or Nuelle, a women’s sexual health company. This transaction expanded our product portfolio with the addition of the
Fiera
®
personal care device for women. Fiera was recently launched in the U.S. and is a proprietary, revenue-generating
product scientifically proven to enhance physical arousal and sexual desire in the millions of adult women around the world impacted
by changes in sexual desire. This acquisition adds a novel, commercial-stage product in a complementary adjacency readily accessible
by our U.S.-based commercial infrastructure. Nuelle was previously a portfolio company of leading venture capital firm New Enterprise
Associates.
In the future we will look to
acquire additional urology products, including existing products we believe can offer distinct commercial advantages. Our management
team’s prior experience has involved identifying clinical assets that can be re-launched to increase value, with a focused
commercial infrastructure specializing in urology.
Natesto® (testosterone)
nasal gel.
On April 22, 2016, we entered
into an agreement to acquire the exclusive U.S. rights to Natesto (testosterone) nasal gel from Acerus Pharmaceuticals Corporation,
or Acerus, which rights we acquired on July 1, 2016. Natesto is a patented, FDA-approved testosterone replacement therapy, or
TRT, and is the only nasally-administered formulation of testosterone available in the United States. Natesto is a discreet, easy-to-administer
nasal gel that may be appropriate for men with active lifestyles as Natesto is small, portable, Transportation Security Administration,
or TSA-compliant, and easy to use. Importantly, Natesto is not applied directly to the patient’s skin as other topically
applied TRTs are. Rather, it is delivered directly into the nasal mucosa via a proprietary nasal applicator. Thus, Natesto does
not carry a black box warning related to testosterone transference to a man’s female partner or children — as other
topically (primarily gels and solutions) administered TRTs do by virtue of their delivery directly onto the skin. We launched
Natesto in the U.S. in late summer 2016 with our direct sales force, and we are positioning Natesto as the ideal treatment solution
for men with active, busy lifestyles who suffer from hypogonadism.
MiOXSYS®.
MiOXSYS is a rapid
in vitro
diagnostic semen analysis test used in the quantitative measurement of static oxidation-reduction potential, or sORP, in human
semen. MiOXSYS is a CE marked system and is an accurate, easy to use, and fast infertility assessment tool. It is estimated that
72.4 million couples worldwide experience infertility problems. In the United States, approximately 10% of couples are defined
as infertile. Male infertility is responsible for between 40 – 50% of all infertility cases and affects approximately 7%
of all men. Male infertility is often unexplained (idiopathic), and this idiopathic infertility is frequently associated with
increased levels of oxidative stress in the semen. As such, having a rapid, easy-to-use diagnostic platform to measure oxidative
stress should provide a practical way for male infertility specialists to improve semen analysis and infertility assessments without
having to refer patients to outside clinical laboratories.
Male infertility is prevalent
and underserved, and oxidative stress is widely implicated in its pathophysiology. The global male infertility market is expected
to grow to over $300 million by 2020 with a CAGR of nearly 5% from 2014 to 2020. Oxidative stress is broadly implicated in the
pathophysiology of idiopathic male infertility, yet very few diagnostic tools exist to effectively measure oxidative stress levels
in men. However, antioxidants are widely available and recommended to infertile men. With the introduction of the MiOXSYS System,
we believe for the first time there will be an easy and effective diagnostic tool to assess the degree of oxidative stress and
potentially enable the monitoring of patients’ responses to antioxidant therapy as a treatment regimen for infertility.
The MiOXSYS System received CE marking in Europe in January 2016 and obtained Health Canada Class II Medical Device approval in
March 2016. We expect to advance MiOXSYS into clinical trials in the United States in order to enable 510k clearance.
ProstaScint® (capromab
pendetide).
We became a commercial stage company
by virtue of our acquisition of ProstaScint in May 2015 and are generating sales of this FDA-approved prostate cancer imaging
agent. As prostate cancer is a condition commonly diagnosed and treated by urologists, ProstaScint complements our urology-focused
product portfolio and pipeline. Prostate cancer is the most common cancer among men in the United States, with an estimated 241,000
annual cases (as of 2012). Further, more than 2.2 million men were alive in 2006 with some history of prostate cancer, and over
30,000 U.S. men die each year from the disease. The effect of prostate cancer on healthcare economics is substantial, which makes
the need for accurate disease staging critical for treatment and management strategies. The U.S. market for the diagnosis and
screening of prostate cancer is expected to total $17.4 billion by 2017, a compound annual growth rate, or CAGR, of 7.5% since
2012. At June 30, 2017, the ProstaScint asset was impaired based upon sales projections that we intend to only sell this product
through mid-fiscal 2019, when this product expires.
Fiera
®
Personal Care Device
The Fiera Personal Care Device
is the first hands-free wearable product for women, specifically designed to increase interest in, and physical readiness for
sex, naturally. The product does so by creating a physically aroused state via the genitals. Co-created with healthcare professionals,
Fiera is a small, discreet, fast-acting, and hands-free product that is designed to be used in advance of physical intimacy to
help women feel ready and in the mood for sex. Fiera uses gentle suction coupled with stimulation to enhance blood flow to the
genitals, increase lubrication, and ultimately get a woman ready for partnered intimacy in as little as 5 minutes.
With the
acquisition of Nuelle, Inc., Aytu is expanding into the women’s sexual health and wellness market. Sexual wellness is inclusive
of female sexual dysfunction which is a term that describes various sexual problems, such as low desire or interest, diminished
arousal, orgasmic difficulties, and dyspareunia. Female sexual dysfunction is considered common, with an estimated prevalence
of 43% from the U.S. National Health and Social Life Survey and similar estimates from other large, population-based surveys in
the United States
and the United Kingdom. In a study of over 31,000 women in the United States it was determined that
44% of women report a sexual problem. Specifically, the most common sexual problem is low desire, with a prevalence of 39%; followed
by low arousal (26%) and orgasm difficulties (21%). Additionally, the incidence of sexual dysfunction is expected to increase
through 2020 to effect more than 124 million women worldwide.
Fiera has
been well studied and tested by health care professionals, and consumers and is scientifically proven to enhance arousal and interest
in women of all ages, including pre and post-menopausal women. Recent consumer study results in women ages 25 – 75 showed
that after 4 weeks of using Fiera:
|
·
|
97%
of women felt physically aroused;
|
|
·
|
96%
looked forward to being intimate with their partner;
|
|
·
|
93%
felt excited and ready for sex;
|
|
·
|
89%
of women felt more “in the mood”;
|
|
·
|
87%
felt as ready for sex as their partner did;
|
|
·
|
86%
of women felt a stronger emotional connection with their partner;
|
|
·
|
85%
reported their orgasm felt pleasurable and intense;
|
|
·
|
85%
thought about sex more often; and
|
|
·
|
85%
engaged in sexual activity more often and felt satisfied in her relationship.
|
Previous studies also showed that
87% of women felt increased desire and 67% felt increased lubrication.
Key elements of our business
strategy include:
|
·
|
Expand
the commercialization of Natesto in the U.S. for the treatment of hypogonadism with our
direct sales force. We launched Natesto in late summer 2016 and are targeting high prescribing
TRT prescribers with a primary emphasis on urologists and male health practitioners.
|
|
·
|
Expand
the commercialization in the U.S. of Fiera, through professional promotion using our
existing sales force.
|
|
·
|
Establish
MiOXSYS as a leading in vitro diagnostic device in the assessment of male infertility.
|
|
·
|
Continue
the commercialization of FDA-approved ProstaScint for the staging of both newly diagnosed
high-risk and recurrent prostate cancer patients.
|
|
·
|
Acquire
additional marketed products and late-stage development assets within our core urology
focus that can be efficiently marketed through our growing commercial organization.
|
|
·
|
Develop
a pipeline of urology products, with a focus on identifying novel products with sufficient
clinical proof of concept that require modest internal R&D expense.
|
We plan to augment our core in-development
and commercial assets through efficient identification of complementary therapeutics, devices, and diagnostics related to urological
disorders. We intend to seek assets that are near commercial stage or already generating revenues. Further, we intend to seek
to acquire products through asset purchases, licensing, co-development, or collaborative commercial arrangements (co-promotions,
co-marketing, etc.).
Our management team has extensive
experience across a wide range of business development activities and have in-licensed or acquired products from large, mid-sized,
and small enterprises in the United States and abroad. Through an assertive product and business development approach, we expect
that we will build a substantial portfolio of complementary urology products.
Corporate History
We were incorporated as Rosewind
Corporation on August 9, 2002 in the State of Colorado.
Vyrix Pharmaceuticals, Inc., or Vyrix, was incorporated under
the laws of the State of Delaware on November 18, 2013 and was wholly owned by Ampio Pharmaceuticals, Inc. (NYSE American: AMPE),
or Ampio, immediately prior to the completion of the Merger (defined below). Vyrix was previously a carve-out of the sexual dysfunction
therapeutics business, including the late-stage men’s health product candidates, Zertane and Zertane-ED, from Ampio, that
carve out was announced in December 2013. Luoxis Diagnostics, Inc., or Luoxis, was incorporated under the laws of the State of
Delaware on January 24, 2013 and was majority owned by Ampio immediately prior to the completion of the Merger. Luoxis was initially
focused on developing and advancing the RedoxSYS System. The MiOXSYS System was developed following the completed development
of the RedoxSYS System.
On March 20, 2015, Rosewind formed
Rosewind Merger Sub V, Inc. and Rosewind Merger Sub L, Inc., each a wholly-owned subsidiary formed for the purpose of the Merger,
and on April 16, 2015, Rosewind Merger Sub V, Inc. merged with and into Vyrix and Rosewind Merger Sub L, Inc. merged with and
into Luoxis, and Vyrix and Luoxis became subsidiaries of Rosewind. Immediately thereafter, Vyrix and Luoxis merged with and into
Rosewind with Rosewind as the surviving corporation (herein referred to as the Merger). Concurrent with the closing of the Merger,
Rosewind abandoned its pre-merger business plans, and we now solely pursue the specialty healthcare market, focusing on urological
related conditions, including the business of Vyrix and Luoxis. When we discuss our business in this Report, we include the pre-Merger
business of Luoxis and Vyrix.
On June 8, 2015, we (i) reincorporated as a domestic Delaware
corporation under Delaware General Corporate Law and changed our name from Rosewind Corporation to Aytu BioScience, Inc., and (ii)
effected a reverse stock split in which each common stock holder received one share of common stock for each 12.174 shares outstanding.
At our annual meeting of shareholders held on May 24, 2016, our shareholders approved (1) an amendment to our Certificate of Incorporation
to reduce the number of authorized shares of common stock from 300.0 million to 100.0 million, which amendment was effective on
June 1, 2016, and (2) an amendment to our Certificate of Incorporation to affect a reverse stock split at a ratio of 1-for-12 which
became effective on June 30, 2016. At our special meeting of shareholders held on July 26, 2017, our shareholders approved an amendment
to our Certificate of Incorporation to affect a reverse stock split at a ratio of 1-for-20 which became effective on August 25,
2017. All share and per share amounts in this report have been adjusted to reflect the effect of these three reverse stock splits
(hereafter referred to collectively as the “Reverse Stock Splits”).
Our Strategy
We expect to create value by implementing
a focused, three-pronged strategy. Our primary focus is on expanding Natesto in the U.S, growing our current, revenue-generating
products, and building a complementary portfolio of aligned urology assets. In just over two years since our merger we have acquired
or in-licensed three FDA-approved, marketed assets (and have since divested one asset – Primsol® Solution), launched
a specialty urology sales force, advanced our lead diagnostic asset MiOXSYS to CE marking, engaged in asset purchase and licensing
discussions for products aligned to our strategy, launched Natesto in the U.S. through our own sales force and acquired Nuelle
Inc., a wholly owned subsidiary focused on the Fiera product.
We believe the strategy of focusing
on commercializing assets prescribed by urologists is logical for several reasons. First, urology is a large yet concentrated
specialty practice area that can be efficiently targeted. There are approximately 10,000 active urologists in the U.S., and we
believe that this audience can be efficiently reached with a relatively small, focused sales force. Additionally, 90% of urologists
practice in metropolitan areas where concentrated sales targeting can be achieved and “windshield” or sales representative
driving time between targets can be minimized. Importantly, 81% of urologists practice in group practices, and over 60% are in
practices of four or more physicians. Further, and important in building a balanced yet focused product portfolio, sub-specialization
within large urology clinics is common whereby there is frequently individual clinical focus on specific areas within urology
including prostate cancer and conditions, infertility, sexual wellness and vitality, urinary incontinence, hypogonadism, etc.
This enables a company to offer multiple products to the various sub-specialties within these focused, concentrated customer targets.
Further, urologists treat a wide
range of conditions and are thus appropriate targets across a broad range of clinical assets (Natesto – hypogonadism; ProstaScint
– prostate cancer; MiOXSYS – male infertility; Fiera – female sexual wellness). Importantly, in urology, direct
physician office purchasing of drugs, devices, and diagnostics is common. Along with this, a significant proportion of urology
groups are privately-owned and often own and operate their own outpatient surgery centers and in-office laboratories. Further,
large urology group practices have substantial payer influence and can have the ability to negotiate as large groups to achieve
better reimbursement and coverage for favored treatments and procedures. Perhaps as important as these other factors, urologists
are exposed to relatively limited promotional focus by “Big Pharma” and we believe can therefore be accessed and impacted
more readily by an emerging company, such as Aytu, over time.
Aytu BioScience’s Strategic
Value Drivers
The primary elements of our strategy
are:
|
•
|
Expanding the commercialization of
Natesto , our revenue-generating, FDA-approved product in the United States via our direct commercial infrastructure. Launching
Fiera in the United States via our direct sales force, and commercializing Fiera and MiOXSYS outside the United States via
a developing distribution network.
|
Natesto is a novel, recently FDA-approved
testosterone replacement therapy, or TRT, indicated for the treatment of hypogonadism in men. Natesto is the only nasal formulation
of testosterone and is delivered via a proprietary nasal gel to enable simple, discreet application of testosterone into the nostrils.
By virtue of applying Natesto to the nasal mucosa, and not to the man’s skin, there is no risk of transference to others.
As such Natesto is the only TRT that does not have a black box warning associated with this potential for transference. Additionally,
Natesto is a convenient form of testosterone that does not require application to large areas of the man’s body (arms, shoulders,
upper torso, under arms) as required with market-leading products AndroGel and Axiron. A convenient form of TRT, applied two-to-three
times a day in the nostrils, may be an appropriate option for men with hypogonadism who have active lifestyles, travel frequently,
and value having a discreet way to treat their hypogonadism.
Low testosterone is a condition
affecting approximately 13 million U.S. men, with U.S. revenues estimated at $2.4 billion in 2013. The market is expected to grow
and we believe multiple factors are in place to position Natesto favorably in gaining market share in this large, growing market.
By gaining less than a 5% share of the current U.S. market (assuming similar pricing and reimbursement), a novel TRT product could
achieve annual revenues in excess of $100.0 million.
ProstaScint is the only imaging agent that specifically targets
prostate cancer cells and demonstrates high sensitivity, specificity, and accuracy. In multiple clinical studies researchers have
shown that when SPECT/CT scans were used in patients pre-treated with ProstaScint, ProstaScint imaging was highly sensitive in
detecting prostate cancer and significantly predictive of 10-year biochemical disease-free survival in prostate cancer patients
(86.6% vs. 65.5%; p=0.0014). Additionally, the American Cancer Society specifically recognizes ProstaScint by name in current
prostate cancer diagnosis guidelines. At June 30, 2017, the ProstaScint asset was impaired based upon sales projections that we
intend to only sell this product through mid-fiscal 2019, when this product expires.
Prostate cancer is the second
most common cancer among men in the United States, with an estimated 241,000 annual cases (as of 2012). Further, more than 2.2
million men were alive in 2006 with some history of prostate cancer, and over 30,000 U.S. men die each year from the disease.
The effect of prostate cancer on healthcare economics is substantial, which makes the need for accurate disease staging critical
for treatment and management strategies. The U.S. market for the diagnosis and screening of prostate cancer is expected to total
$17.4 billion in 2017, a CAGR of 7.5% since 2012.
The Fiera Personal Care Device
is the first hands-free wearable product for women, specifically designed to increase interest in, and physical readiness for
sex, naturally. Sexual wellness is inclusive of female sexual dysfunction which is a term that describes various sexual problems,
such as low desire or interest, diminished arousal, orgasmic difficulties, and dyspareunia. Female sexual dysfunction is considered
common, with an estimated prevalence of 43% from the U.S. National Health and Social Life Survey and similar estimates from other
large, population-based surveys in the United States
and the United Kingdom. In a study of over 31,000 women in the
United States it was determined that 44% of women report a sexual problem. Specifically, the most common sexual problem is low
desire, with a prevalence of 39%; followed by low arousal (26%) and orgasm difficulties (21%). Additionally, the incidence of
sexual dysfunction is expected to increase through 2020 to effect more than 124 million women worldwide.
United States
. We have
launched a commercial infrastructure in the U.S. in order to support increased sales and distribution of Natesto, ProstaScint
and Fiera in the U.S. We have a highly experienced sales force that is distinctly focused on impacting the prescribing of urologists,
and through this efficient sales channel we are able to increase prescribing of our unique urology assets.
Ex-U.S
. Fiera has not been
previously marketed outside the U.S., therefore we believe we can realize commercial opportunities through efficient corporate
partnerships in key markets around the world. With MiOXSYS now CE Marked we have started developing a distribution network to
launch this first-in-class in vitro diagnostic device.
|
•
|
Developing a pipeline of novel urological
therapeutics through assertive acquisition, licensing, or co-promotion, inclusive of both marketed and late-stage development
assets.
|
In order to diversify our product
portfolio and create more value, we intend to seek to acquire complementary products or product candidates to develop and/or commercialize,
including marketed assets. Initially, the focus will be on acquiring products or product candidates for urological conditions
but we will opportunistically consider other products or product candidates based on their ability to create value and complement
our focus. We plan to pursue product acquisitions, inclusive of therapeutics, diagnostics, and devices, which we will evaluate
for their strategic fit and potential for near-term and/or accretive value to us. In a little over two years from the Company’s
merger in April 2015 we began generating revenue from the acquisition of ProstaScint (which we have since divested), and we later
launched Natesto in July 2016 and Fiera in May 2017. We expect to continue to identify and acquire additional, complementary urology
assets in the future.
|
•
|
Completing U.S. studies in male infertility
with the MiOXSYS System to enable 510k clearance by FDA.
|
With MiOXSYS now CE marked and
available for sale in many markets outside the U.S., we are positioned to initiate our clinical studies in the U.S. to enable
510k clearance. We expect to receive guidance from FDA on clinical study design and patient criteria and implement the required
clinical program as soon as possible. If cleared in the U.S., MiOXSYS would be the first and only semen analysis diagnostic test
cleared by the FDA for the detection of oxidative stress in infertility.
Male infertility is prevalent
and underserved, and oxidative stress is widely implicated in its pathophysiology. As such, we have bolstered our research focus
in this area with the MiOXSYS System to complement our focus on urologic conditions. The ex-US global male infertility market
is estimated at over $800 million in diagnostics, therapeutics, and procedure costs. Oxidative stress is broadly implicated in
the pathophysiology of idiopathic male infertility, yet very few diagnostic tools exist to effectively measure oxidative stress
levels in men. However, antioxidants are widely available and recommended to infertile men. With the introduction of the MiOXSYS
System, we believe for the first time there will be an easy and effective diagnostic tool to assess degree of oxidative stress
and monitor patients’ responses to antioxidant therapy and improve diagnosis of male infertility.
Through our extensive network
of researchers developed at one of our predecessor companies Luoxis, the RedoxSYS System has demonstrated the potential to have
broad clinical applications inclusive of male infertility in semen analysis studies. Studies have been completed at the Cleveland
Clinic, a major U.S. university and Hamad Medical Corporation, major hospital in Doha, Qatar in the evaluation of male infertility.
As such, we developed the MiOXSYS System as a line extension to RedoxSYS to specifically assess oxidative stress in semen as a
tool to assess male infertility. In January 2016, the MiOXSYS System received CE Marking and is now available for sale in multiple
ex-U.S. markets including Europe, the Middle East, and parts of Asia. In March 2016, the MiOXSYS System obtained Health Canada
Class II Medical Device approval. With Health Canada approval in place, the Company has begun initial marketing of the product
in Canada.
Our FDA – Approved Urology
Products
Two of our products have received
FDA approval for marketing in the U.S.: Natesto and ProstaScint.
Natesto for Testosterone
Replacement
On April 22, 2016, we entered
into and closed a license and supply agreement to acquire the exclusive U.S. rights to Natesto
®
(testosterone)
nasal gel from Acerus Pharmaceuticals Corporation, or Acerus, which rights we acquired effective on July 1, 2016. Natesto is a
patented, FDA-approved testosterone replacement therapy, or TRT, and is the only nasally-administered formulation of testosterone
available in the United States. Natesto is a discreet, easy-to-administer nasal gel that may be appropriate for men with active
lifestyles as Natesto is small, portable, TSA-compliant, and easy to use.
Importantly, Natesto is not applied
directly to the patient’s skin as other topically applied TRTs are. Rather, it is delivered directly into the nasal mucosa
via a patented nasal applicator. Thus, Natesto does not carry a black box warning related to testosterone transference to a man’s
female partner or children — as other topically (primarily gels) administered TRTs do by virtue of their delivery directly
onto the skin.
Image of Natesto (testosterone)
nasal gel
The unique delivery of Natesto
also enables simple, discreet use by a single application into each nostril two to three times daily and may improve compliance
over topical forms that are applied to large sections of the arms, shoulders, and other large areas of the man’s upper torso.
It also offers a more discreet method of TRT administration compared to films/patches (Androderm & Testoderm, which is applied
to the scrotum) and doesn’t involve the pain, potential for site injection infections, and the administration inconvenience
of the implantable and/or injectable TRTs such as Testopel and Aveed.
A concern associated with the
use of the currently marketed testosterone gels is the unintentional transfer of testosterone to women (or children) by skin contact
with the man’s application site. In the event of a female partner receiving inadvertent testosterone exposure due to intimate
contact with her male partner, she may develop hyperandrogenism, a condition characterized by excess levels of androgens. This
condition may result in women developing acne, scalp hair loss, excessive facial or body hair, breast atrophy, and other symptoms.
Natesto, as it is nasally administered, does not present this potential complication of ‘transference’ and thus does
not have a black box warning as is associated with the topically applied testosterone supplements.
Natesto is an androgen indicated
for replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone including:
|
•
|
Primary hypogonadism (congenital or
acquired): testicular failure due to conditions such as cryptorchidism, bilateral torsion, orchitis, vanishing testis syndrome,
orchiectomy, Klinefelter’s syndrome, chemotherapy, or toxic damage from alcohol or heavy metals. These men usually have
low serum testosterone concentrations and gonadotropins (follicle-stimulating hormone [FSH] and luteinizing hormone [LH])
above the normal range.
|
|
•
|
Hypogonadotropic hypogonadism (congenital or acquired):
gonadotropin or luteinizing hormone-releasing hormone (LHRH) deficiency or pituitary-hypothalamic injury from tumors, trauma,
or radiation. These men have low serum testosterone concentrations but have gonadotropins in the normal or low range.
|
The U.S. Testosterone Replacement
Therapy (TRT) Market
We believe we have an opportunity
to increase revenue with Natesto in the U.S. Natesto competes in a large, growing market. The U.S. TRT market is large, with annual
revenues in the U.S. in 2013 of $2.4 billion. At the current market size of over $2.0 billion, a product with 5% market penetration
could achieve sales in excess of $100 million annually, assuming comparatively similar product pricing and reimbursement levels
as seen with other TRTs.
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.
The actively marketed, FDA-approved
TRTs include:
Brand Name
|
|
Form
of Delivery
|
|
Company
|
|
Year
Approved
|
|
Black
Box Warning
|
Androderm®
|
|
Film/Patch
|
|
Actavis
|
|
1995
|
|
No
|
AndroGel®
|
|
Gel
|
|
AbbVie
|
|
2000
|
|
Yes
|
Aveed®
|
|
Injection
|
|
Endo Pharmaceuticals
|
|
2014
|
|
No
|
Axiron®
|
|
Solution
|
|
Eli Lilly & Company
|
|
2010
|
|
Yes
|
Fortesta®
|
|
Gel
|
|
Endo Pharmaceuticals
|
|
2010
|
|
Yes
|
Striant®
|
|
Extended Release Tablet
|
|
Endo Pharmaceuticals
|
|
2003
|
|
No
|
Testim®
|
|
Gel
|
|
Endo Pharmaceuticals
|
|
2002
|
|
Yes
|
Testoderm®
|
|
Film/Patch
|
|
Johnson & Johnson
|
|
1993
|
|
No
|
Testopel®
|
|
Injection
|
|
Endo Pharmaceuticals
|
|
1972
|
|
No
|
Vogelxo®
|
|
Gel
|
|
Upsher-Smith
|
|
2014
|
|
Yes
|
AndroGel®, marketed by AbbVie,
is the leading TRT and had 2012 revenues of $1.15 billion. AndroGel had over half of the total TRT market across its 1.0% and
1.62% formulations of the product.
Importantly, however, AndroGel
is now facing generic threats with the expiration of key patents for its 1.0% formulation, and is beginning to see generic equivalents
to its 1.62% formulation be introduced. Other products with significant shares of the TRT market include Axiron, Testim, Fortesta,
Androderm, and Testopel.
About Hypogonadism
Male hypogonadism is a condition
in which the body does not produce enough testosterone — the hormone that plays a key role in masculine growth and development
during puberty — or has an impaired ability to produce sperm or both. Men can be born with male hypogonadism, or it can
develop later in life from injury or infection.
Hypogonadism is formally defined
as deficient or absent male gonadal function that results in insufficient testosterone secretion. Hypogonadism may be caused primarily
by testicular failure, or secondarily by hypothalamic-pituitary axis dysfunction, resulting in the production or release of insufficient
testosterone to maintain testosterone-dependent functions and systems. It can also result from a combination of testicular failure
and hypothalamic-pituitary axis dysfunction.
Hypogonadism affects an estimated
13 million men in the United States, and although it may occur in men at any age, low testosterone levels are especially common
in older males. More than 60% of men over age 65 have free testosterone levels below the normal values of men aged 30 to 35. Studies
suggest that hypogonadism in adult men is often underdiagnosed and under treated.
Low testosterone, as male hypogonadism
is also known, is associated with a number of signs and symptoms, most notably loss of libido and erectile dysfunction (ED). Other
signs of low testosterone include depressive symptoms, a decrease in cognitive abilities, irritability and lethargy or loss of
energy. Deficient endogenous testosterone also has negative effects on bone mass and is a significant risk factor for osteoporosis
in men. Progressive decrease in muscle mass and muscle strength and testicular dysfunction, often resulting in impaired sperm
production, are also associated with low testosterone levels.
A younger patient may have pure
hypogonadism as a primary event, whereas an older man may have an age-related decline in testosterone production that is a part
of his ED profile. However, because both ED and loss of libido are hallmarks of hypogonadism, for a patient who presents with
ED it is recommended that he have a basic hormone profile to determine if he has low testosterone. Treatments to normalize testosterone
can not only improve libido, energy level and the potential to have normal erections, but can also improve the response to sildenafil,
if that is deemed appropriate treatment.
Natesto Clinical Studies
Demonstrating Safety and Efficacy
Natesto has been shown to be safe
and effective in men with hypogonadism. It was approved by the FDA in May 2014.
In its pivotal clinical trial,
Natesto was evaluated for efficacy in a 90-day, open-label, multicenter study of 306 hypogonadal men. Eligible patients were 18
years of age and older (mean age 54 years) and had morning serum total testosterone concentrations less than 300 ng/dL. Patients
were Caucasian (89%), African-American (6%), Asian (5%), or of other ethnicities (less than 1%).
Patients were instructed to self-administer
Natesto (11 mg of testosterone) intranasally either two or three times daily.
The primary endpoint was the percentage
of patients with an average serum total testosterone concentration (C
avg
) within the normal range (300 to 1050 ng/dL)
on Day 90.
The secondary endpoint was the
percentage of patients with a maximum total testosterone concentration (C
max
) above three predetermined limits: greater
than 1500 ng/dL, between 1800 and 2500 ng/dL, and greater than 2500 ng/dL.
A total of 78 hypogonadal men
received Natesto (11 mg of testosterone) three times daily (33 mg of testosterone daily). Of these, a total of 73 hypogonadal
men were included in the statistical evaluation of efficacy (total testosterone pharmacokinetics) on Day 90 based on the intent-to-treat
(ITT) population with last observation carried forward (LOCF). Ninety percent of these 73 patients had a C
avg
within
the normal range (300 to 1050 ng/dL) on Day 90. The percentages of patients with C
avg
below the normal range (less
than 300 ng/dL) and above the normal range (greater than 1050 ng/dL) on Day 90 were 10% and 0%, respectively.
The table below (Table 3 from
the Natesto Prescribing Information) summarizes the mean (SD) serum total testosterone concentrations on Day 90 in 69 patients
who had a full pharmacokinetic sampling profile and were treated with Natesto (11 mg of testosterone) three times daily for 90
days.
Table 3:
Mean (SD) Serum Total Testosterone Concentration on Day 90 Following
Administration of Natesto (11 mg of testosterone) Three Times Daily
Natesto
(11 mg of testosterone) Three Times Daily (N=69)
|
C
avg
(ng/dL)
|
421 (116)
|
C
max
(ng/dL)
|
1044 (378)
|
C
min
(ng/dL)
|
215
(74)
|
In the same clinical trial studying
the safety and efficacy of Natesto, which was conducted at 39 U.S. outpatient sites, it was shown that 70% of the per protocol
patients in the twice-daily ‘titration arm’ (n=141) achieved normal testosterone levels. Ninety-one percent of the
per protocol patients in the thrice-daily group (n=77) achieved normal testosterone levels, demonstrating that the majority of
men in both treatment groups achieved normalization of testosterone levels while taking Natesto. The efficacy of both B.I.D. (twice
daily) and T.I.D. (three times daily) dosing of Natesto is demonstrated in the graphs below:
Newly Presented Natesto
Safety and Efficacy Data
Secondary endpoints that were
measured in the above-referenced pivotal trial included the impact on Natesto – over 90 days – on erectile function
as well as on mood. The 90-day clinical trial demonstrated that – within 30 days of initiating treatment with Natesto –
subjects exhibited a statistically significant and clinically meaningful improvement in all five domains of erectile function.
Specifically, at the end of the 90-day treatment period, improvement from baseline for each domain were as follows:
|
·
|
36%
improvement in erectile function
|
|
·
|
42%
improvement in intercourse satisfaction
|
|
·
|
35%
improvement in orgasmic function
|
|
·
|
31%
improvement in sexual desire
|
|
·
|
38%
improvement in overall satisfaction
|
In
addition to demonstrating a significant improvement in erectile function, Natesto also exhibits a substantial impact on mood as
measured by Positive Affect and Negative Affect Schedule (PANAS). As early as 30 days – and continuing up to day 90 –
Natesto demonstrates a substantial increase in Positive Affect and a substantial decrease in Negative Affect.
In addition to efficacy parameters,
safety parameters have also been examined and recently reported. Natesto restores serum testosterone to normal levels
while
Follicle Stimulating Hormone (FSH) and Luteinizing Hormone (LH)
remained well within the reference range over 90 days.
Also, hematocrit (increased blood thickness) was not significantly impacted by Natesto over 360 days of treatment. Other testosterone
products alter levels of Follicle Stimulating Hormone (FSH) and Luteining Hormone (LH) and increase hematocrit.
Natesto Product Features
and Patient Benefits
We believe Natesto has a unique
opportunity to gain market share in the more than $2.4 billion U.S. market given the product’s novel features and patient
benefits including:
|
·
|
Ease of administration; Appropriate for men with busy, active lives;
|
|
·
|
Established efficacy in pivotal FDA trials with a unique, low dose of testosterone;
Effective in improving serum testosterone levels while using a proven, lower dose of testosterone; significant symptom improvement,
notably:
|
|
·
|
Natesto
caused statistically significant improvements in each of the 5 domains of erectile function
(
P
< 0.0001); The majority of the effect on erectile dysfunction was evident
by Day 30
|
|
·
|
Substantial
Increase in Positive Affect
and
Substantial Decrease in Negative Affect (PANAS)
as Early as Day 30 (
P
< 0.0001)
|
|
·
|
Discreet product presentation and ease of transport (TSA compliant); Important
for men who travel frequently and desire a simple, portable solution that travels easily with them;
|
|
·
|
No risk of secondary exposure to testosterone due to dermal transference,
an important consideration when thinking about a hypogonadal man’s partner’s or child’s safety;
|
|
·
|
Safety, with a lower incidence of rising PSA levels than the market leading
product AndroGel; Natesto demonstrates a 5.5% rate of rising PSA levels in clinical trials, while AndroGel demonstrated a
rising PSA rate of over 11% in clinical trials. This is an important consideration as physicians concerned with understanding
and tracking prostate cancer risk frequently monitor PSA levels in men over 50 years of age. Additionally, Natesto restored
serum testosterone to normal levels while Follicle Stimulating Hormone (FSH) and Luteinizing Hormone (LH)
remained
well within the reference range over 90 days. Also, hematocrit (increased blood thickness) was not significantly
impacted by Natesto over 360 days of treatment.
|
Natesto has proven efficacy and
a product profile well suited for men suffering from hypogonadism who have active, busy lifestyles who want a simple, discreet
TRT option. We believe Natesto can play an important role in the treatment of hypogonadism, a condition affecting approximately
13 million U.S. men.
Natesto Market Opportunity
Two recent developments have presented
a unique opportunity for Natesto that we believe will enable us to effectively compete and be well positioned in the more than
$2.0 billion TRT market. As previously indicated, AndroGel’s patent expired in 2015 and we expect a generic entrant to begin
eroding AbbVie’s market share. As a result, we expect there to be diminished promotional support in the form of fewer physician
details and lower overall promotional spending by AbbVie. In conjunction with the market leader’s diminished intellectual
property position and potential diminished promotional spending, the TRT market has received increased scrutiny from the FDA.
On January 31, 2014 and subsequently
on March 3, 2015, the FDA issued Safety Announcements relating to the possible increased risk of non-fatal heart attacks and strokes
in patients taking testosterone. While the FDA has not concluded that the FDA-approved testosterone treatment increases the risk
of stroke, heart attack, or death, this recent safety consideration has caused patient advocates and consumer groups to ask for
increased scrutiny on the direct to consumer advertising associated with the leading testosterone replacement products, most notably
AndroGel and Axiron. As a result, we expect decreased advertising spending in the TRT category to enable newer, less established
products like Natesto to more effectively infiltrate the market through on-label, physician-directed promotion with a direct selling
effort. While the potential safety concerns may cause a decrease in physician prescribing, we expect that physicians will continue
to prescribe TRTs for patients for whom TRT treatment is appropriate.
Leading urology groups including
the American Urological Association, or AUA, have strongly commented in favor of continued prescribing of TRTs for appropriate
patients, and the safety data precipitating the FDA’s comments have been called into question. Importantly, the FDA has
not called for discontinuation of TRTs. Rather, patients were encouraged to speak with their health care professional and not
stop taking TRTs.
In the FDA’s initial statement
about the potential cardiovascular risks associated with TRT treatment, the agency commented:
“Patients
should not stop taking their prescribed testosterone products without first discussing their questions or concerns with their
health care professionals. ... The prescribing information in the drug labels of FDA-approved testosterone products should be
followed.”
Importantly, following the FDA’s
statement, the AUA issued a strong response reiterating the clinical importance of low testosterone and maintaining their support
for the appropriate use of testosterone replacement therapy:
“Men
with hypogonadism may also experience reduced muscle mass and strength and increased body fat. Hypogonadism may also contribute
to reduced bone mineral density and anemia. Testosterone therapy is appropriate treatment for patients with clinically significant
hypogonadism, including those with idiopathic clinical hypogonadism that may or may not be age-related, after full discussion
of potential adverse effects.”
Additional publications publicly
refuted the validity of the data that precipitated the FDA’s safety concern in a subsequent statement following the 2014
annual meeting of the AUA:
“During
the last several months there has been a firestorm of negative media attention regarding testosterone deficiency and its treatment,
precipitated by a study reporting an increased rate of nonfatal myocardial infarction (MI) associated with testosterone prescriptions.
This public judgment of T therapy demands a response. As researchers and clinicians with extensive experience with T deficiency
and its treatment, we disagree that the recent study published in PLOS (Public Library of Science) One presents any credible evidence
that T prescriptions increase health risks, and we find baseless the general assertion that testosterone is prescribed to men
“who are simply reluctant to accept the fact that they are getting older.” We object to comments questioning whether
T deficiency is real, regardless of whether it is called hypogonadism or “low T” as used in advertisements.”
(Note: The PLOS is an open access online publication venue, and while peer reviewed it is not a published medical journal.)
AbbVie’s sales of AndroGel
dropped 5% in the first half of 2014, following the FDA’s initial Safety Announcement and the subsequent reaction of the
AUA and others. In the face of significant new competitive entrants (Aveed, Vogelxo) at that time and the FDA’s expressed
safety concerns, this represents a relatively insignificant sales decline. We believe this decline speaks to a real, present need
in hypogonadism and a substantial opportunity for newly marketed products like Natesto. Natesto has proven safety, a recent FDA
approval that speaks to the product’s efficacy, and unique product features and patient benefits we believe will set Natesto
apart from the topically administered competitive products in the more than $2.4 billion U.S. TRT market.
MiOXSYS In Vitro Diagnostic
System for Male Infertility
Male infertility is a significant
medical condition that urologists and infertility specialists treat frequently in the office setting or specialized fertility
centers around the world. Of all sexually active couples, 8% to 12% are infertile and male infertility is the sole cause or contributing
factor up to 50% of the time. The global male infertility market is large and growing. The market for male infertility diagnosis
and treatments is expected to grow to more than $300 million globally by 2020, with a CAGR of nearly 5% from 2014 to 2020. Despite
the prevalence of male infertility, difficulties remain in effectively diagnosing root causes. Oxidative stress assessment is
considered a standard practice in complex andrology laboratories around the world, but due to various factors oxidative stress
testing is not routinely employed in clinicians’ offices or standard laboratory settings.
Seminal oxidative stress has been
well established throughout the peer-reviewed literature to play a substantial role in unexplained male infertility, and researchers
and clinicians actively consider oxidative stress when conducting laboratory infertility assessment. While oxidative stress is
well established as a leading contributing factor to male infertility, a significant proportion of male infertility remains unexplained
in part because of the lack of standardized tests available to clinicians and researchers to assess oxidative stress in semen
and plasma. This lack of standardization has resulted in poor implementation of semen and plasma analysis around the world. Further,
current testing platforms are cost-prohibitive for small office settings or local medical laboratories and require extensive training
and on-site expertise. Additionally, antioxidant supplementation is frequently recommended to patients by clinicians without an
effective method of measuring treatment success. As such, we believe introducing the MiOXSYS System to assess oxidative stress
levels in semen and seminal fluid represents a significant commercial opportunity and novel way for clinicians to assess male
factor infertility and assess therapeutic responses of patients in a simple, reliable, and cost-effective way.
The MiOXSYS System was CE marked
in January 2016, and we have started early commercialization efforts outside the U.S.
An attractive aspect of the reproductive
health market relates to reimbursement as infertility treatments and the associated diagnostic tests are generally paid directly
by patients. The current infertility treatments could cost in excess of $10,000 per treatment cycle, so the addition of a moderately
priced oxidative stress test would consume nominal relative costs while providing specific, actionable information needed to improve
the oxidative status of infertile patients. The current infertility treatments include antioxidant supplements and lifestyle modifications
that lower oxidative stress (e.g., smoking cessation, exercise, dietary changes, etc.), so the measurements reported by the MiOXSYS
System could effectively guide treatment in the infertile patients.
The global male infertility market
is expected to grow to more than $300 million by 2020. With a substantial base of conditions for which the MiOXSYS System may
present utility, we believe there is significant revenue potential from this first-in-class system.
As part of our strategy to develop
future clinical applications of the RedoxSYS System (the MiOXSYS System’s predecessor product for plasma and whole blood
detection), we have conducted initial studies in male reproductive health. Male infertility is a significant medical condition
in which oxidative stress is well known to play a substantial role. As such, we believe developing a clinical application to assess
oxidative stress levels with the uniquely designed and programmed MiOXSYS System for semen analysis represents a significant commercial
opportunity. Oxidative stress is well established as a leading contributing factor to male infertility. Further, a significant
proportion of male infertility remains unexplained in part because of the lack of standardized tests available to clinicians and
researchers to assess oxidative stress in semen and seminal plasma. This lack of standardization has resulted in poor implementation
of semen and plasma analysis around the world. Further, currently available tests are cumbersome, time consuming to perform, and
costly.
We conducted initial proof-of-concept
clinical studies in male infertility with a leading research center in the United States, which demonstrated that oxidation-reduction
potential effectively measures oxidative stress levels in semen and seminal plasma — and that these levels strongly correlate
with established markers of infertility. Semen analysis studies are routinely conducted to assess causes of infertility, so we
expect clinicians and oxidative stress researchers to readily integrate the MiOXSYS System into routine use upon the completion
of more extensive studies and regulatory clearance for this use. Additional studies are now in the late planning stages that will
evaluate the MiOXSYS System’s performance in the detection of oxidative stress levels and correlations with key semen parameters
in both healthy and infertile males. The MiOXSYS System must receive 510k clearance from the FDA before we can market it for clinical
use in the United States. Of the $300 million male infertility market projected for 2020, the North American, Middle Eastern,
and Asia Pacific markets dominate due to prevalence, awareness of treatment, and availability of treatment resources. Thus, it
is important that we have already established distribution relationships and direct access to major oxidative stress researchers
in many of these important markets.
Following our initial proof of
concept studies with a leading center in the United States with the MiOXSYS system, we conducted our CE mark-enabling study with
over 300 infertile patients. The two key studies conducted with these leading centers are presented below.
United States-Based Proof-of-Concept
Clinical Study
Fifty-one (51) male patients were
seen in a national clinic for suspected infertility. In addition to standard semen analyses (WHO 5
th
Edition, 2010),
samples were measured for oxidative stress using the MiOXSYS System. Raw sORP values were normed to sperm concentration (mv/10
6
sperm/mL) and compared across six semen parameters that are associated with fertility: ejaculate volume, concentration,
total sperm number, total motility, progressive motility, and normal morphology. Higher sORP values are associated with a higher
state of oxidative stress.
Patients with abnormally low ejaculate
volume had similar sORP values as those with a normal volume. Those with an abnormally low sperm concentration or overall total
number, have significantly higher sORP values than those in the normal range. Abnormally few motile sperm or few sperm with a
progressive motility were also associated with significantly higher sORP values than those in the normal range. Lastly, semen
samples that had fewer normal sperm had slightly, but not significantly, higher sORP values. Thus, most abnormal semen parameters
appear to be associated with higher measures of oxidative stress.
When samples that achieve all
six parameters of associated with fertile semen are compared to samples that fail one or more of the parameters, the samples that
meet the parameters have significantly lower sORP values than those that fail one or more. A cutoff value of 1.635 mv/10
6
sperm/mL separated those that met fertility standards from those that did not. In the current study, 85.7% of samples that
met standards fell below this cutoff value, whereas 71.8% of those that failed one or more parameters had sORP values above this
cutoff. The probability that a semen sample with a measured sORP value higher than the cutoff is abnormal in at least one of the
semen parameters, is 96.5%. Lastly, the more parameters that a semen sample falls within the abnormal range, the higher the sORP
values, thus those that are abnormal on five or six parameters have higher sORP values than those that are abnormal on one or
two.
Data derived from patients of
the national clinic confirms the results obtained in an international fertility clinic. Overall, semen that falls into the abnormal
range for concentration, total number, motility, and morphology have higher levels of oxidative stress as indicated by higher
sORP values. These values are uniquely obtained using the MiOXSYS System for semen analysis.
In April 2016, we observed encouraging
data from two prospective studies of the MiOXSYS System that demonstrated its clinical utility as a tool for measuring ORP to
assess the degree of oxidative stress levels in human semen.
The first study measured sORP
in the semen samples of infertile men that correlated well with the sperm concentration, motility, and morphology. The second
study further suggests that sORP is an easy to determine one-step indicator of increased oxidative stress in semen samples of
infertile men especially with leukocytospermia. The results are currently being validated in a larger cohort of infertile men.
International Pivotal Clinical
Study
Three-hundred sixty-six (366)
male partners from couples seeking fertility advisement in an international clinic were recruited. In addition to standard semen
analyses (WHO 5
th
Edition, 2010), samples were measured for oxidative stress using the MiOXSYS System. Raw sORP values
were normed to sperm concentration (mv/10
6
sperm/mL) and compared across six semen parameters that are associated with
fertility: ejaculate volume, concentration, total sperm number, total motility, progressive motility, and normal morphology. Higher
sORP values are associated with a higher state of oxidative stress.
Patients with abnormally low ejaculate
volume had similar sORP values as those with a normal volume. Those with an abnormally low sperm concentration or overall total
number, have significantly higher sORP values than those in the normal range. Abnormally few motile sperm or few sperm with a
progressive motility were also associated with significantly higher sORP values than those in the normal range. Lastly, semen
samples that had fewer normal sperm had significantly higher sORP values than those that fell into the range of normal morphology.
Thus, most abnormal semen parameters appear to be associated with higher measures of oxidative stress.
When samples that achieve all
six parameters associated with fertile semen are compared to samples that fail one or more of the parameters, the samples that
meet the parameters have significantly lower sORP values than those that fail one or more. A cutoff value of 1.635 mv/10
6
sperm/mL separated those that met fertility standards from those that did not. In the current study, 91.43% of samples that
met fertility standards fell below this cutoff value whereas 59.5% of those that failed one or more had sORP values above this
cutoff. The probability that a semen sample with a measured sORP value higher than the cutoff is abnormal in at least one of the
semen parameters, is 98.6%. Lastly, the more parameters that a semen samples falls within the abnormal range, the higher the sORP
values, thus those that are abnormal on five or six parameters have higher sORP values than those that are abnormal on one or
two.
Data derived from patients at
this international clinic confirms the results obtained in United States fertility clinic. Overall, semen that falls into the
abnormal range for concentration, total number, motility, and morphology have higher levels of oxidative stress as indicated by
higher sORP values. These values are obtained uniquely using the MiOXSYS System for semen analysis.
Proof of concept clinical studies
have been conducted at the Cleveland Clinic’s Department of Urology, and two posters were presented at the 2015 American
Society for Reproductive Medicine in November 2015. These abstracts are presented below.
Establishing the Oxidation-Reduction
Potential in Semen and Seminal Plasma
A. Agarwal,
1
S. S.
Du Plessis,
1,2
R. Sharma,1 L. Samanta,
1,3
A. Harlev,
1,4
G. Ahmad,
1,5
S. Gupta,
1
E. S. Sabanegh
6
; 1. Center For Reproductive Medicine, Cleveland Clinic, Cleveland, OH, 2. Medical Physiology,
Stellenbosch University, Tygerberg, South Africa, 3. Redox Biology Laboratory, School of Life Sciences, Ravenshaw University,
Orissa, India, 4. Soroka Medical Center, Ben-Gurion University, Beer Sheva, Israel, 5. Physiology and Cell Biology, University
of Health Sciences, Lahore, Pakistan, 6. Department of Urology, Cleveland Clinic, Cleveland, OH
Abstract:
Objective:
Oxidation-reduction
potential (ORP) is a novel measure of oxidative stress or redox imbalance in biological samples. Static ORP (sORP) provides an
integrated measure of the balance between total oxidants and reductants in a biological system, whereas capacity ORP (cORP) equates
to the amount of antioxidant reserves. sORP has been shown to correlate well with illness and injury severity that accompanies
the state of oxidative stress; cORP correlates with the ability to respond to illness or injury. Our objectives were to evaluate
whether 1) ORP can be measured in semen and seminal plasma samples and 2) ORP levels correlate with sperm motility.
Design:
Prospective study
measuring ORP in both semen and seminal plasma.
Materials and Methods:
Semen samples (n=18) from normal control subjects were divided into two fractions and the seminal plasma was isolated from one
fraction (300 x g, 7min). Sperm count and motility were assessed manually. sORP (mV/106 sperm) and cORP (μC/106 sperm) were
measured in both fractions (RedoxSYS®, Aytu BioScience). Values are reported as Mean ± SEM. Spearman correlation and
Receiver Operating Characteristic curves (ROC) were used for statistical analysis.
Results:
sORP and cORP
levels in semen correlated significantly with the levels in seminal plasma. A significant negative correlation existed between
sperm motility and sORP in both semen (r=-0.609; p=0.004) and seminal plasma (r=-0.690; p=0.002). Furthermore, a sORP cutoff of
4.73mV/106 sperm in semen (sensitivity = 100%, specificity = 89.5%, AUC=0.947) and 4.65mV/106 sperm in seminal plasma (sensitivity
= 100%, specificity = 93.8%, AUC = 0.969) was highly predictive of abnormal sperm motility.
Conclusions:
RedoxSYS®
accurately measured sORP and cORP in both semen and seminal plasma samples. Based on high sensitivity as assessed by ROC analysis,
sORP levels can be used to screen infertile men with oxidative stress. These results are being validated in a larger cohort of
infertile men.
Effect of Time on Oxidation-Reduction
Potential in Semen and Seminal Plasma
R. Sharma,
1
S. S. Du
Plessis,
1,2
A. Agarwal,
1
A. Harlev,
1,3
L. Samanta,
1,4
G. Ahmad,
1,5
S. Gupta,
1
E. S. Sabanegh
6
; 1. Center For Reproductive Medicine, Cleveland Clinic, Cleveland, OH, 2. Medical Physiology,
Stellenbosch University, Tygerberg, South Africa, 3. Soroka Medical Center, Ben-Gurion University, Beer Sheva, Israel, 4. Redox
Biology Laboratory, School of Life Science, Ravenshaw University, Orissa, India, 5. Physiology and Cell Biology, University of
Health Sciences, Lahore, Pakistan, 6. Department of Urology, Cleveland Clinic, Cleveland, OH
Abstract:
Objective:
Oxidation-reduction
potential (ORP) is a novel measure of oxidative stress or redox imbalance in biological fluids. Reactive oxygen species (ROS)
are highly reactive and have a very short half-life. ROS levels in the seminal ejaculate should be measured within an hour after
collection to prevent a reduction in ROS levels over time. The traditional methods of measuring seminal ROS are time sensitive
and time consuming, making it difficult to use them for diagnostic purposes. It would be highly advantageous to employ a method
that is independent of semen age and provides results in real time. The objective was to assess the effect of time on static ORP
(sORP), which provides a snapshot of current redox balance, and capacity ORP (cORP) which is indicative of the amount of antioxidant
reserves available.
Design:
Prospective study
measuring ORP in semen and seminal plasma samples at time 0 and 120 minutes. Materials and Methods: The sORP and cORP of both
semen (n=18) and seminal plasma (n=15) samples from normal control subjects were measured after liquefaction (time 0) and after
120 minutes of incubation at room temperature (RedoxSYS®, Aytu BioScience). Values are mean ± SEM. Spearman correlation
was used for statistical analysis.
Results:
A significant
correlation was seen between sORP at time 0 and 120 minutes in semen and seminal plasma. Similar correlations were found for cORP
values at both time intervals.
Conclusions:
ORP values
are not affected by the age of semen or seminal plasma for up to 120 minutes, making it easier to employ this new technology for
diagnostic use.
Recently additional studies
have further demonstrated the clinical utility of the MiOXSYS System in Male Infertility.
Correlation of Sperm DNA fragmentation
and Seminal oxidation reduction potential in infertile men.
M. Arafa
1
, El Bardisi
1
,
A. Majzoub
1
, S. Alsaid
1
, H. Al Nawasra
1
, K. Khalafalla
1
, K. Al Rumaihi
1
,
A. Agarwal
2
.
1. Hamad Medical Corporation,
Urology, Doha, Qatar, 2. Cleveland Clinic, American Center for reproductive medicine, Cleveland, OH.
Abstract:
Objective:
To determine
if Sperm DNA fragmentation is really correlated to seminal oxidative stress.
Design:
Prospective
study performed on 312 patients attending the male infertility clinic at a tertiary medical center between February and August,
2016. Patients receiving medical or surgical treatment for infertility prior to their presentation or who had a sperm concentration
less than 5 million/ml sperm were excluded. Patients were subjected to history taking, clinical examination as well as semen analysis
and SDF assessment using Halosperm kit (cut off value <30%) and static oxidation reduction potential (sORP) using MiOXSYS system.
Patients were divided according to SDF result (normal/ high) and to age (<40 years / > 40 years).
Results:
A total number
of 312 patients were included in the study. Patients with high SDF had significantly higher age than those with normal SDF. The
mean total and progressive motility was significantly higher in the normal SDF group while sORP was significantly lower in the
normal SDF group compared with the high SDF group. Presence of varicocele did not significantly affect SDF level (Table 1). SDF
was negatively correlated with total (-0.526, p<0.001) and progressive motility (-0.415, p<0.001) and positively correlated
with abnormal morphology, sORP and age (0.351, 0.222 and 0.192, respectively, p<0.001 for all). SDF was significantly lower
while total motility was significantly higher in patients <40 years compared with patients >40 years of age.
Conclusions:
Sperm DNA
fragmentation is positively correlated with seminal oxidative stress measured by Seminal oxidation reduction potential. Sperm
DNA fragmentation and seminal oxidation reduction potential should be included in assessment of male infertility. Using ORP testing
can help in detecting the target patients for antioxidant therapy.
Effect of seminal
ORP value on embryo quality and clinical pregnancy rate
A. Ayaz
1
, B. Balaban
2
,
S. Sikka
2
, A. Isiklar
2
, M. Tasdemir
2
, B. Urman
2
.
1. Tulane University, Department
of Urology, New Orleans, LA, USA.
2. VKF American Hospital, Assisted
Reproduction Unit, Istanbul, Turkey.
Abstract:
Objective:
To
determine whether ORP in semen of men undergoing ART affects embryo quality during IVF and plays any role in predictive value
for clinical pregnancy.
Design:
Prospective study
was carried out in the VKF American Hospital, Assisted Reproduction Unit, Istanbul, Turkey. The study was approved by Koc University
the institutional review board and patients signed a consent prior to participation. The 154 male patients who were visiting Andrology
laboratory (between May 31, 2016 and Jan 1, 2017) were grouped in according to semen ORP values. IVF was performed using the semen
samples by our routine established protocol. Exclusion criteria included azoospermia, presence of STD or chronic disease, use
of any prescription drug or OTC medications or antioxidants. Semen samples were collected and assessed for routine parameters
using the WHO-2010 guidelines. sORP was measured (mV) using the MiOXSYS system and normalized to concentration (mV/10 sperm/mL).
Embryo was graded based on the quality (Grade 1 for best quality and Grade 5 is poor).
Results:
All semen samples
were grouped as 'High ORP” and 'Low ORP” based upon seminal ORP cut-off value of 1.36 mV/10 sperm. Mean Grade 1 embryo
quality in High ORP group (n=81) and low ORP group (n=26) was 2.88 ± 1.76 and 1.33 ± 0.47 respectively. In addition,
Mean Grade 2 embryo in High ORP group was 2.47 ± 1.54 and in low group was 4 ± 1.63 accordingly. Clinical pregnancy
rate (Mean 0.48; 19/40) was significantly higher (p=0.006) in low ORP group compared to high ORP group (1/8) however there was
no significant difference in embryo quality in both high and low ORP groups (Grade I embryo p=0.67, Grade II G2 embryo p=0.33).
Also, mean mother age in two groups was not significantly different (low ORP = 37.2 years and high ORP=35.2 years; p=0.23). These
data suggest that ORP may play an important role in determining the success of clinical pregnancy irrespective of oocyte quality
in women >35 yrs. of age.
Conclusions:
Semen ORP
measurement can be used as an indicator of oxidative stress and help determine the successful embryo development during IVF. These
findings may have important diagnostic and prognostic implications for couples experiencing male infertility and undergoing assisted
reproductive technique (ART). Further studies are warranted to explore the mechanism of increased ORP in a subset of couples (male
factor, no female factor) undergoing ART to corroborate the significance of these findings.
High levels
of seminal oxidation reduction potential (ORP) in infertile men with clinical varicocele
R. Saleh
1
,
A. Agarwal
2
1. Faculty of
Medicine- Sohag University, Dermatology- Venereology and Andrology, Sohag, Egypt.
2. Cleveland Clinic, American
Center for reproductive medicine, Cleveland, OH.
Abstract:
Objective:
To determine
if seminal oxidation reduction potential (ORP) increases in infertile men with clinical varicocele.
Design:
A prospective controlled pilot study was conducted
on 36 men seeking medical advice for an infertility problem between October, 2016 and January, 2017. Following clinical examination,
and scrotal color Doppler ultrasound, infertile men were divided into two groups. Group1: infertile men with clinical varicocele;
and group 2: infertile men with idiopathic infertility (no detectable abnormality in their genital examination). Patients were
examined in an infertility center by the same Andrologist. Semen analysis was performed according to the WHO manual (2010). Seminal
ORP was measured using the MiOXSYS system (Aytu BioScience, Inc., Englewood, CO, USA). Absolute values of ORP, in millivolts (mV),
were normalized for sperm concentrations and results were expressed as mV/10 sperm/mL. Quantitative measures were presented as
median and inter-quartile range (25 and 75 centiles). P value less than 0.05 was considered significant.
Results:
The study included
17 patients in group 1 and 19 in group 2. Patient's age and duration of infertility in group 1 [ 32 (30, 34) years] & [4 (1.5,
5) years] were not significantly different from group 2 [33 (30, 36.5) years] & [2 (1.25, 3.5) years] (P values = 0.64 &
0.27; respectively). Patients in group 1 had significantly lower sperm concentrations [ 20 (5, 30) × 10 /mL], and normal
forms [3 (2, 4) %] as compared to those in group 2 [ 30 (20, 72.5 × 10 /mL]; and [ 4 (3, 5) %] (P values = 0.03 & 0.005;
respectively). Levels of seminal ORP were significantly higher in group 1 [3.04 (1.94, 7.75) mV/10 sperm/mL] as compared to group
2 [1.12 (0.42, 2.25) mV/10 sperm/mL]. A significant inverse correlation was found between ORP and sperm concentration (= -0.531,
= 0.001), total sperm count ( = -0.453, = 0.008), progressive motility ( = -0.460, = 0.007), total motility ( = -0.526, = 0.002)
and normal forms ( = -0.597, < 0.001). A significant positive correlation was found between ORP and seminal leukocytes ( =
0.476, = 0.003).
Conclusions:
Seminal ORP
is significantly higher in infertile men with clinical varicocele as compared to those with no
detectable abnormality
in their genital examination (idiopathic infertility). These findings may have important diagnostic and therapeutic implications.
Further studies are warranted to explore the mechanism of increased ORP in a subset of infertile men with clinical varicocele.
In addition, future studies may help determine those patients who would benefit from antioxidant therapy and/or surgical repair
of varicocele.
RedoxSYS System for Research
Use
We completed the development of
the RedoxSYS System (MiOXSYS’ predecessor product) during the two years preceding the April 2015 Merger. In 2014, we received
ISO 13485 certification, demonstrating our compliance with global quality standards in medical device manufacturing. This enabled
the launch of the RedoxSYS System into the research market around the world. We also received a CE marking in Europe in January
2016 and Health Canada clearance in March 2016 to begin the market development of the RedoxSYS System as a clinical diagnostic
in Europe, Canada, and elsewhere around the world where CE marking is recognized. We launched sales efforts into the research
market in late 2014 and since that time have placed the RedoxSYS System at a number of prominent research centers in the United
States, Europe, and Israel. We expect to leverage these research relationships and build numerous applications in areas where
researchers are studying oxidative stress. Currently, there are no available research platforms that measure oxidation-reduction
potential in biologic fluids (i.e., blood, plasma, serum, semen, seminal fluid, cerebrospinal fluid, tissue, and cells). While
oxidative stress is commonly studied in research settings around the world (both academia and industry), the current assessment
methods are incomplete, time consuming, and often impractical for assessing oxidative stress completely. To position the RedoxSYS
System effectively in the research market, we have placed key personnel in the United States, Europe, and Asia to develop direct
research business relationships as well as distribution networks. Through these proof of concept studies and clinical exploratory
studies, we identified the application of oxidation-reduction potential in male infertility assessment. As such, MiOXSYS was developed
specifically for assessing semen and seminal plasma ORP levels. While we expect additional clinical applications to be developed
through these applications, our near-term focus is on completing the development of MiOXSYS for use in semen analysis for male
infertility assessment.
Background on the MiOXSYS
System
MiOXSYS is a novel, portable device
that measures oxidation-reduction potential, or ORP, a global measure of oxidative stress. MiOXSYS is the first and only system
that measures ORP in biologic specimens to provide a complete measure of redox balance, which is broadly implicated across a wide
range of both acute and chronic conditions.
Potential Role of ORP in
Diagnosing Male Infertility
Oxidation-reduction potential
is defined in the published literature as follows:
“ORP
in a biological system is an integrated measure of the balance between total oxidants and reductants. In plasma, many constituents
contribute to the ORP. Reactive oxygen species (ROS), such as the superoxide ion, hydroxyl radical, hydrogen peroxide, nitric
oxide, peroxynitrite, transition metal ions, and hypochlorous acid, contribute to the oxidative potential. Plasma reductants include
thiols, vitamin C, tocopherol, β-carotene, lycopene, uric acid, bilirubin, and flavonoids. Enzymes such as superoxide dismutase,
or SOD, catalase, and glutathione peroxidase, are involved in the conversion of ROS into less reactive species. ORP monitoring
of plasma represents a single measurement that integrates the overall quantitative balance among the oxidants and reductants of
the system.”
Given that ORP represents a single,
global measure of oxidative stress in a biological system, we believe the potential for ORP to serve as a standardized marker
in semen analysis and other aspects of infertility assessment is significant. A major limitation of oxidative stress assays relates
to the fact that there is poor standardization in testing. As many factors contribute to oxidative stress (e.g., free radical
proliferation, antioxidant depletion, DNA damage, etc.), it is important to have an integrated measure that combines all known
and unknown oxidants and reductants in the respective system into one measurement. We believe ORP is an integrated measure of
oxidative stress that can be easily and quickly measured with the MiOXSYS System.
In the context of infertility,
having an integrated value representing all relevant biologic constituents contributing to oxidative stress will enable simple,
robust analysis in a two to three minute test. There are various techniques in use to assess semen in cases of male infertility.
The most commonly implemented techniques involve DNA fragmentation, oxidative stress analysis, microscopic examination, sperm
penetration assays, sperm agglutination, computer assisted semen analysis, and others. The currently available oxidative stress
analysis tools are widely considered expensive and cumbersome to use in routine clinical practice. In both developed countries
as well as in the developing world, expensive analysis tools and recurring reagent expenses make routine testing nearly impossible
to implement with regularity.
The MiOXSYS System Overview
The MiOXSYS System is comprised
of two distinct, patented components that enable a system capable of measuring the ORP and antioxidant capacity of a biological
fluid: an analyzer and sensor strips. In mechanical terms, ORP is defined as the potential between a working electrode, and a
reference electrode at equilibrium. The RedoxSYS System has been specifically studied in human whole blood, serum, semen, seminal
plasma, blood plasma, and other biological fluids.
The MiOXSYS System measures two
distinct elements to determine a patient’s oxidation reduction potential:
|
•
|
Static ORP — the standard potential between a working
electrode and a reference electrode with no driving current (or extremely small current). This is proportional to the balance
of redox agents and is what is classically defined as ORP. Low ORP values mean that the biological sample is in the normal
range of oxidative stress. Higher than normal ORP values means that the biological sample is in a higher oxidation state.
|
|
•
|
Capacity — the measure of antioxidant reserve available
in the body’s system. High capacity values mean that the biological sample has levels of antioxidant reserves. Lower
than normal capacity values means that the biological sample has below normal antioxidant reserves.
|
The MiOXSYS Analyzer
The MiOXSYS analyzer is a portable,
lightweight desktop platform that may be used in a clinical or research laboratory or near a patient care area. The analyzer is
a small device that accepts an inserted sensor that has collected a small specimen as obtained by traditional specimen collection
procedures. The analyzer is battery powered and equipped with a custom 5 lead strip connector. The reader consists of a Galvanostat
analog circuit with greater than 1012 MHz input impedance.
The analyzer contains a 10 MHz
external crystal (internal 4X PLL for 40 MHz operation), and a programming/serial header is externally accessible. The device
has internal power/heart-beat indicator LED, primary storage of 128Mbit (16Mbyte) SPI Flash (3.3V) (Bulk data storage), and secondary
storage of 2Mbit (256Kbyte) SPI FRAM (3.3V) (Hi-Speed Storage).
The MiOXSYS analyzer contains
a user-friendly interface that is flexibly designed to accommodate multiple endpoints depending upon the specific clinical condition
being considered. The interface is LCD, 16x2, with a white backlight, variable delay auto-off time-out. Two status LED indicators
are visible through front panel mounted lenses. Further, the reader contains three DPDT push-button switches (Left, Center, Right),
power on button(s) for battery mode operation, switch usage switch, audible alerts, strip detection, and test completion signals.
Further, the MiOXSYS analyzer
enables data transfer, has USB serial communication, and is configured for data download to a connected PC.
The MiOXSYS analyzer’s power
management consists of an external 5VDC power jack with input capacitance and filtering, a boost converter supplied by external
5VDC power or internal Li-Ion battery, and provides main 5VDC digital board supply. The reader functions with or without the battery
connected. The battery lasts in excess of 24 hours with continuous operation to enable prolonged use outside of a laboratory setting.
Image of the MiOXSYS Analyzer
The MiOXSYS Sensor Strips
The MiOXSYS sensor strips, via
standard biological specimen collection techniques, receive 20 – 40 microliters of a specimen from which the ORP clinical
analysis is performed. The ORP sensor strips are small, disposable, and biocompatible and consist of a ceramic substrate and a
five-lead configuration. Significant intellectual property surrounds the design, construct, and electrochemical algorithms associated
with the sensors.
Image of the MiOXSYS Sensor
Strips
Regulatory Pathway
We achieved ISO 13485: 2003 in
late 2013 following the successful development of a compliant medical device quality system. Following the issuance of our ISO
certification, we obtained CE marking for the RedoxSYS System, which has enabled initial market development in Europe and markets
that accept a CE marking. In December 2015, we achieved CE marking for MiOXSYS following technical validation and clinical study
completion in male infertility. In March 2016, we obtained Health Canada Class II Medical approvals for MiOXSYS. In the United
States, we intend to pursue 510k clearance with the FDA for the MiOXSYS System. We have recent, ongoing correspondence with the
FDA and have confirmed that MiOXSYS is appropriate for the 510k pathway, and we are pursuing regulatory clearance through this
pathway.
United States Commercial
Strategy
If the clinical studies to measure
oxidative stress in male infertility are successful, we expect to pursue that intended use for the MiOXSYS System via the FDA
510k pathway. If cleared for the infertility intended use, we intend to seek to commercialize the MiOXSYS System as a new tool
for the assessment of oxidative stress in infertility in men. We envision pursuing a direct sales effort to high priority urology/andrology
laboratories, infertility clinics and reference centers across the United States. We have identified the primary, influential
centers in the United States and believe our commercial deployment will be efficient through a focused sales and marketing effort.
We intend to seek to sell the MiOXSYS System into individual centers and laboratories but will focus our revenue model on the
repeat ordering of the disposable, single use MiOXSYS sensor strips. We expect to realize a favorable gross margin on the basis
of estimated low cost of goods sold on both components of the system. We envision an average selling price for the disposable
sensors of approximately $25. We envision selling the MiOXSYS analyzers for approximately $2,500 but will also pursue an instrument
rental agreement model with minimum disposable sensor purchase requirements.
We also intend to leverage our
urology commercialization efforts with other products with a focus on urology centers, infertility clinics, and reproductive health
laboratories around the United States.
We believe a focused sales force
at the onset of commercialization will enable effective representation of our products and penetration of the reproductive health
market. Our sales efforts into the research markets will be enabled initially through a full-time business development professional
who will focus on collaborative research and research sales to major oxidative stress centers in the United States. We expect
to pursue identical pricing in the research market and the clinical diagnostics markets.
ROW Commercial Strategy
We intend to undertake a similar strategy outside the United States for the RedoxSYS and MiOXSYS Systems while
complementing our efforts in infertility and research with adjunct applications in critical care conditions. To efficiently execute
across our strategy, we intend to utilize a network of established distributors in the target markets in Europe and Asia. We have
already established distribution arrangements with multiple distributors in multiple countries, and through these distributors,
we have sold MiOXSYS in over 20 countries around the world. We anticipate slightly reduced pricing outside the U.S. for the disposable
sensors given the anticipated lower pricing observed ex-US for diagnostic and research products.
Nuelle and the Fiera® Personal
Care Device
Fiera is a revenue-generating women’s personal care product
marketed in the United States primarily through consumer promotion. Fiera is the first of its kind, hands-free, personal care
device for women that enhances physical arousal and interest in sex. In scientific and consumer studies conducted with hundreds
of women with stated sexual desire and response concerns, Fiera has demonstrated highly consistent benefit. Importantly, Fiera
is also endorsed by and receives professional recommendations from leading sexual health experts across the United States and
has been studied and presented by the same experts.
Fiera was created with OB-GYNs
and has multiple scientific studies showing it works. Fiera helps women who have changing levels of arousal, interest,
and vaginal dryness, enter a sexual experience with enhanced levels of excitement and interest. Fiera works naturally with
a woman’s body and provides a hands-free experience thanks to the innovative design. Fiera uses light stimulation
and a gentle suction action to enhance blood flow and increase lubrication in advance of sex, in as little as 5 minutes.
Product Features of
Fiera
Personal Care Devices
:
|
·
|
Proprietary
dual-action technology enhances blood flow to the genitals
|
|
·
|
Small,
fast-acting and hands-free, typically worn for 5-15 minutes and
then removed in
preparation for sexual activity
|
|
·
|
Features
pattern and intensity settings for a customizable experience
|
|
·
|
Made
with comfortable, body-safe materials (phthalate free)
|
|
·
|
Uses
rechargeable battery
|
|
·
|
Does
not require a prescription (consumer device)
|
The Fiera Device
|
The Fiera Device + Remote
|
The Fiera
SofSense™ Rings
The Fiera SofSense™ ring refills are available and sold in two styles, for a custom fit. Each refill
box contains three SofSense™ rings, and each ring is designed to be used up to five times.
United States-Based Consumer
Study
Fiera has been extensively studied
and tested by consumers and physicians. Fiera is scientifically proven to enhance genital arousal in women of all ages, including
pre and post-menopausal women.
Consumer study results in women
ages 25-75 showed that after 4 weeks of using Fiera + Remote:
|
·
|
97% of women felt physically aroused
|
|
·
|
96% looked forward to being intimate with their partner
|
|
·
|
93% felt excited and ready for sex
|
|
·
|
89% of women felt more “in the mood”
|
|
·
|
87% felt as ready for sex as their partner did
|
Previous studies also showed that
87% of women felt increased desire and 67% felt increased lubrication. In a separate scientific study of pre and post-menopausal
women, arousal occurred on average in 5 minutes.
Clinical Data on the Fiera
Personal Care Device
Fiera serves several important
functions:
|
1.
|
It helps to encourage blood flow
in the clitoris (vasocongestion), a key physical reaction that signals your body that
you are ready for sex.
|
|
2.
|
It provides direct stimulation,
accelerating the effect of the suction.
|
|
3.
|
A soft, silicone ring adheres
with a gentle suction holding the product in place so that your hands are free.
|
Fiera is tucked under the labia
and worn over the clitoris, a woman’s most sensitive sexual organ to enhance arousal through a proprietary combination of
gentle suction and multi-focal stimulation. As the nerve endings in the clitoris respond, a woman begins to experience enhanced
sensation to the genital area, which triggers a physical state of arousal.
Our research shows that use of
Fiera regularly over a 4-week period also increases a woman’s level of sexual desire. Women also report looking forward
to and enjoying sexual activity more.
A study of 14 sexually active,
premenopausal
women was conducted to determine the degree of engorgement – as measured by temperature change in the
external genitalia – produced by Fiera. Fiera produced statistically significant increases in vulvar temperatures, which
is a marker of genital blood flow and engorgement. 100% of study participants reported feeling “In the Mood” for sex
after use of Fiera. Additionally, 100% of study participants experienced genital sexual arousal during use of Fiera. Another study
of 12 sexually active, postmenopausal women demonstrated that Fiera produced statistically significant increases in vulvar temperature.
Use of Fiera in this population of postmenopausal women produced sexual desire in 100% of the subjects while 83% experienced genital
arousal.
ProstaScint for the Detection
of Prostate Cancer
On May 20, 2015, we acquired ProstaScint® from Jazz Pharmaceuticals. The ProstaScint Kit, or capromab
pendetide, is a radio-labeled monoclonal antibody, which is a biologic product that targets a specific antigen. ProstaScint targets
prostate specific membrane antigen, or PSMA, a protein uniquely expressed by prostate tissue. A radioactive substance called Indium
(In 111) is attached to the proprietary, mouse-derived antibody. The radiolabeled antibody is infused into the patient and is taken
up by prostate cancer cells which can be detected and visualized with a special nuclear medicine scan (single-photon emission tomography,
or SPECT). ProstaScint has been shown to be clinically effective in determining the course of treatment for a patient who has had
a prostatectomy and/or has suspected metastasis (spread of the cancer cells beyond the prostate). Further, ProstaScint has demonstrated
efficacy in patients classified as high risk or with recurrent prostate cancer. ProstaScint has been approved by the FDA and Health
Canada, and significant clinical data exist demonstrating the significant predictive value in prostate cancer staging. At June
30, 2017, the ProstaScint asset was impaired based upon sales projections that we intend to only sell this product through mid-fiscal
2019, when this product expires.
Prostate Cancer Market
According to the American Cancer
Society prostate cancer is the most common cancer among men in the United States, with an estimated 241,000 annual cases (as of
2012). Further, more than 2.2 million men were alive in 2006 with some history of prostate cancer, and over 30,000 U.S. men die
each year from the disease. The effect of prostate cancer on healthcare economics is substantial, which makes the need for accurate
disease staging critical for treatment and management strategies. The U.S. market for the diagnosis and screening of prostate
cancer is expected to total $17.4 billion in 2017, a CAGR of 7.5% since 2012. Importantly, ProstaScint is the only FDA-approved
radiopharmaceutical (for use in radioimmunoscintigraphy) specifically indicated for prostate cancer screening and is specifically
highlighted in the American Cancer Society practice guidelines for prostate cancer screening and staging.
Prostate cancer is classified
into four stages based on severity: Stages 1 through 4. Stage 3 is considered “high risk” and Stage 4 is when cancer
has become metastatic. Radioimmunoscintigraphy has been established as a diagnostic to stage cancer malignancy and one of the
most widespread clinical uses has been for the detection of prostate cancer.
ProstaScint Clinical Data
Multiple clinical studies have
been conducted in the United States and published in peer-reviewed publications that consistently demonstrate substantial clinical
efficacy of ProstaScint in staging prostate cancer patients and specifically identify whether the cancer is confined to the prostate
or has metastasized to other parts of the body. Through more accurate clinical staging and identification of metastatic prostate
cancer, clinicians are able to better direct therapeutic interventions and improve outcomes. A brief summary of key clinical findings
for ProstaScint from select studies are summarized below.
Principal
Investigator(s)/
Primary Authors
|
|
Publication
|
|
Patient
Population
|
|
Conclusion/Results
|
Ellis RJ et al.
|
|
Int. J. Radiation Oncology Biol. Phy. (2010)
|
|
Patients presenting for primary radiotherapy having a clinical diagnosis
of localized primary prostate cancer; Patients evaluated for tumor stage using conventional staging and SPECT/CT (N=239)
|
|
SPECT/CT imaging with ProstaScint pre-treatment was significantly predictive
of 10-year biochemical disease-free survival (86.6% vs. 65.5%; p=0.0014)
|
Haseman MK et al.
|
|
Urology (2007)
|
|
Men with prostate cancer who underwent imaging with ProstaScint pretreatment;
Patients were divided according to the presence or absence of central abdominal uptake (CAU) (N=341)
|
|
SPECT/CT imaging with ProstaScint pretreatment effectively predicted death
rates among patients with central abdominal uptake (CAU), and demonstrated that prostate cancer-specific death rates were
10 times higher in patients identified with ProstaScint as having central abdominal uptake (p=0.005).
|
Ellis RJ et al.
|
|
Brachytherapy (2005)
|
|
Men with prostate cancer of all risk categories who underwent imaging with
ProstaScint pretreatment; patients were divided into low, intermediate, and high risk and underwent brachytherapy (N=239)
|
|
SPECT/CT imaging with ProstaScint pretreatment effectively predicted biochemical
disease recurrence regardless of the patient’s risk category; 7-year outcomes data from brachytherapy patients with
treatment based on the ProstaScint scan showed a significant difference in biochemical disease-free survival.
|
Radiation oncology experts have
published numerous papers expressing the potential for expanded use of ProstaScint in prostate cancer imaging due to advances
in imaging technologies since the product’s initial approval. Since the early 2000s, significantly greater image resolution
has been enabled due to the advent of dual head cameras (and improved imaging in general) along with the use of co-registered
images where radiologists now combine the images of SPECT and computerized tomography, or CT, or magnetic resonance imaging, or
MRI. Because of these factors, we believe there is significant commercial opportunity for ProstaScint.
ProstaScint Product Information
ProstaScint is provided as a two-vial
kit which contains all of the non-radioactive ingredients necessary to produce a single unit dose for administration by intravenous
injection. The ProstaScint vial contains 0.5 mg of capromab pendetide in 1 mL of sodium phosphate buffered saline solution adjusted
to pH 6; a sterile, pyrogen-free, clear, colorless solution that may contain some translucent particles. The vial of sodium acetate
buffer contains 82 mg of sodium acetate in 2 mL of water for injection adjusted to pH 5 – 7 with glacial acetic acid; it
is a sterile, pyrogen-free, clear, and colorless solution. Neither solution contains a preservative.
Each kit also includes one sterile
0.22 μm Millex® GV filter, prescribing information, and two identification labels. The hospital is responsible for addition
of Indium (In 111). ProstaScint may also be helpful in conjunction with other scans (CT or MRI) for higher risk patients, by detecting
lymph nodes in the abdomen that are involved with prostate cancer cells, but may still appear falsely normal on CT or MRI scans.
The procedure to administer ProstaScint
is as follows: the patient is given an intravenous, or IV, infusion of the monoclonal antibody, and 30 minutes later, a scan is
performed. A second scan is done between 96 and 120 hours (4 – 5 days) after the infusion. The first scan (on the day of
the infusion) takes approximately 1 hour, while the second scan takes approximately 2.5 hours.
ProstaScint Uses
ProstaScint is indicated as a
diagnostic imaging agent in newly-diagnosed patients with biopsy-proven prostate cancer, thought to be clinically-localized after
standard diagnostic evaluation (e.g. chest x-ray, bone scan, CT scan, or MRI), who are at high-risk for pelvic lymph node metastases.
It is not indicated in patients who are not at high risk.
ProstaScint is also indicated
as a diagnostic imaging agent in post-prostatectomy patients with a rising PSA and a negative or equivocal standard metastatic
evaluation in whom there is a high clinical suspicion of occult metastatic disease. The imaging performance of Indium (In 111)
ProstaScint following radiation therapy has not been studied.
The information provided by Indium
(In 111) ProstaScint imaging should be considered in conjunction with other diagnostic information. Scans that are positive for
metastatic disease should be confirmed histologically in patients who are otherwise candidates for surgery or radiation therapy
unless medically contraindicated. Scans that are negative for metastatic disease should not be used in lieu of histological confirmation.
ProstaScint is not indicated as a screening tool for carcinoma of the prostate nor for re-administration for the purpose of assessment
of response to treatment.
ProstaScint was initially marketed
by Cytogen Corporation, which was acquired by EUSA Pharma. Jazz Pharmaceuticals acquired EUSA in June 2012 but significantly reduced
promotion of ProstaScint due to a lack of strategic focus. Despite limited commercialization efforts, peak annual unit sales of
ProstaScint of 8,216 kits were achieved. At current pricing, this unit sales volume would equate to approximately $14.6 million
in annual revenue.
In late fiscal 2017, we decided
to implement a harvest strategy for the ProstaScint product, due to increased competition and the cost to continue manufacturing.
Based upon our current projections, we believe that we will continue to sell this product through fiscal 2018 and the first half
of fiscal 2019.
Our Business Development Strategy
— Identifying & Acquiring Complementary Urology Assets
A key growth and value driver
for our Company is the ongoing identification and acquisition of novel urology products for commercialization. We seek to identify
unique products with urologic indications that may be non-strategic, undervalued or under-resourced by the company that currently
markets the product. We believe that we can continue to acquire strategically aligned products at an appropriate valuation and
grow those products via our focused sales and marketing efforts. We will also consider acquiring novel, late-stage development
products that represent unique commercial opportunities and can be efficiently developed.
We will continue to look to identify unique product assets to acquire based on specific attributes including
but not limited to: therapeutic area/indication; growth potential; intellectual property position (patents, regulatory, manufacturing
or development technicalities, etc.); valuation; strategic fit; commercial orientation and other factors. Indications of interest
include products to treat conditions such as urinary incontinence, sexual wellness and vitality, hypogonadism, prostate and other
urological cancers, urinary tract infections, and other urological conditions. However, during fiscal 2018, our primary focus will
be on growing our current core assets and working towards cash-flow breakeven.
Government Regulation
While we do not have any pharmaceutical
product candidates that we are actively developing as of the date of this Report, we may in the future acquire such products.
Currently, we are developing two medical device candidates, the RedoxSYS and MiOXSYS Systems, for which regulatory approval must
be received before we can market them within the United States. Regulatory approval processes for our current and any future product
candidates are discussed below.
Approval Process for Pharmaceutical
Products
FDA Approval Process for Pharmaceutical
Products
In the United States, pharmaceutical
products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal
and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export
of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative
or judicial sanctions, such as FDA refusal to approve pending new drug applications, NDAs, warning letters, product recalls, product
seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Pharmaceutical product development
in the United States typically involves the performance of satisfactory nonclinical, also referred to as pre-clinical, laboratory
and animal studies under the FDA’s Good Laboratory Practice, or GLP, regulation, the development and demonstration of manufacturing
processes, which conform to FDA mandated current good manufacturing requirements, or cGMP, including a quality system regulating
manufacturing, the submission and acceptance of an IND application, which must become effective before human clinical trials may
begin in the United States, obtaining the approval of Institutional Review Boards, or IRBs, at each site where we plan to conduct
a clinical trial to protect the welfare and rights of human subjects in clinical trials, adequate and well-controlled clinical
trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought, and the submission
to the FDA for review and approval of an NDA. Satisfaction of FDA requirements typically takes many years and the actual time
required may vary substantially based upon the type, complexity, and novelty of the product or disease.
Pre-clinical tests generally include
laboratory evaluation of a product candidate, its chemistry, formulation, stability and toxicity, as well as certain animal studies
to assess its potential safety and efficacy. Results of these pre-clinical tests, together with chemistry, manufacturing controls
and analytical data and the clinical trial protocol, which details the objectives of the trial, the parameters to be used in monitoring
safety, and the effectiveness criteria to be evaluated, along with other requirements must be submitted to the FDA as part of
an IND, which must become effective before human clinical trials can begin. The entire clinical trial and its protocol must be
in compliance with what are referred to as good clinical practice, or GCP, requirements. The term, GCP, is used to refer to various
FDA laws and regulations, as well as international scientific standards intended to protect the rights, health and safety of patients,
define the roles of clinical trial sponsors and assure the integrity of clinical trial data.
An IND automatically becomes effective
30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the intended
conduct of the trials and imposes what is referred to as a clinical hold. Pre-clinical studies generally take several years to
complete, and there is no guarantee that an IND based on those studies will become effective, allowing clinical testing to begin.
In addition to FDA review of an IND, each medical site that desires to participate in a proposed clinical trial must have the
protocol reviewed and approved by an independent IRB or Ethics Committee, or EC. The IRB considers, among other things, ethical
factors, and the selection and safety of human subjects. Clinical trials must be conducted in accordance with the FDA’s
GCP requirements. The FDA and/or IRB may order the temporary, or permanent, discontinuation of a clinical trial or that a specific
clinical trial site be halted at any time, or impose other sanctions for failure to comply with requirements under the appropriate
entity jurisdiction.
Clinical trials to support NDAs
for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1 clinical trials,
a product candidate is typically introduced either into healthy human subjects or patients with the medical condition for which
the new drug is intended to be used.
The main purpose of the trial
is to assess a product candidate’s safety and the ability of the human body to tolerate the product candidate. Phase 1 clinical
trials generally include less than 50 subjects or patients. During Phase 2 trials, a product candidate is studied in an exploratory
trial or trials in a limited number of patients with the disease or medical condition for which it is intended to be used in order
to: (i) further identify any possible adverse side effects and safety risks, (ii) assess the preliminary or potential efficacy
of the product candidate for specific target diseases or medical conditions, and (iii) assess dosage tolerance and determine the
optimal dose for Phase 3 trials. Phase 3 trials are generally undertaken to demonstrate clinical efficacy and to further test
for safety in an expanded patient population with the goal of evaluating the overall risk-benefit relationship of the product
candidate. Phase 3 trials are generally designed to reach a specific goal or endpoint, the achievement of which is intended to
demonstrate the candidate product’s clinical efficacy and adequate information for labeling of the approved drug.
There are three main types of
NDAs, which are covered by Section 505 of the FDC Act: (1) an application that contains full reports of investigations of safety
and efficacy (Section 505(b)(1)); (2) an application that contains full reports of investigations of safety and effectiveness
but where at least some of the information required for approval comes from studies not conducted by or for the applicant and
for which the application has not obtained a right of reference (Section 505(b)(2)); and (3) an application that contains information
to show that the proposed product is identical in active ingredient, dosage form, strength, route of administration, labeling,
quality, performance characteristics, and intended use, among other things, to a previously approved product (Section 505(j)).
Section 505(b)(2) expressly permits the FDA to rely, for approval of an NDA, on data not developed by the applicant. In the pre-IND
briefing meeting with Ampio and in June 2012, the FDA agreed that our NDA may be submitted under Section 505(b)(2). As such, we
intend to rely on studies published in the scientific literature and reference FDA-approved NDAs for tramadol-containing products
(NDAs 21-693, 20-281 and 21-692) to support the safety and efficacy demonstrated in our clinical program.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval
of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical,
clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and
controls. The cost of preparing and submitting an NDA is substantial. Under federal law, the submission of most NDAs is additionally
subject to a substantial application user fee, currently exceeding $2.3 million and the manufacturer and/or sponsor under an approved
NDA are also subject to annual product and establishment user fees, currently approximately $100,000 per product and $600,000 per
establishment. These fees are typically increased annually.
The FDA has 60 days from its receipt
of an NDA to determine whether the application will be accepted for filing based on the FDA’s threshold determination that
it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth
review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review drug
products are reviewed within ten months; most applications for priority review drugs are reviewed in six months. Priority review
can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy
exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider
certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA
may also refer applications for novel drug products, or drug products which present difficult questions of safety or efficacy,
to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluation,
and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug
is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that
provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA
and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter
generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for
the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a
resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or
six months depending on the type of information included. An approval letter authorizes commercial marketing of the drug with
specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation
and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks.
REMS can include medication guides,
communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited
to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring,
and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of
the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s
safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained
or problems are identified following initial marketing.
The Hatch-Waxman Act
In seeking approval for a drug
through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon
approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug
Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in
turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides
for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug
and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement
for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests
to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic
equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original
listed drug.
The ANDA applicant is required
to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book that: 1) the required
patent information has not been filed; 2) the listed patent has expired; 3) the listed patent has not expired, but will expire
on a particular date and approval is sought after patent expiration; or 4) the listed patent is invalid or will not be infringed
by the new product. A certification that the new product will not infringe the already approved product’s listed patents,
or that such patents are invalid, is called a Paragraph IV certification. If the applicant does not challenge the listed patents,
the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
If the ANDA applicant has provided
a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and
patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement
lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days
of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30
months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA
applicant.
The ANDA application also will
not be approved until any non-patent exclusivity listed in the Orange Book for the referenced product has expired. Federal law
provides a period of five years following approval of a drug containing no previously approved active ingredients during which
ANDAs for generic versions of those drugs cannot be submitted, unless the submission contains a Paragraph IV challenge to a listed
patent — in which case the submission may be made four years following the original product approval. Federal law provides
for a period of three years of exclusivity during which FDA cannot grant effective approval of an ANDA based on the approval of
a listed drug that contains previously approved active ingredients but is approved in a new dosage form, route of administration
or combination, or for a new use; the approval of which was required to be supported by new clinical trials conducted by, or for,
the applicant.
Post-Approval Regulation
Even if a product candidate receives
regulatory approval, the approval is typically limited to specific clinical indications. Further, even after regulatory approval
is obtained, subsequent discovery of previously unknown problems with a product may result in restrictions on its use or even
complete withdrawal of the product from the market. Any FDA-approved products manufactured or distributed by us are subject to
continuing regulation by the FDA, including record-keeping requirements and reporting of adverse events or experiences. Further,
drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and
are subject to periodic inspections by the FDA and state agencies for compliance with cGMP, which impose rigorous procedural and
documentation requirements upon us and our contract manufacturers. We cannot be certain that we or our present or future contract
manufacturers or suppliers will be able to comply with cGMP regulations and other FDA regulatory requirements. Failure to comply
with these requirements may result in, among other things, total or partial suspension of production activities, failure of the
FDA to grant approval for marketing, and withdrawal, suspension, or revocation of marketing approvals.
If the FDA approves one or more
of our product candidates, we and the contract manufacturers we use for manufacture of clinical supplies and commercial supplies
must provide certain updated safety and efficacy information. Product changes, as well as certain changes in the manufacturing
process or facilities where the manufacturing occurs or other post-approval changes may necessitate additional FDA review and
approval. The labeling, advertising, promotion, marketing and distribution of a drug or biologic product or medical devices, also
must be in compliance with FDA and Federal Trade Commission, or FTC, requirements which include, among others, standards and regulations
for direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional
activities involving the Internet. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations
can result in penalties, including the issuance of a warning letter directing us to correct deviations from regulatory standards
and enforcement actions that can include seizures, fines, injunctions and criminal prosecution.
Approval Process for Medical
Devices
In the United States, the FDCA,
FDA regulations and other federal and state statutes and regulations govern, among other things, medical device design and development,
preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage,
advertising and promotion, sales and distribution, export and import, and post-market surveillance. The FDA regulates the design,
manufacturing, servicing, sale and distribution of medical devices, including molecular diagnostic test kits and instrumentation
systems. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial
sanctions, such as FDA refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Unless an exemption applies, each
medical device we wish to distribute commercially in the United States will require marketing authorization from the FDA prior
to distribution. The two primary types of FDA marketing authorization applicable to a device are premarket notification, also
called 510k clearance, and premarket approval, also called PMA approval. The type of marketing authorization is generally linked
to the classification of the device. The FDA classifies medical devices into one of three classes (Class I, II or III) based on
the degree of risk the FDA determines to be associated with a device and the level of regulatory control deemed necessary to ensure
the device’s safety and effectiveness. Devices requiring fewer controls because they are deemed to pose lower risk are placed
in Class I or II. Class I devices are deemed to pose the least risk and are subject only to general controls applicable to all
devices, such as requirements for device labeling, premarket notification and adherence to the FDA’s current Good Manufacturing
Practices, or cGMP, known as the Quality System Regulations, or QSR. Class II devices are intermediate risk devices that are subject
to general controls and may also be subject to special controls such as performance standards, product-specific guidance documents,
special labeling requirements, patient registries or post-market surveillance. Class III devices are those for which insufficient
information exists to assure safety and effectiveness solely through general or special controls and include life sustaining,
life-supporting or implantable devices, devices of substantial importance in preventing impairment of human health, or which present
a potential, unreasonable risk of illness or injury.
Most Class I devices and some
Class II devices are exempted by regulation from the 510k clearance requirement and can be marketed without prior authorization
from the FDA. Some Class I devices that have not been so exempted and Class II devices are eligible for marketing through the
510k clearance pathway. By contrast, devices placed in Class III require PMA approval prior to commercial marketing. The PMA approval
process is more stringent, time-consuming and expensive than the 510k clearance process, however, the 510k clearance process has
also become increasingly stringent and expensive. The FDA has provided initial guidance to us that the MiOXSYS and RedoxSYS Systems
are appropriate for the 510k clearance process.
510k Clearance. To obtain 510k
clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is
“substantially equivalent” to a device legally marketed in the United States that is not subject to PMA approval,
commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate device,
it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics
and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not
raise different questions of safety or effectiveness. A showing of substantial equivalence sometimes, but not always, requires
clinical data. Generally, the 510k clearance process can exceed 90 days and may extend to a year or more.
After a device has received 510k
clearance for a specific intended use, any change or modification that significantly affects its safety or effectiveness, such
as a significant change in the design, materials, method of manufacture or intended use, may require a new 510k clearance or PMA
approval and payment of an FDA user fee. The determination as to whether or not a modification could significantly affect the
device’s safety or effectiveness is initially left to the manufacturer using available FDA guidance; however, the FDA may
review this determination to evaluate the regulatory status of the modified product at any time and may require the manufacturer
to cease marketing and recall the modified device until 510k clearance or PMA approval is obtained. The manufacturer may also
be subject to significant regulatory fines or penalties.
Before we can submit a medical
device for 510k clearance, we may have to perform a series of generally short studies over a period of months, including method
comparison, reproducibility, interference and stability studies to ensure that users can perform the test successfully. Some of
these studies may take place in clinical environments, but are not usually considered clinical trials. For PMA submissions, we
would generally be required to conduct a longer clinical trial over a period of years that supports the clinical utility of the
device and how the device will be used.
Although clinical investigations
of most devices are subject to the investigational device exemption, or IDE, requirements, clinical investigations of diagnostic
tests, including our products and products under development, are generally exempt from the IDE requirements. Thus, clinical investigations
by intended users for intended uses of our products generally do not require the FDA’s prior approval but may require approval
of an Institutional Review Board, or IRB, and written informed consent by the patient, provided the clinical evaluation testing
is non-invasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce
energy into the subject and is not used as a diagnostic procedure without confirmation by another medically established test or
procedure. In addition, our products must be labeled per FDA regulations “for research use only-RUO” or “for
investigational use only-IUO,” and distribution controls must be established to assure that our products distributed for
research, method comparisons or clinical evaluation studies are used only for those purposes.
Regulation after FDA Clearance
or Approval
Any devices we manufacture or
distribute pursuant to clearance or approval by the FDA are subject to pervasive and continuing regulation by the FDA and certain
state agencies. We are required to adhere to applicable regulations setting forth detailed cGMP requirements, as set forth in
the QSR, which include, among other things, testing, control and documentation requirements. Noncompliance with these standards
can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension
of production, refusal of the government to grant 510k clearance or PMA approval of devices, withdrawal of marketing approvals
and criminal prosecutions, fines and imprisonment. Our contract manufacturers’ facilities operate under the FDA’s
cGMP requirements.
Foreign Regulatory Approval
Outside of the United States,
our ability to market our product candidates will be contingent also upon our receiving marketing authorizations from the appropriate
foreign regulatory authorities, whether or not FDA approval has been obtained. The foreign regulatory approval process in most
industrialized countries generally encompasses risks similar to those we will encounter in the FDA approval process. The requirements
governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals, may vary
widely from country to country and differ from those required for FDA approval.
In the European Union, we are
required under the European Medical Device Directive (Council Directive 93/42/EEC) to affix the CE mark to certain of our products
in order to sell the products in member countries of the European Union. The CE mark is an international symbol that represents
adherence to certain essential principles of safety and effectiveness mandated in the European Medical Device Directive, which
are referred to as the “essential requirements”. Once affixed, the CE mark enables a product to be sold within the
European Economic Area, or EEA, which is composed of the 28 member states of the EU plus Norway, Iceland and Liechtenstein as
well as other countries that accept the CE mark.
To demonstrate compliance with
the essential requirements, we must undergo a conformity assessment procedure which varies according to the type of medical device
and its classification. Except for low risk medical devices (Class I with no measuring function and which are not sterile) where
the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the
essential requirements of the Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization
accredited by a member state of the EEA to conduct conformity assessments, or a notified body. Depending on the relevant conformity
assessment procedure, the notified body would typically audit and examine the technical file and the quality system for the manufacture,
design and final inspection of our devices. The notified body issues a CE certificate of Conformity following successful completion
of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with
the essential requirements. This certificate entitles the manufacturer to affix the CE mark to its medical devices after having
prepared and signed a related EC Declaration of Conformity.
If we modify our devices, we may
need to apply for permission to affix the CE mark to the modified product. Additionally, we may need to apply for a CE mark for
any new products that we may develop in the future. Certain products regulated as medical devices according to EC-Directives are
subject to vigilance requirements for reporting of adverse events.
We will be subject to additional
regulations in other countries in which we market, sell and import our products, including Canada. We or our distributors must
receive all necessary approvals or clearance prior to marketing and/or importing our products in those markets.
The International Standards Organization,
or ISO, promulgates internationally recognized standards, including those for the requirements of quality systems. To support
ISO certifications, surveillance audits are conducted by a notified body yearly and recertification audits every three years that
assess continued compliance with the relevant ISO standards.
Other Regulatory Matters
Manufacturing, sales, promotion
and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition
to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, other divisions of the Department
of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission,
the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the
United States, sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws.
Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of
1990 and more recent requirements in the Health Care Reform Law, as amended by the Health Care and Education Affordability Reconciliation
Act, or ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration,
additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances
Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under
the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to
federal and state consumer protection and unfair competition laws.
The distribution of pharmaceutical
products is subject to additional requirements and regulations, including extensive recordkeeping, licensing, storage and security
requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply with regulatory
requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable
regulatory requirements can result in criminal prosecution, fines, imprisonment or other penalties, injunctions, recall or seizure
of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm
to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements,
new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in
an adverse way.
Changes in regulations, statutes
or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to
our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our
products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect
the operation of our business.
United States Patent Term
Restoration and Marketing Exclusivity
Depending upon the timing, duration
and other specific aspects of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for limited patent
term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining
term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally
one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission
date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension
and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office,
in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future,
if any of our NDA’s are approved, we intend to apply for restoration of patent term for one of our currently owned or licensed
patents to add patent life beyond the current expiration date, depending on the expected length of the clinical trials and other
factors involved in the filing of the relevant NDA.
Market exclusivity provisions
under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a five-year
period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a
new chemical entity, or NCE. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. Recently, the FDA stated
that it may change its interpretation of 5-year NCE exclusivity determinations to apply to each drug substance in a fixed-combination
drug product, not for the drug product as a whole. If this change is implemented, for example, a fixed-combination drug product
that contains a drug substance with a single, new active moiety would be eligible for 5 year NCE exclusivity, even if the fixed-combination
also contains a drug substance with a previously approved active moiety. During the exclusivity period, the FDA may not accept
for review an abbreviated new drug application, or ANDA, or a Section 505(b)(2) NDA submitted by another company for another drug
based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator
drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for
approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement
to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity
for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted
or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications,
dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received
approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing
the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission
or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference
to all of the pre-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted,
adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other
exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with
an FDA-issued “Written Request” for such a trial.
Reimbursement
Natesto is covered by many commercial insurance providers and pharmacy benefit management companies and is
largely dependent upon reimbursement for continued use in the U.S. market. Natesto is also covered under a Rebate Agreement between
us and Centers for Medicare and Medicaid Services. This, in turn, enables states to offer public payer coverage of Natesto through
their separate Medicare and public assistance programs. Additionally, privately managed Medicare Part D plans may choose to cover
Natesto prescriptions through their plans’ pharmacy benefits. ProstaScint is dependent upon reimbursement for continued use
in the U.S. market, and ProstaScint does have a reimbursement code as assigned by the American Medical Association. ProstaScint
is currently reimbursed by Medicare, Medicaid, and various private health plans. However, reimbursement is not universally available
throughout the United States for ProstaScint. We do not anticipate that the sales of the MiOXSYS System, if approved for sale in
the U.S., will be heavily dependent upon reimbursement by third-party payors. Traditionally, sales of pharmaceuticals, diagnostics,
ad devices that are not “lifestyle” indications depend, in part, on the extent to which products will be covered by
third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party
payors are increasingly reducing reimbursements for medical products and services. The sexual wellness market is typically known
as a cash payor market, and because Fiera is not classified as a pharmaceutical or a medical device by the FDA, there will be no
reimbursement paid by third parties on the product.
Lack of third-party reimbursement
for our product candidate or a decision by a third-party payor to not cover our product candidates could reduce physician usage
of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.
In addition, in some foreign countries,
the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug 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. 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. Historically, products launched in the European Union do not follow
price structures of the United States and generally tend to be significantly lower.
DEA Regulation
Natesto, already approved by the
FDA, is a “controlled substance” as defined in the Controlled Substances Act of 1970, or CSA, because it contains
testosterone. As a result, the U.S. Drug Enforcement Agencies, or DEA, regulate Natesto and have listed it as a Schedule III substance.
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. For example, separate registrations are needed for import
and manufacturing, and each registration will specify which schedules of controlled substances are authorized. Similarly, separate
registrations are also required for separate facilities.
The DEA typically inspects a facility
to review its security measures prior to issuing a registration and on a periodic basis. Reports must also be made for thefts
or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition, special permits
and notification requirements apply to imports and exports of narcotic drugs.
The DEA establishes annually an
aggregate quota for how much of a controlled substance may be produced in total in the United States based on the DEA’s
estimate of the quantity needed to meet legitimate scientific and medicinal needs. The DEA may adjust aggregate production quotas
and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion
in whether or not to make such adjustments. Our or our manufacturers’ quotas of an active ingredient may not be sufficient
to meet commercial demand or complete clinical trials. Any delay, limitation or refusal by the DEA in establishing our or our
manufacturers’ quota for controlled substances could delay or stop our clinical trials or product launches, which could
have a material adverse effect on our business, financial position and results of operations.
To enforce these requirements,
the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance
with applicable requirements, particularly as manifested in loss or diversion, can result in administrative, civil or criminal
enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The
DEA may seek civil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those
registrations. In some circumstances, violations could result in criminal proceedings.
Individual states also independently
regulate controlled substances. We and our manufacturers will be subject to state regulation on distribution of these products,
including, for example, state requirements for licensures or registration.
Intellectual Property
Aytu has an exclusive license
from Acerus Pharmaceuticals Corporation for the United States to intellectual property related to a nasal gel drug product containing
testosterone to treat hypogonadism in males, including the FDA approved product Natesto®, as well as an authorized generic
version and OTC versions thereof. The license includes sublicense rights to intellectual property owned by Mattern Pharmaceuticals
and exclusively licensed to Acerus by Mattern Pharmaceuticals. The sublicensed intellectual property includes four Orange Book
listed patents directed at nasal gel formulations containing testosterone or methods of testosterone replacement therapy by nasal
administration of the same. It further includes three patents that are not listed in the Orange Book directed at a testosterone
formulation, a method of making a testosterone formulation and a method for reducing physical or chemical interactions between
a nasal testosterone formulation and a plastic container.
The Acerus license also grants
rights to intellectual property owned by Acerus which includes ten nonprovisional patent applications, some of which may be abandoned.
These patent applications include at least four pending applications directed to testosterone titration methods, intranasal testosterone
bio-adhesive gel formulations, and controlled release testosterone formulations.
We have an extensive range of
intellectual property for MiOXSYS, RedoxSYS, Fiera and ProstaScint. We have patent protection in the United States and several
other large markets worldwide. Specifically, we have numerous patents issued and pending for the RedoxSYS/MiOXSYS systems and
their use in the U.S., Europe, Canada, Israel, Japan, and China.
Our patent portfolio related to
RedoxSYS/MiOXSYS is focused on the United States and core foreign jurisdictions which include Europe, Canada, Israel, Japan and
China. The portfolio is supported in the United States and core foreign jurisdictions and consists of 20 issued patents and 27
pending applications.
The portfolio primarily consists
of seven families filed in the United States and in core foreign jurisdictions. The first family includes seven issued patents
and three pending applications with claims directed to the measurement of the ORP of a patient sample to evaluate various conditions.
The standard 20-year expiration for patents in this family is in 2028. The second family includes two pending United States applications,
two issued United States patents and four pending applications in core foreign jurisdictions with claims directed to the measurement
of the ORP capacity of a patient sample to evaluate various conditions. The standard 20-year expiration for patents in this family
is in 2033. The third family includes eight issued patents and three pending applications with claims directed to devices and
methods for the measurement of ORP and ORP capacity. The standard 20-year expiration for patents in this family is in 2032. The
fourth family includes one pending United States application, one issued United States patent, two issued patents in core foreign
jurisdictions and three pending applications in core foreign jurisdictions with claims directed to multiple layer gel test strip
measurement devices and methods of making for use in measuring ORP and ORP capacity. The standard 20-year expiration for patents
in this family is in 2033. The fifth family includes one pending United States application and one pending application filed under
the Patent Cooperative Treaty with claims directed to methods for monitoring food production and quality. The standard 20-year
expiration for patents in this family is in 2035. The sixth family includes one pending United States application and six pending
applications in core foreign jurisdictions with claims directed to methods for determining fertility characteristics from the
ORP of a biological sample. The standard 20-year expiration for patents in this family is in 2035. The seventh family includes
one pending United States application and one pending application filed under the Patent Cooperation Treaty with claims directed
to methods for evaluating stroke patients from the ORP characteristics of a biological sample. The standard 20-year expiration
for patents in this family is in 2036.
The Fiera portfolio includes multiple
utility patent families in the United States and foreign jurisdictions with claims to the Fiera device. The United States portfolio
includes one issued patent and nine pending applications; the foreign portfolio includes six issued patents, nine pending applications
and one PCT application. In addition, Fiera is protected by a substantial design patent portfolio with four issued United States
design patents and three pending United States design applications. As well, the design portfolio includes forty-one issued design
patents.
ProstaScint is protected by significant
trade secrets and manufacturing know-how related to the production of the product and linkage of the base monoclonal antibody
and imaging component. The antibody in the ProstaScint product is produced by a proprietary cell line.
We also maintain trade secrets
and proprietary know-how that we seek to protect through confidentiality and nondisclosure agreements. These agreements may not
provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary
information. If we do not adequately protect our trade secrets and proprietary know-how, our competitive position and business
prospects could be materially harmed.
We expect to seek United States
and foreign patent protection for drug and diagnostic products we discover, as well as therapeutic and diagnostic products and
processes. We expect also to seek patent protection or rely upon trade secret rights to protect certain other technologies which
may be used to discover and characterize drugs and diagnostic products and processes, and which may be used to develop novel therapeutic
and diagnostic products and processes.
The patent positions of companies
such as ours involve complex legal and factual questions and, therefore, their enforceability cannot be predicted with any certainty.
Our issued and licensed patents, and those that may be issued to us in the future, may be challenged, invalidated or circumvented,
and the rights granted under the patents or licenses may not provide us with meaningful protection or competitive advantages.
Our competitors may independently develop similar technologies or duplicate any technology developed by us, which could offset
any advantages we might otherwise realize from our intellectual property. Furthermore, even if our product candidates receive
regulatory approval, the time required for development, testing, and regulatory review could mean that protection afforded us
by our patents may only remain in effect for a short period after commercialization. The expiration of patents or license rights
we hold could adversely affect our ability to successfully commercialize our pharmaceutical drugs or diagnostics, thus harming
our operating results and financial position.
We will be able to protect our
proprietary intellectual property rights from unauthorized use by third parties primarily to the extent that such rights are covered
by valid and enforceable patents or are effectively maintained as trade secrets. If we must litigate to protect our intellectual
property from infringement, we may incur substantial costs and our officers may be forced to devote significant time to litigation-related
matters. The laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of
the United States. Our pending patent applications, or those we may file or license from third parties in the future, may not
result in patents being issued. Until a patent is issued, the claims covered by an application for patent may be narrowed or removed
entirely, thus depriving us of adequate protection. As a result, we may face unanticipated competition, or conclude that without
patent rights the risk of bringing product candidates to market exceeds the returns we are likely to obtain. We are generally
aware of the scientific research being conducted in the areas in which we focus our research and development efforts, but patent
applications filed by others are maintained in secrecy for at least 18 months and, in some cases in the United States, until the
patent is issued. The publication of discoveries in scientific literature often occurs substantially later than the date on which
the underlying discoveries were made. As a result, it is possible that patent applications for products similar to our drug or
diagnostic products and product candidates may have already been filed by others without our knowledge.
The biotechnology and pharmaceutical
industries are characterized by extensive litigation regarding patents and other intellectual property rights, and it is possible
that our development of products and product candidates could be challenged by other pharmaceutical or biotechnology companies.
If we become involved in litigation concerning the enforceability, scope and validity of the proprietary rights of others, we
may incur significant litigation or licensing expenses, be prevented from further developing or commercializing a product or product
candidate, be required to seek licenses that may not be available from third parties on commercially acceptable terms, if at all,
or subject us to compensatory or punitive damage awards. Any of these consequences could materially harm our business.
Competition
The healthcare industry is highly
competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new
technologies and treatments. Significant competitive factors in our industry include product efficacy and safety; quality and
breadth of an organization’s technology; skill of an organization’s employees and its ability to recruit and retain
key employees; timing and scope of regulatory approvals; government reimbursement rates for, and the average selling price of,
products; the availability of raw materials and qualified manufacturing capacity; manufacturing costs; intellectual property and
patent rights and their protection; and sales and marketing capabilities. Market acceptance of our current products and product
candidates will depend on a number of factors, including: (i) potential advantages over existing or alternative therapies or tests,
(ii) the actual or perceived safety of similar classes of products, (iii) the effectiveness of sales, marketing, and distribution
capabilities, and (iv) the scope of any approval provided by the FDA or foreign regulatory authorities.
We are a very small life sciences company compared to other companies that we are competing against. Our current
and potential competitors include large pharmaceutical, biotechnology, diagnostic, and medical device companies, as well as specialty
pharmaceutical and generic drug companies. Many of our current and potential competitors have substantially greater financial,
technical and human resources than we do and significantly more experience in the marketing, commercialization, discovery, development
and regulatory approvals of products, which could place us at a significant competitive disadvantage or deny us marketing exclusivity
rights. Specifically, our competitors will most likely have larger sales teams and have more capital resources to support their
products then we do.
Accordingly, our competitors may
be more successful than we may be in achieving widespread market acceptance and obtaining FDA approval for product candidates.
We anticipate that we will face intense and increasing competition as new products enter the market, as advanced technologies
become available and as generic forms of currently branded products become available. Finally, the development of new treatment
methods for the diseases we are targeting could render our products non-competitive or obsolete.
We cannot assure you that any
of our products that we acquire or successfully develop will be clinically superior or scientifically preferable to products developed
or introduced by our competitors.
Our current approved products
compete in highly competitive fields whereby there are numerous options available to clinicians including generics. These generic
treatment options are frequently less expensive and more widely available.
Natesto
Natesto competes in a growing market. The U.S. TRT market is large, with annual revenues in the U.S. in 2016
of approximately $2.0 billion. At the current market size of approximately $2.0 billion, a product with 5% market penetration could
achieve sales of approximately $100 million annually, assuming comparatively similar product pricing and reimbursement levels as
seen with other TRTs.
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.
ProstaScint
Currently, there are several FDA
approved imaging techniques for cancer in general, however there is only one SPECT-specific agent targeting prostate cancer —
ProstaScint. The other imaging methods are F18-fluorodeoxyglucose (F18-FDG), C11-Acetate, and C11-Choline. The primary advantage
of these methods is that they all use PET imaging, a technique with better resolution than SPECT. The use of PET is also a disadvantage,
however, since it uses radiolabels with short half-lives necessitating the need for a local or on-site cyclotron to generate the
labels. The half-life of fluorine-18 (F18) and of carbon-11 (C11) are approximately 110 and 20 minutes, respectively. The radiolabel
used by ProstaScint is Indium-11, with a half-life of about 2 – 3 days. This longer time period allows the radiolabel to
be made remotely and shipped to the imaging facility; however, it does use SPECT as the imaging modality.
As indicated, ProstaScint is the
only radio-imaging marker that is specific for prostate specific membrane antigen (PMSA). ProstaScint is based on radiolabeling
the antibody against PSMA, a protein express by prostate cells. This specificity for prostate cells is what allows ProstaScint
to detect the metastases of prostate cancer regardless of location. The mechanism of labeling for F18-FDG, C11-Acetate, and C11-Choline
is the intracellular accumulation of these markers in cancer cells, due to the fact that cancer cells typically have a higher
cellular metabolism than non-cancerous cells. Thus, these markers can accumulate in any type of cancer cell with a high metabolism.
Unfortunately for these technologies, prostate cancer cells tend to have a lower cellular metabolism resulting in higher false
positives attributed to hyperplasia and prostatitis.
In a meta-analysis of 21 studies
evaluating accuracy, sensitivity, specificity, positive/negative predictive values, ProstaScint using combined SPECT/CT imaging
was comparable to PET/CT imaging based on F18-FDG and C11-Choline.
MiOXSYS/RedoxSYS
With respect to MiOXSYS competitive
offerings, there are other oxidative stress diagnostic tests available throughout the world, although none are approved in the
United States for clinical use. Diagnostic systems that are marketed for clinical use outside the United States include the FRAS
4 system (H&D srl), FREE Carpe Diem (Diacron International), and the FORM and FORMPlus systems (Callegari srl). These systems
are used in both research and clinical settings but do not generate significant sales in the clinical setting. If approved in
the United States for clinical use, these systems could present competition to the MiOXSYS System. However, their testing parameters
differ significantly from MiOXSYS and would need to demonstrate clinical superiority to MiOXSYS in order to substantially detract
from MiOXSYS prescribing and sales. Additionally, to our knowledge these systems have not demonstrated clinical feasibility in
human semen or seminal plasma.
Research and Development
Our strategy is to minimize our
research and development activities. When we do conduct research and development, we intend to utilize consultants with domain
experience for research, development and regulatory guidance.
Our MiOXSYS System has been developed
in conjunction with numerous medical device and diagnostic development consultants. Further, we have relationships with regulatory
consultants who are actively assisting in the development of our regulatory strategy with the FDA. To complement our internal
clinical research efforts with the MiOXSYS System, we have engaged with numerous universities around the world to identify and
develop research and clinical applications for the MiOXSYS System. Through these engagements we have access to data and analyses
that enable us to develop new uses for the MiOXSYS and RedoxSYS systems. Additionally, we have formal research agreements in place
with two prominent U.S.-based universities and one prominent European university for which we are paying a research fee.
Manufacturing
Our business strategy is to use
cGMP compliant contract manufacturers for the manufacture of clinical supplies as well as for commercial supplies if required
by our commercialization plans, and to transfer manufacturing responsibility to our collaboration partners when possible.
Natesto
On April 22, 2016, we entered
into a license and supply agreement with Acerus pursuant to which we will pay Acerus a supply price per unit of the greater of
(i) a fixed percentage of Acerus’ cost of goods sold for Natesto, not to exceed a fixed ceiling price and (ii) a low double
digit percentage of the net selling price for the first year of the agreement, that increases in each of the second and third
years and remains constant after that.
ProstaScint
We have acquired a two-year supply of ProstaScint through our asset purchase agreement with Jazz Pharmaceuticals,
which we project to last through fiscal 2018 and the first half of fiscal 2019.
MiOXSYS/RedoxSYS
We have completed the technical
development of the RedoxSYS System by engaging contract development and manufacturing companies in the United States. We secured
supply and quality agreements with manufacturers for both the RedoxSYS and MiOXSYS instruments as well as the RedoxSYS and MiOXSYS
sensor strips. Both manufacturers hold long-standing ISO 13485:2003 certifications and are established medical device manufacturers.
Both manufacturers have high volume manufacturing capacity such that production volumes can be easily scaled. Both manufacturers
have been audited by our quality engineers and are fully compliant.
Employees
As of August 15, 2017, we had
63 full-time employees and utilized the services of a number of consultants on a temporary basis. Overall, we have not experienced
any work stoppage and do not anticipate any work stoppage in the foreseeable future. None of our employees is subject to a collective
bargaining agreement. Management believes that relations with our employees are good.
Available Information
Our principal executive offices
are located at 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112 USA, and our phone number is (720) 437-6580.
We maintain a website on the internet
at
http://www.aytubio.com
. We make available free of charge through our website, by way of a hyperlink to a third-party
site that includes filings we make with the SEC website (
www.sec.gov)
, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports electronically filed or furnished
pursuant to Section 15(d) of the Exchange Act. The information on our website is not, and shall not be deemed to be, a part
of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC. In addition, the public may
read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington
D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Code of Ethics
We have adopted a written code
of ethics that applies to our officers, directors and employees, including our principal executive officer and principal accounting
officer. We intend to disclose any amendments to, or waivers from, our code of ethics that are required to be publicly disclosed
pursuant to rules of the SEC by filing such amendment or waiver with the SEC. This code of ethics and business conduct can be
found in the corporate governance section of our website,
http://www.aytubio.com
.
Item 1A.
Risk Factors
Investing in our securities
includes a high degree of risk. You should consider carefully the specific factors discussed below, together with all of the other
information contained in this Annual Report. 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 securities to decline and could cause you to lose all or part of your investment.
Risks
Related to Our Financial Condition and Capital Requirements
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:
|
·
|
uncertain
market acceptance of our products and product candidates;
|
|
·
|
lack
of sufficient capital;
|
|
·
|
U.S.
regulatory approval of our products and product candidates;
|
|
·
|
foreign
regulatory approval of our products and product candidates;
|
|
·
|
unanticipated
problems, delays, and expense relating to product development and implementation;
|
|
·
|
lack
of sufficient intellectual property;
|
|
·
|
the
ability to attract and retain qualified employees;
|
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:
|
·
|
the
costs, progress and timing of our efforts to expand the marketing of Natesto, ProstaScint
and Fiera;
|
|
·
|
progress
in, and the costs of, our pre-clinical studies and clinical trials and other research
and development programs;
|
|
·
|
the
costs of securing manufacturing arrangements for commercial production;
|
|
·
|
the
scope, prioritization and number of our research and development programs;
|
|
·
|
the
achievement of milestones or occurrence of other developments that trigger payments under
any collaboration agreements we obtain;
|
|
·
|
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;
|
|
·
|
the
extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical
trial costs under future collaboration agreements, if any; and
|
|
·
|
the
costs involved in filing, prosecuting, enforcing and defending patent claims and other
intellectual property rights.
|
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:
|
·
|
our
inability to adequately market and increase sales of any of these products;
|
|
·
|
our
inability to secure continuing prescribing of any of these products by current or previous
users of the product;
|
|
·
|
our
inability to effectively transfer and scale manufacturing as needed to maintain an adequate
commercial supply of these products;
|
|
·
|
reimbursement
and medical policy changes that may adversely affect the pricing, profitability or commercial
appeal of Natesto, MiOXSYS, or ProstaScint; and
|
|
·
|
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.
|
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:
|
·
|
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;
|
|
·
|
the
ability of our sales and marketing team to identify and penetrate the potential customer
base; and
|
|
·
|
the
difficulty of establishing brand recognition and loyalty for our products.
|
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:
|
·
|
we
may not be able to demonstrate that a product candidate is safe and effective to the
satisfaction of the FDA;
|
|
·
|
the
results of our clinical trials may not meet the level of statistical or clinical significance
required by the FDA for marketing approval;
|
|
·
|
the
FDA may disagree with the number, design, size, conduct or implementation of our clinical
trials;
|
|
·
|
the
FDA may require that we conduct additional clinical trials;
|
|
·
|
the
FDA may not approve the formulation, labeling or specifications of any product candidate;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
the
FDA may disagree with our interpretation of data from our pre-clinical studies and clinical
trials;
|
|
·
|
the
FDA may not accept data generated at our clinical trial sites;
|
|
·
|
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;
|
|
·
|
the
FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, as
a condition of approval or post-approval;
|
|
·
|
the
FDA may not approve the manufacturing processes or facilities of third-party manufacturers
with which we contract; or
|
|
·
|
the
FDA may change its approval policies or adopt new regulations.
|
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:
|
·
|
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;
|
|
·
|
collaborators
may believe our intellectual property is not valid or is unenforceable or the product
candidate infringes on the intellectual property rights of others;
|
|
·
|
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;
|
|
·
|
collaborators
may decide to pursue a competitive product developed outside of the collaboration arrangement;
|
|
·
|
collaborators
may not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals;
|
|
·
|
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
|
|
·
|
collaborators
may decide to terminate or not to renew the collaboration for these or other reasons.
|
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:
|
·
|
a
product candidate is ineffective, inferior to existing approved medicines, unacceptably
toxic, or has unacceptable side effects;
|
|
·
|
patients
may die or suffer other adverse effects for reasons that may or may not be related to
the product candidate being tested;
|
|
·
|
the
results may not confirm the positive results of earlier testing or trials; and
|
|
·
|
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.
|
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:
|
·
|
demonstrating
sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;
|
|
·
|
reaching
agreement on acceptable terms with prospective CROs and clinical trial sites;
|
|
·
|
validating
test methods to support quality testing of the drug substance and drug product;
|
|
·
|
obtaining
sufficient quantities of the drug substance or device parts;
|
|
·
|
manufacturing
sufficient quantities of a product candidate;
|
|
·
|
obtaining
approval of an IND from the FDA;
|
|
·
|
obtaining
institutional review board approval to conduct a clinical trial at a prospective clinical
trial site;
|
|
·
|
determining
dosing and clinical design and making related adjustments; and
|
|
·
|
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.
|
The commencement and completion
of clinical trials for our product candidates may be delayed, suspended or terminated due to a number of factors, including:
|
·
|
lack
of effectiveness of product candidates during clinical trials;
|
|
·
|
adverse
events, safety issues or side effects relating to the product candidates or their formulation
or design;
|
|
·
|
inability
to raise additional capital in sufficient amounts to continue clinical trials or development
programs, which are very expensive;
|
|
·
|
the
need to sequence clinical trials as opposed to conducting them concomitantly in order
to conserve resources;
|
|
·
|
our
inability to enter into collaborations relating to the development and commercialization
of our product candidates;
|
|
·
|
failure
by us or our collaborators to conduct clinical trials in accordance with regulatory requirements;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
failure
of our collaborators to advance our product candidates through clinical development;
|
|
·
|
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;
|
|
·
|
difficulty
in patient monitoring and data collection due to failure of patients to maintain contact
after treatment;
|
|
·
|
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
|
|
·
|
varying
interpretations of our data, and regulatory commitments and requirements by the FDA and
similar foreign regulatory agencies.
|
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:
|
·
|
varying
interpretations of data and commitments by the FDA and similar foreign regulatory agencies;
and
|
|
·
|
diminishment
of any competitive advantages that such product candidates may have or attain.
|
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:
|
·
|
diminishment
of any competitive advantages that such product candidates may have or attain;
|
|
·
|
delays
or termination in clinical trials or commercialization;
|
|
·
|
refusal
by the FDA or similar foreign regulatory agencies to review pending applications or supplements
to approved applications;
|
|
·
|
product
recalls or seizures;
|
|
·
|
suspension
of manufacturing;
|
|
·
|
withdrawals
of previously approved marketing applications; and
|
|
·
|
fines,
civil penalties, and criminal prosecutions.
|
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:
|
·
|
our
available capital resources or capital constraints we experience;
|
|
·
|
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;
|
|
·
|
our
receipt of approvals from the FDA and other regulatory agencies and the timing thereof;
|
|
·
|
other
actions, decisions or rules issued by regulators;
|
|
·
|
our
ability to access sufficient, reliable and affordable supplies of compounds used in the
manufacture of our product candidates;
|
|
·
|
the
efforts of our collaborators with respect to the commercialization of our products; and
|
|
·
|
the
securing of, costs related to, and timing issues associated with, product manufacturing
as well as sales and marketing activities.
|
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:
|
·
|
the
third parties do not successfully carry out their contractual duties or fail to meet
regulatory obligations or expected deadlines;
|
|
·
|
we
replace a third party; or
|
|
·
|
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.
|
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:
|
·
|
failure
to receive regulatory clearances required to market them as drugs;
|
|
·
|
being
subject to proprietary rights held by others;
|
|
·
|
being
difficult or expensive to manufacture on a commercial scale;
|
|
·
|
having
adverse side effects that make their use less desirable; or
|
|
·
|
failing
to compete effectively with products or treatments commercialized by competitors.
|
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:
|
·
|
administrative
or judicially imposed sanctions;
|
|
·
|
injunctions
or the imposition of civil penalties;
|
|
·
|
recall
or seizure of the product in question;
|
|
·
|
total
or partial suspension of production or distribution;
|
|
·
|
the
FDA’s refusal to grant pending future clearance or pre-market approval;
|
|
·
|
withdrawal
or suspension of marketing clearances or approvals;
|
|
·
|
refusal
to permit the export of the product in question; and
|
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:
|
·
|
expand the market for our approved products, especially Natesto, MiOXSYS and Fiera;
|
|
·
|
successfully
commercialize our product candidates alone or with commercial partners;
|
|
·
|
discover
and develop product candidates that are superior to other products in the market;
|
|
·
|
obtain
required regulatory approvals;
|
|
·
|
attract
and retain qualified personnel; and
|
|
·
|
obtain
patent and/or other proprietary protection for our product candidates.
|
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:
|
·
|
our
or our collaborators’ ability to set a price we believe is fair for our approved
products;
|
|
·
|
our
ability to generate revenue from our approved products and achieve profitability; and
|
|
·
|
the
availability of capital.
|
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:
|
·
|
our
ability to convince our potential customers of the advantages and economic value our
products and product candidates over existing technologies and products;
|
|
·
|
the
relative convenience and ease of our products and product candidates over existing technologies
and products;
|
|
·
|
the
introduction of new technologies and competing products that may make our products and
product candidates less attractive for our target customers;
|
|
·
|
our
success in training medical personnel on the proper use of our products and product candidates;
|
|
·
|
the
willingness of third-party payors to reimburse our target customers that adopt our products
and product candidates;
|
|
·
|
the
acceptance in the medical community of our products and product candidates;
|
|
·
|
the
extent and success of our marketing and sales efforts; and
|
|
·
|
general
economic conditions.
|
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:
|
·
|
a
covered benefit under its health plan;
|
|
·
|
appropriate
and medically necessary for the specific indication;
|
|
·
|
neither
experimental nor investigational.
|
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:
|
·
|
reliance
on third parties for regulatory compliance and quality assurance;
|
|
·
|
possible
breaches of manufacturing agreements by the third parties because of factors beyond our
control;
|
|
·
|
possible
regulatory violations or manufacturing problems experienced by our suppliers; and
|
|
·
|
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.
|
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:
|
·
|
administrative
or judicially imposed sanctions;
|
|
·
|
injunctions
or the imposition of civil penalties;
|
|
·
|
recall
or seizure of the product in question;
|
|
·
|
total
or partial suspension of production or distribution;
|
|
·
|
the
FDA’s refusal to grant pending future clearance or pre-market approval;
|
|
·
|
withdrawal
or suspension of marketing clearances or approvals;
|
|
·
|
refusal
to permit the export of the product in question; and
|
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:
|
·
|
our
inability to directly control commercial activities because we are relying on third parties;
|
|
·
|
the
burden of complying with complex and changing foreign regulatory, tax, accounting and
legal requirements;
|
|
·
|
different
medical practices and customs in foreign countries affecting acceptance in the marketplace;
|
|
·
|
import
or export licensing requirements;
|
|
·
|
longer
accounts receivable collection times;
|
|
·
|
longer
lead times for shipping;
|
|
·
|
language
barriers for technical training;
|
|
·
|
reduced
protection of intellectual property rights in some foreign countries, and related prevalence
of generic alternatives to our products;
|
|
·
|
foreign
currency exchange rate fluctuations;
|
|
·
|
our
customers’ ability to obtain reimbursement for our products in foreign markets;
and
|
|
·
|
the
interpretation of contractual provisions governed by foreign laws in the event of a contract
dispute.
|
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:
|
·
|
regulatory
authorities may withdraw or limit their approval of the product;
|
|
·
|
regulatory
authorities may require the addition of labeling statements, such as a “Black Box
warning” or a contraindication;
|
|
·
|
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;
|
|
·
|
we
may decide to remove the product from the marketplace;
|
|
·
|
we
could be sued and held liable for injury caused to individuals exposed to or taking the
product; and
|
|
·
|
our
reputation may suffer.
|
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:
|
·
|
mandate
that certain warnings or precautions be included in our product labeling;
|
|
·
|
require
that our product carry a “black box warning”; and
|
|
·
|
limit
use of Natesto to certain populations, such as men without specified conditions.
|
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:
|
·
|
the
efficacy and safety of the product;
|
|
·
|
the
approved labeling for the product and any required warnings;
|
|
·
|
the
advantages and disadvantages of the product compared to alternative treatments;
|
|
·
|
our
and any collaborator’s ability to educate the medical community about the safety
and effectiveness of the product;
|
|
·
|
the
reimbursement policies of government and third-party payors pertaining to the product;
and
|
|
·
|
the
market price of our product relative to competing treatments.
|
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:
|
·
|
we
may not have been the first to make the inventions covered by pending patent applications
or issued patents;
|
|
·
|
we
may not have been the first to file patent applications for our products and product
candidates;
|
|
·
|
others
may independently develop identical, similar or alternative products, compositions or
devices and uses thereof;
|
|
·
|
our
disclosures in patent applications may not be sufficient to meet the statutory requirements
for patentability;
|
|
·
|
any
or all of our pending patent applications may not result in issued patents;
|
|
·
|
we
may not seek or obtain patent protection in countries that may eventually provide us
a significant business opportunity;
|
|
·
|
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;
|
|
·
|
our
compositions, devices and methods may not be patentable;
|
|
·
|
others
may design around our patent claims to produce competitive products which fall outside
of the scope of our patents; or
|
|
·
|
others
may identify prior art or other bases which could invalidate our patents.
|
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:
|
·
|
payment
of damages, potentially treble damages, if we are found to have willfully infringed a
party’s patent rights;
|
|
·
|
injunctive
or other equitable relief that may effectively block our ability to further develop,
commercialize, and sell products; or
|
|
·
|
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.
|
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 6,600,714 shares. Included in these warrants are warrants that we issued in August 2017 to purchase up to an aggregate of 5,919,998
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 August 22, 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:
|
·
|
the
products or product candidates we acquire for commercialization;
|
|
·
|
the
products and product candidates we seek to pursue, and our ability to obtain rights to
develop, commercialize and market those product candidates;
|
|
·
|
our
decision to initiate a clinical trial, not to initiate a clinical trial or to terminate
an existing clinical trial;
|
|
·
|
actual
or anticipated adverse results or delays in our clinical trials;
|
|
·
|
our
failure to expand the market for our currently approved products or commercialize our
product candidates, if approved;
|
|
·
|
unanticipated
serious safety concerns related to the use of any of our product candidates;
|
|
·
|
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;
|
|
·
|
conditions
or trends in the healthcare, biotechnology and pharmaceutical industries;
|
|
·
|
introduction
of new products offered by us or our competitors;
|
|
·
|
announcements
of significant acquisitions, strategic partnerships, joint ventures or capital commitments
by us or our competitors;
|
|
·
|
our
ability to maintain an adequate rate of growth and manage such growth;
|
|
·
|
issuances
of debt or equity securities;
|
|
·
|
sales
of our common stock by us or our stockholders in the future, or the perception that such
sales could occur;
|
|
·
|
trading
volume of our common stock;
|
|
·
|
ineffectiveness
of our internal control over financial reporting or disclosure controls and procedures;
|
|
·
|
general
political and economic conditions;
|
|
·
|
effects
of natural or man-made catastrophic events;
|
|
·
|
other
events or factors, many of which are beyond our control;
|
|
·
|
adverse
regulatory decisions;
|
|
·
|
additions
or departures of key scientific or management personnel;
|
|
·
|
changes
in laws or regulations applicable to our product candidates, including without limitation
clinical trial requirements for approvals;
|
|
·
|
disputes
or other developments relating to patents and other proprietary rights and our ability
to obtain patent protection for our product candidates;
|
|
·
|
our
dependence on third parties, including CROs and scientific and medical advisors;
|
|
·
|
our
ability to uplist our common stock to a national securities exchange;
|
|
·
|
failure
to meet or exceed any financial guidance or expectations regarding development milestones
that we may provide to the public;
|
|
·
|
actual
or anticipated variations in quarterly operating results; and
|
|
·
|
failure
to meet or exceed the estimates and projections of the investment community.
|
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:
|
·
|
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;
|
|
·
|
limiting
the removal of directors by the stockholders;
|
|
·
|
allowing
for the creation of a staggered board of directors;
|
|
·
|
eliminating
the ability of stockholders to call a special meeting of stockholders; and
|
|
·
|
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.
|
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.