Item 1A. Risk Factors
Any investment
in our Common Stock involves a high degree of risk. The following risk factors and other information included in this Quarterly
Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect
our business. We refer you to our “Cautionary Note Regarding Forward-Looking Statements,” which identifies certain
forward-looking statements contained in this report that are qualified by these risk factors. If any of the following risks occur,
our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
Risks Related to Our Financial Condition
and Need for Additional Capital
We have a limited operating history
and have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable
future.
We are a late-stage
biotechnology company, and we have not commercialized any products or generated any revenues from the sale of products. We have
incurred losses from operations in each year since our inception, and our net losses were $28.5 million and $21.4 million for the
years ended December 31, 2016 and 2015, respectively, and $12.3 million and $24.4 million for the nine months ended September 30,
2017 and 2016, respectively. As of September 30, 2017, we had an accumulated deficit of $184.2 million. We do not expect to generate
any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable.
We have devoted most
of our financial resources to research and development, including our clinical and preclinical development activities. To date,
we have financed our operations primarily through the sale of equity securities and, prior to our initial public offering, the
sale of convertible debt. Our current product candidate, vonapanitase, is in clinical trials and we have no commercial sales, which,
together with our limited operating history, make it difficult to assess our future viability. The amount of our future net losses
will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings
or strategic collaborations. We have not completed pivotal clinical trials for any product candidate and it will be several years,
if ever, before we have vonapanitase or any future product candidates ready for commercialization. Even if we obtain regulatory
approval to market vonapanitase or any additional product candidates, our future revenues will depend upon the size of any markets
in which vonapanitase or any additional product candidates have received approval, our ability to achieve sufficient market acceptance,
reimbursement from third-party payors and other factors.
We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that
our expenses will increase substantially if and as we:
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continue our clinical development and seek regulatory approval of vonapanitase, particularly with respect to its lead indication for radiocephalic arteriovenous fistulas;
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commercialize vonapanitase directly in the United States;
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undertake clinical development of vonapanitase in Europe and establish partnerships for commercialization of vonapanitase in all or parts of Europe;
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pursue additional indications for vonapanitase including clinical development of vonapanitase for brachiocephalic fistulas, patients requiring placement of an arteriovenous graft, and additional indications for the treatment of patients with symptomatic peripheral artery disease, or PAD;
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in-license or acquire additional product opportunities and make milestone or other payments under any in-license agreements;
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contract for the manufacture of commercial quantities of vonapanitase;
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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
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maintain, protect and expand our intellectual property portfolio;
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attract and retain skilled personnel;
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create additional infrastructure to support our operations as a public company and our product development; and
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experience any delays or encounter issues with any of the above.
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The net losses we incur
may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of
operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results
could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
We will require substantial additional
financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could
force us to delay, limit, reduce or terminate our product development, any commercialization efforts or other operations.
Our operations
have consumed substantial amounts of cash since inception. As of September 30, 2017, our cash, cash equivalents and available-for-sale
investments were $47.4 million. Our research and development expenses were $18.5 million and $14.4 million for the nine months
ended September 30, 2017 and 2016, respectively. We believe that we will continue to expend substantial resources for the foreseeable
future developing vonapanitase and any additional product candidates. These expenditures will include costs associated with research
and development, potentially acquiring new technologies, potentially obtaining regulatory approvals and manufacturing products,
as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because
the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts
necessary to fund and successfully complete the development and commercialization of vonapanitase or any additional product candidates.
We began enrolling
patients in our first Phase 3 clinical trial of vonapanitase during the third quarter of 2014 for patients undergoing creation
of radiocephalic fistulas, completed patient enrollment in October 2015 and released top-line data in December 2016. We enrolled
the first patient in our second Phase 3 trial in August 2015, expect to complete enrollment in the first quarter of 2018 and expect
to release top-line data in the first quarter of 2019. Based on our current operating plan, and absent any future financings or
strategic partnerships, we believe that our existing cash, cash equivalents and available-for-sale investments will be sufficient
to fund our projected operating expenses and capital expenditure requirements into the fourth quarter of 2019, allowing us to report
top-line data from our second Phase 3 trial of vonapanitase in radiocephalic fistulas, named PATENCY-2. Our cash runway could be
shortened if there are any significant and unexpected increases in spending on development programs or more rapid progress of development
programs than anticipated. In addition, we initiated two Phase 1 clinical trials of vonapanitase in patients with PAD in the fourth
quarter of 2016. We may increase the planned enrollment in the Phase 1 trial evaluating vonapanitase as an adjunct to angioplasty
for PAD below the knee and begin patient enrollment in the Phase 1 trial evaluating vonapanitase as a monotherapy for PAD above
the knee. We may also initiate other small Phase 1 or Phase 1/2 trials in additional indications, which would further reduce our
capital resources. However, we do not expect to initiate any other Phase 2 or Phase 3 trials prior to receiving and reviewing data
from our second Phase 3 clinical trial. Furthermore, 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. 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.
Additional
fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize vonapanitase or any additional product candidates. In addition, we cannot guarantee that future financing will
be available in sufficient amounts or on terms acceptable to us, or at all. We could also be required to seek funds through arrangements
with collaborative partners or otherwise at an earlier stage than would otherwise be ideal and we may be required to relinquish
rights to vonapanitase or any additional 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 required to significantly curtail, delay or discontinue one or more of
our research or development programs or the commercialization of any approved products or be unable to expand our operations or
otherwise capitalize on our business opportunities, as desired, which could materially adversely affect our business, financial
condition and results of operations.
We have never generated any revenue
from product sales and may never be profitable.
As a company, we have
never obtained regulatory approval for, or commercialized, any product candidate. Our ability to generate substantial revenue and
achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development
of, and obtain the regulatory approvals necessary to commercialize, vonapanitase or any additional product candidates. We do not
anticipate generating revenues from product sales for at least the next several years, if ever. If vonapanitase or any additional
product candidates fail in clinical trials or do not gain regulatory approval, or if vonapanitase or any additional product candidates,
if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future,
we may not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends
heavily on our success in:
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completing clinical development of vonapanitase for one or more indications and research and preclinical and clinical development of additional product candidates;
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seeking and obtaining regulatory and marketing approvals for vonapanitase if and when we complete clinical trials;
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establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for vonapanitase, if approved;
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launching and commercializing vonapanitase if we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing our own sales, marketing and distribution infrastructure;
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obtaining and maintaining adequate timely coverage and reimbursement from third-party payors for vonapanitase;
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obtaining market acceptance of vonapanitase as a viable treatment option;
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addressing any competing technological and market developments;
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implementing additional internal systems and infrastructure, as needed;
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identifying and validating new product candidates;
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negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
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maintaining, protecting and expanding our portfolio of intellectual property rights, including patents and know-how;
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developing vonapanitase such that, if approved, it can be commercialized without infringing the intellectual property rights of third parties; and
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attracting, hiring and retaining qualified personnel.
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Even if vonapanitase
or any additional product candidates that we may develop is approved for commercial sale, we anticipate incurring significant costs
associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required
by the United States Food and Drug Administration, or the FDA, the European Medicines Agency, or EMA, or other regulatory agencies,
domestic or foreign, to perform clinical trials and other studies in addition to those that we currently anticipate. Even if we
are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional
funding to continue operations. Our failure to become and remain profitable would depress the market price of our Common Stock
and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.
A decline in the value of our company could also cause you to lose all or part of your investment.
Risks Related to Clinical Development,
Regulatory Review and Approval of Our Product
We are substantially dependent on
the success of our current product candidate, vonapanitase, and cannot guarantee that this product candidate will successfully
complete Phase 3 clinical trials, receive regulatory approval or be successfully commercialized.
We currently have no
products approved for commercial distribution. We have invested substantially all of our efforts and financial resources in the
development of our current product candidate, vonapanitase. Our business depends entirely on the successful development and commercialization
of vonapanitase, in vascular access or additional indications, which may never occur. Our ability to generate revenues in the near
term is substantially dependent on our ability to develop, obtain regulatory approval for, and then successfully commercialize
vonapanitase. We currently generate no revenues from sales of any products, and we may never be able to develop or commercialize
a marketable product.
Vonapanitase will require
additional clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization,
significant marketing efforts and further investment before we generate any revenues from product sales. We are not permitted to
market or promote vonapanitase for any indication before we receive regulatory approval from the FDA or comparable foreign regulatory
authorities, and we may never receive this regulatory approval for any of our product candidates. If we do not receive FDA approval
and successfully commercialize vonapanitase, we will not be able to generate revenue from vonapanitase in the United States in
the foreseeable future, or at all. Moreover, any significant delays in obtaining approval for and commercializing vonapanitase
will have a substantial adverse impact on our business and financial condition.
We have not previously
submitted a Biologics License Application, or BLA, to the FDA, or similar drug or biologic approval filings to comparable foreign
authorities, for any product candidate, and we cannot be certain that vonapanitase or any additional product candidates will be
successful in clinical trials or receive regulatory approval. In our first Phase 3 clinical trial, our primary efficacy endpoint
of primary unassisted patency did not show statistically significant benefit for the 30 microgram dose versus placebo. While analyses
of the first Phase 3 trial’s other efficacy endpoints, including secondary patency and fistula use for hemodialysis, suggested
clinically meaningful improvements over placebo, we cannot assure you that these results will be repeated in our second Phase 3
trial. Following our review of the data from our first Phase 3 clinical trial of vonapanitase and discussions with the FDA, we
amended the protocol for our second Phase 3 clinical trial in the first quarter of 2017 to increase the planned enrollment from
300 to 500 patients, which we subsequently increased to 600 patients in the second quarter of 2017. We also re-ordered the endpoints
to include co-primary endpoints of secondary patency (time to fistula abandonment) and fistula use for hemodialysis, each of which
are required to show a statistically significant benefit (p≤0.05) in order to provide the basis for a BLA submission for vonapanitase
as a single pivotal trial. Even though our second Phase 3 trial will evaluate co-primary endpoints for vonapanitase that showed
improvements in our first Phase 3 clinical trial, there are risks of failure inherent at any stage of product development, and
we may not demonstrate efficacy with regard to the co-primary endpoints of our ongoing Phase 3 clinical trial or our reordering
of the endpoints could otherwise adversely affect the success of the second Phase 3 trial, or unexpected adverse events may occur.
Further, vonapanitase or any additional product candidates may not receive regulatory approval even if they are successful in clinical
trials. If approved for marketing by applicable regulatory authorities, our ability to generate revenues from vonapanitase will
depend on our ability to, among other things:
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launch vonapanitase commercially, whether alone or in collaboration with others;
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create market demand for vonapanitase through our own marketing and sales organization, and through any other promotional arrangements that we may otherwise establish;
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hire, train and deploy a specialty sales force, focused primarily on vascular surgeons, to commercialize vonapanitase in the United States;
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manufacture vonapanitase in sufficient quantities and at acceptable quality and manufacturing cost to meet commercial demand at launch and thereafter and establish and maintain agreements with wholesalers, distributors and group purchasing organizations on commercially reasonable terms;
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create partnerships with third parties to promote and sell vonapanitase in any foreign markets where we receive marketing approval;
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obtain and maintain patent protection and regulatory exclusivity for vonapanitase;
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achieve appropriate reimbursement for vonapanitase;
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effectively compete with other products should any be successfully developed and approved; and
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maintain a continued acceptable safety profile of vonapanitase following launch.
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If we develop vonapanitase
for other indications, including arteriovenous grafts, brachiocephalic fistula and symptomatic PAD, or develop additional product
candidates, we will face similar risks and challenges.
Clinical development is a lengthy
and expensive process with an uncertain outcome due to many factors. Because the results of early clinical trials are not necessarily
predictive of future results, vonapanitase may not have favorable results in current or future clinical trials or receive regulatory
approval.
Clinical development
is expensive, difficult to design and implement, takes many years to complete and its outcome is inherently uncertain. Failure
can occur at any time during the clinical trial process and vonapanitase is subject to the risks of failure inherent in drug and
biological development, including failure to demonstrate efficacy in a pivotal clinical trial or in the patient population we intend
to enroll, the occurrence of severe or medically or commercially unacceptable adverse events, failure to comply with protocols
or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug and
biological product is not approvable. Results observed in earlier clinical trials may not be replicated in current or future clinical
trials. For example, our first Phase 3 clinical trial of vonapanitase failed to meet its primary endpoint of primary unassisted
patency, despite encouraging results from our Phase 2 trial. In addition, as is common with clinical trials, we explored a number
of endpoints in our Phase 2 clinical trial of vonapanitase. We also analyzed the data from our Phase 2 and Phase 3 clinical trials
of vonapanitase in a number of ways. Product candidates such as vonapanitase in Phase 3 clinical trials may fail to demonstrate
sufficient efficacy despite having progressed through earlier clinical trials, even if certain analyses of primary, secondary or
tertiary endpoints in those early trials showed statistical significance. Companies may suffer significant setbacks in late-stage
clinical trials due to lack of efficacy, site or investigator issues, manufacturing or formulation changes or adverse safety profiles,
even after earlier clinical trials have shown promising results. During the course of our clinical development, we modified our
vonapanitase drug product formulation for our Phase 3 trials and commercial launch in order to facilitate ease of administration
and fill and finish of vials at our 30 microgram dose. Our formulation changes could adversely affect results in our clinical trials,
requiring us to make further formulation changes. In addition, following our review of the data from our first Phase 3 clinical
trial of vonapanitase and discussions with the FDA, we amended the protocol for our second Phase 3 trial to include co-primary
endpoints of secondary patency and fistula use for hemodialysis, each of which was studied in earlier clinical trials. Our reordering
of the endpoints could adversely affect the success of the second Phase 3 trial. Additional changes or interactions with the FDA
could also cause us to delay or repeat clinical trials, or could cause FDA to request additional studies or data, and we could
incur unexpected costs that would have an adverse effect on our business, operating results, financial condition and prospects.
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 or completed. We have limited experience in designing clinical trials
and we may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical
data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed
satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product
candidates. Even if we believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA
or comparable foreign regulatory authorities may disagree and may not grant marketing approval of vonapanitase or any additional
product candidates.
In some instances,
there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate
due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the
patient populations, changes in and adherence to the clinical trial visit schedule or protocols, changes in practice patterns outside
of the protocols and the rate of dropout among clinical trial participants. Any Phase 3 or other clinical trial that we may conduct
may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market vonapanitase or any additional product
candidate.
Any delay or failure
in our clinical trials would delay our obtaining, or make us unable to obtain, applicable regulatory approvals, which would prevent
us from commercializing vonapanitase or any additional product candidates, generating revenues and achieving and sustaining profitability.
If clinical trials of vonapanitase
or any additional product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable foreign
regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development
and commercialization of vonapanitase or any additional product candidates.
We are not permitted
to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from
the FDA. Comparable foreign regulatory authorities, such as the EMA, impose similar restrictions. We may never receive these regulatory
approvals. We must have completed extensive preclinical development and clinical trials to demonstrate the safety and efficacy
of the product candidate in humans before we will be able to obtain these approvals. Clinical testing is expensive, is difficult
to design and implement, can take many years to complete and is inherently uncertain as to outcome.
Any inability to successfully
complete clinical development could result in additional costs to us and impair our ability to generate revenues from product sales,
regulatory and commercialization milestones and royalties. If, following submission, our BLA is not accepted for substantive review
(i.e., filing) or approved, the FDA may require that we conduct additional clinical or preclinical trials, manufacture additional
validation batches or develop additional analytical test methods before it will reconsider our application. If the FDA requires
additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to
expend more resources than we have available. In addition, the FDA may not consider any additional required trials that we perform
and complete to be sufficient.
In addition, if (1)
we are required to conduct additional clinical trials or other testing of or generate data pertaining to vonapanitase beyond the
trials and testing that we contemplate, (2) we are unable to successfully complete clinical trials or other testing of vonapanitase
or any additional product candidates, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly
favorable, or (4) there are unacceptable safety concerns associated with vonapanitase or any additional product candidates, we,
in addition to incurring additional costs, may:
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be delayed in obtaining marketing approval for vonapanitase or any additional product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as we intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
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be subject to additional post-marketing testing or other requirements; or
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be required to remove the product from the market after obtaining marketing approval.
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In general, the FDA
requires two adequate and well-controlled clinical trials to demonstrate the effectiveness of a product candidate. In December
2016, we announced that our first Phase 3 clinical trial did not meet its primary endpoint of improved primary unassisted patency
compared to placebo (p=0.254). Based on our interactions with the FDA, we believe that, if the results for each of the co-primary
endpoints of our second Phase 3 clinical trial show statistical significance (p≤0.05), our second Phase 3 trial together with
data from previously completed studies will provide the basis for a BLA submission for vonapanitase to the FDA. However, even with
robust p-values, there is no guarantee that the results of the second Phase 3 trial will be sufficient for a BLA submission, filing
or approval, and the FDA may require that we conduct additional trials.
We may be unable to obtain regulatory
approval for vonapanitase or any additional product candidates under applicable regulatory requirements. The denial or delay of
any approvals would prevent or delay commercialization and have a material adverse effect on our potential to generate revenue,
our business and our results of operations.
Vonapanitase and any
additional product candidates are subject to extensive governmental regulations relating to, among other things, research, clinical
trials, approval, manufacturing, recordkeeping, labeling, storage, advertising, promotion, distribution, import, export and commercialization.
In order to obtain regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive
preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Failure
to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. Vonapanitase is
still in development and is subject to the risks of failure inherent in drug or biologic development. We have not received approval
to market any product candidate from regulatory authorities in any jurisdiction. We have only limited experience in conducting
and managing the clinical trials, and in submitting and supporting the applications necessary to gain marketing approvals, and
we expect to rely on third-parties, including clinical research organizations, or CROs, to assist us in this process. Securing
marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing
facilities and clinical trial sites by, the regulatory authorities. Vonapanitase may not be effective, may be only moderately effective
or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining
marketing approval or prevent or limit commercial use. We may gain regulatory approval for vonapanitase or any additional product
candidates in some but not all of the territories available or some but not all of the target indications, resulting in limited
commercial opportunity for the product, or we may never obtain regulatory approval for vonapanitase or any additional product candidates
in any jurisdiction.
The process of obtaining
marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are
required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity
and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in
or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application,
may cause delays in the approval or rejection of an application. The FDA and foreign regulatory authorities also have substantial
discretion in the drug and biologics approval process. The number and types of preclinical studies and clinical trials that will
be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate
is designed to address, and the regulations applicable to any particular product candidate. Approval policies, regulations or the
type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical
development and may vary among jurisdictions, and there may be varying interpretations of data obtained from preclinical studies
or clinical trials, either of which may cause delays or limitations in the approval or the decision not to approve an application.
Regulatory agencies can delay, limit or deny approval of a product candidate for many reasons, including:
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IRBs, the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indications;
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an FDA Advisory Committee or other regulatory authority may recommend against approval or restrictions on approval;
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the results of later-stage clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable foreign regulatory authorities for approval;
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the results of later-stage clinical trials may not confirm the positive results from earlier preclinical studies or clinical trials;
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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of vonapanitase or any additional product candidate may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA, or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
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our manufacturing processes or facilities may not be adequate to support approval of our product candidates; or
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regulatory agencies may change their approval policies or adopt new regulations in a manner rendering our clinical data insufficient for approval.
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It is possible that
neither vonapanitase nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory
approvals necessary for us or any future collaborators to commence product sales. We do not know whether any clinical trials will
begin as planned, or will be revised prior to or during the conduct of the study, completed on time or conducted at all. Any delay
in obtaining, or failure to obtain, required approvals would materially adversely affect our ability to generate revenue from the
particular product candidate, which likely would result in significant harm to our financial position and adversely impact our
stock price.
We may face difficulty in enrolling
patients for clinical trials.
We may find it difficult
to enroll patients in our clinical trials, which could delay or prevent completion of clinical trials of vonapanitase or any additional
product candidates. Identifying and qualifying patients to participate in clinical trials of vonapanitase or any additional product
candidates are critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients
to participate in testing product candidates. The enrollment timeline for radiocephalic fistula patients is lengthy and there are
a limited number of sites from which we can enroll pre-hemodialysis or hemodialysis patients. If patients are unwilling to participate
in our trials because of negative publicity from adverse events or for other reasons, including the results of completed or competitive
clinical trials for similar patient populations, the timeline for recruiting patients, conducting trials and obtaining regulatory
approval of potential products may be delayed or prevented. These delays could result in increased costs, delays in advancing our
product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether. We
may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics
to achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by numerous
factors including:
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severity of the disease under investigation;
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design of the trial protocol;
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size and nature of the patient population;
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eligibility criteria for the trial in question;
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perceived risks and benefits of the product candidate under study;
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proximity and availability of clinical trial sites for prospective patients;
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availability of competing therapies and clinical trials;
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efforts to facilitate timely enrollment in clinical trials;
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our ability to obtain and maintain subject consents;
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the risk that enrolled subjects will drop out or be withdrawn from our studies;
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patient referral practices of physicians;
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ability to monitor patients adequately during and after treatment; and
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the ability of subjects to comply with the clinical trial visit schedule and procedures.
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We may not be able
to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical
trials required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical
trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse
effect on our business.
If we experience any of a number
of possible unforeseen events in connection with clinical trials of vonapanitase or any additional product candidates, potential
marketing approval or commercialization of vonapanitase or any additional product candidates could be delayed or prevented.
If we experience delays
in clinical testing, we will be delayed in obtaining regulatory approvals and commercializing our product candidates, our costs
may increase and our business may be harmed. We do not know whether any future clinical trials that have not started will begin
as planned, whether the design will be revised prior to or during conduct of the study, completed on schedule or conducted at all.
Our product development costs may increase if we experience delays in clinical testing or changes to clinical protocols. Significant
clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product
candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize
our product candidates and may harm our business, results of operations and prospects. We may experience numerous unforeseen events
during, or as a result of, clinical trials that could delay or prevent marketing approval of vonapanitase or any additional product
candidates, including:
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trials of vonapanitase or any additional product candidates may produce unfavorable or inconclusive results;
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we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
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our third-party contractors, including those manufacturing vonapanitase or any additional product candidates or components or ingredients for commercial use or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;
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regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence or continue to conduct a clinical trial at a prospective trial site;
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we may have to suspend or terminate clinical trials of vonapanitase or any additional product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of a product candidate;
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regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their respective standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar biologic or biologic candidate;
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we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and/or Contract Research Organizations, or CROs;
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we may experience withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials, and may further be delayed in trying to add clinical trial sites to our studies;
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we may experience delays in the importation and manufacture of clinical supply;
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patient enrollment in these clinical trials may be slower than we anticipate and is limited to a select number of sites, which could cause significant delays given the prolonged enrollment period;
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participants may drop out of clinical trials of vonapanitase at a higher rate than we anticipate and we may not be able to obtain the follow up data for the 12 month period planned in our Phase 3 trial;
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patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial or increase the needed enrollment size for the clinical trial beyond the 600 proposed for the Phase 3 trial, all of which may extend the clinical trial’s duration;
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the FDA or comparable foreign regulatory authorities may disagree with our clinical trial design, implementation, or our interpretation of data from preclinical studies and clinical trials;
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FDA or comparable foreign regulatory authorities may find that our clinical trials were not conducted in accordance with Good Clinical Practices, or GCPs;
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the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for clinical and commercial supplies;
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our finished product that has been manufactured for the vonapanitase Phase 3 trials may be inadequate, or the materials or manufactured product candidates necessary to conduct future clinical trials of vonapanitase or any additional product candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply;
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we may lack adequate funding to continue the clinical trials; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.
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Product development
costs for us will increase if we experience delays in testing or pursuing marketing approvals, and we may be required to obtain
additional funds to complete clinical trials and prepare for possible commercialization of vonapanitase or any additional product
candidates. We do not know whether any future clinical trials that have not yet started will begin as planned, will need to be
restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during
which we may have the exclusive right to commercialize vonapanitase or any additional product candidates or allow our competitors
to bring products to market before we do and impair our ability to successfully commercialize vonapanitase or any additional product
candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical
trial delays may ultimately lead to the denial of marketing approval of vonapanitase or any additional product candidates.
Any product for which we obtain FDA
approval will be subject to extensive ongoing regulatory requirements, and we may be subject to penalties if we fail to comply
with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product for which
we obtain marketing approval, along with the manufacturing processes, post-approval clinical research, labeling, advertising and
promotional activities for the product, will be subject to continual requirements of, and review by, the FDA and comparable regulatory
authorities. These requirements include submissions of safety and other post-marketing information and reports, tracking, tracing,
investigation, notification, and disposition obligations under the Drug Quality and Security Act, registration and listing requirements,
current good manufacturing practices, or cGMPs, 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.
The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after
approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any
of our product candidates, they may withdraw approval, require labeling changes or establishment of a REMS or similar risk mitigation
strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for
potentially costly post-approval studies or post-market surveillance.
Even if regulatory
approval of a product is granted, the approval will be subject to limitations on the indicated uses for which the product may be
marketed and may be subject to other conditions of approval. We and our contract manufacturers will be subject to periodic unannounced
inspections by the FDA to monitor and ensure compliance with cGMPs and other regulatory requirements. In addition, approval may
contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Discovery
after approval of previously unknown problems with any such products, manufacturers or manufacturing processes, or failure to comply
with regulatory requirements, may result in actions such as:
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restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;
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restrictions on a product’s manufacturing processes or facilities;
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restrictions on the marketing of a product;
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restrictions on product distribution;
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requirements to conduct post-marketing clinical trials;
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Untitled, Cyber, or Warning Letters from the FDA or similar correspondence from comparable regulatory authorities;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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mandated modifications to labeling and promotional materials or requirements to provide corrective information to healthcare practitioners;
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requirements to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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debarring us pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, excluding us from participation in federal healthcare programs, requiring a corporate integrity agreement or debarring us from government contracts;
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the imposition of costly new manufacturing requirements or use of alternative suppliers;
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FDA or other regulatory bodies issuing safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about our products;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals or refusal to approve future or pending applications or supplements;
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refusal to permit the import or export of our products;
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imposition of civil or criminal penalties.
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Accordingly, assuming
we receive marketing approval for vonapanitase or any additional product candidates, we and our contract manufacturers will continue
to expend time, money and effort in all areas of regulatory compliance, including manufacturing, distribution, product surveillance,
post-marketing studies and quality control.
Vonapanitase may cause undesirable
side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of approved
labeling, or result in significant negative consequences following any potential marketing approval.
As with many pharmaceutical
and biological products, treatment with vonapanitase or any additional product candidates may produce undesirable side effects
or adverse reactions or events. These adverse events may occur despite our belief, based on our preclinical and clinical trials
to date, that vonapanitase has a favorable safety profile. For instance, vonapanitase shows a high degree of structural similarity
with other human serine proteases, which are proteins that cut other proteins to activate, inactivate or degrade these other proteins,
and it is theoretically possible that if anti-vonapanitase antibodies are developed that they could cross-react with one or more
of those other proteases because of the structural similarity, and prompt an adverse reaction. However, we have not seen any evidence
of such cross-reactivity in our preclinical or clinical trials to date.
Based on our Phase
2 and Phase 3 trials, adverse side effects that could occur with treatment with vonapanitase include fistula surgical incision
pain, venous stenosis, procedural pain, fistula thrombosis, steal syndrome and hypoesthesia. If any of these adverse events occur
in rates or severity exceeding placebo and unacceptable to regulatory authorities or IRBs, if anti-vonapanitase antibodies develop
and are associated with cross-reactivity to other proteases, or unknown serious events emerge, our clinical trials could be suspended
or terminated by us, IRBs, or the applicable regulatory authorities, and the FDA, the EMA or other foreign regulatory authorities
could order us to cease further development of, or deny approval of, vonapanitase or any additional product candidates for any
or all targeted indications. The product-related side effects could affect patient recruitment or the ability of enrolled patients
to complete the trial. If we elect or are required to delay, suspend or terminate any clinical trial of vonapanitase or any additional
product candidates, the commercial prospects of these product candidates will be harmed and our ability to generate product revenues
from any of these product candidates will be delayed or eliminated.
In addition, even if
we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications
than we request, including more limited patient populations, may require that contraindications, warnings or precautions be included
in the product labeling, including a boxed warning, may grant approval contingent on the performance of costly post-marketing clinical
trials or other post-market requirements, or may approve a product candidate with labeling that does not include the labeling claims
necessary or desirable for the successful commercialization of that product candidate. Any of these occurrences may harm our business,
financial condition and prospects significantly.
We may not be able to maintain orphan
drug designation or obtain or maintain orphan drug exclusivity for vonapanitase.
We have obtained orphan
drug designation from the FDA for vonapanitase. In the United States, under the Orphan Drug Act, the FDA may designate a product
as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of
fewer than 200,000 individuals annually in the United States for a preventive drug. The first NDA or BLA applicant to receive FDA
approval for a particular drug or biologic to treat a particular disease with FDA orphan drug designation is entitled to a seven-year
exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period,
the FDA may not approve any other applications to market the same drug or biologic for the same disease, except in limited circumstances.
Orphan drug exclusivity may be lost if the FDA determines, among other reasons, that the request for designation was materially
defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the
rare disease or condition.
Even if we obtain
orphan drug exclusivity for vonapanitase, that exclusivity may not effectively protect the product from competition because different
products can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve a product
containing the same principal molecular structural features for the same condition if the FDA concludes that the later product
is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
In response to a recent
court decision regarding the plain meaning of the exclusivity provision of the Orphan Drug Act and increased scrutiny by legislators,
the FDA may undertake a reevaluation of aspects of its orphan drug regulations and policies. We do not know if, when, or how the
FDA may change the orphan drug regulations and policies, and it is uncertain how any changes might affect our business. Depending
on what changes the FDA may make to its orphan drug regulations and policies, our business could be harmed.
A breakthrough therapy, fast track
product, priority review, or other designation by the FDA for our product candidates may not lead to faster development or regulatory
review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We have received a
breakthrough therapy and fast track product designation for vonapanitase for improving vascular access and decreasing the need
for surgery in patients with CKD who are on hemodialysis or being prepared for hemodialysis. As applicable, we may seek breakthrough
therapy, fast track, priority review, or other designations for other uses of vonapanitase. Breakthrough therapy and fast track
product designations are designed to facilitate the clinical development and expedite the review of drugs and biologics intended
to treat a serious or life-threatening condition which demonstrate the potential to address an unmet medical need. Priority review
designation is intended to speed the FDA marketing application review timeframe for drugs and biologics that treat a serious condition
and, if approved, would provide a significant improvement in safety or effectiveness. For drugs and biologics that have been designated
as breakthrough therapy or fast track products, interaction and communication between the FDA and the sponsor of the trial can
help to identify the most efficient path for clinical development. Sponsors of drugs and biologics designated as breakthrough therapies
or fast track products may also be able to submit marketing applications on a rolling basis, meaning that the FDA may review portions
of a marketing application before the sponsor submits the complete application to the FDA, as long as the sponsor pays the user
fee upon submission of the first portion of the marketing application. For products that receive a priority review designation,
the FDA’s marketing application review goal is shortened to six months, as opposed to ten months under standard review. This
review goal is based on the date the FDA accepts the marketing application for review (i.e., filing), which typically occurs two
months after the date of submission.
Designation as a breakthrough
therapy, fast track product, priority review product, or under another program is within the discretion of the FDA. Accordingly,
even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, fast track product,
priority review product, or other designation, the FDA may disagree and instead determine not to make such designation. In any
event, the receipt of any such designation for a product candidate may not result in a faster development process, review or approval
compared to drugs and biologics considered for approval under conventional FDA procedures and does not assure ultimate marketing
approval by the FDA. In addition, the FDA may later decide that the products no longer meet the conditions for qualification as
a breakthrough therapy, fast track product or under another designation program or decide that the time period for FDA review or
approval will not be shortened.
We may expend our limited resources
to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be
more profitable or for which there is a greater likelihood of success.
Because we have limited
financial and managerial resources, we have focused on developing one product candidate, vonapanitase, and have focused on developing
this product candidate for specific indications that we identify as most likely to succeed, in terms of both its regulatory approval
and commercialization. As such, we are currently primarily focused on the development of vonapanitase for vascular access, and
our Phase 3 trials will be limited to the application of vonapanitase in radiocephalic fistulas.
In the future we intend
to pursue additional indications such as the application of vonapanitase in brachiocephalic fistula creation and/or patients undergoing
placement of an arteriovenous graft and/or patients with symptomatic PAD. As a result, we may forego or delay pursuit of opportunities
with other product candidates or for other indications that may prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on
current and future research and development programs and product candidates for specific indications may not yield any commercially
viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate,
we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases
in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
Even if we obtain and maintain approval
for vonapanitase or additional product candidates from the FDA, we may never obtain approval for vonapanitase or additional product
candidates outside of the United States, which would limit our market opportunities and adversely affect our business.
Even if we obtain approval
of a product candidate in the United States from the FDA, such approval does not ensure approval of that product candidate by regulatory
authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory
authorities in other foreign countries or by the FDA. Sales of vonapanitase or any additional product candidates outside of the
United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the
FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve
the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can
involve requirements and administrative review periods different from, and greater than, those in the United States, including
additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved
for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our
products, if approved for sale, is also subject to approval. Moreover, the failure to obtain approval in one jurisdiction may negatively
impact our ability to obtain approval in another jurisdiction.
Based on additional data including the data from our Phase 3 clinical trials and assuming sufficient funds become
available, we plan to commence a clinical trial of vonapanitase in Europe for patients undergoing creation of radiocephalic fistulas.
Prior to enrolling our first patient in Europe, we plan to formally seek guidance from the EMA regarding its requirements for regulatory
approval. If a clinical trial of vonapanitase in Europe is necessary for regulatory approval, we expect results from this trial
to be available two to three years after the first patient is enrolled. If results of this European trial successfully meet its
primary endpoint and depending on the guidance obtained from the EMA, we would expect to submit a Marketing Authorization Application,
or MAA. Obtaining an approval is a lengthy and expensive process and the EMA has its own procedures for approval of product candidates.
Even if a product candidate is approved, the EMA may limit the indications for which the product may be marketed, require extensive
warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval.
Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of product candidates
with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign
regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction
of vonapanitase or any additional product candidates in those countries.
Advertising and promotion of any
product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the Department of Justice,
the Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and
the public.
While the FDA does
not restrict physicians from prescribing approved drugs and biologics for uses outside of the products’ approved labeling,
known as off-label use, pharmaceutical manufacturers are prohibited from promoting and marketing their products for such uses.
Violations, including promotion of our products for off-label uses, are subject to enforcement letters, inquiries, investigations,
civil and criminal sanctions by the government, corporate integrity agreements, debarment from government contracts, debarment
and exclusion from participation in federal healthcare programs. Additionally, comparable foreign regulatory authorities will heavily
scrutinize advertising and promotion of any product candidate that obtains approval outside of the United States.
In the United States,
engaging in the impermissible promotion of our products for off-label uses can also subject us to false claims litigation under
federal and state statutes, which can lead to civil and criminal penalties and fines, debarment from government contracts, exclusion
from participation in federal healthcare programs and corporate integrity agreements with governmental authorities that materially
restrict the manner in which a company promotes or distributes drug and biologic products. These false claims statutes include
the federal civil False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of
the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims,
for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and prevails in the lawsuit,
the individual will share in any fines or settlement funds. If the government does not intervene, the individual may proceed on
his or her own. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume
and breadth, leading to several substantial civil and criminal settlements regarding certain sales practices promoting off-label
product uses involving fines that are as much as $3.0 billion.
This growth in litigation
has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution,
agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid and other federal
and state healthcare programs. If we do not lawfully promote our approved products, we may become subject to such litigation and,
if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial
condition, results of operations and prospects. The FDA’s policies may change and additional government regulations may be
enacted that could prevent, limit or delay marketing approval, and the sale and promotion of our product candidates. If we are
slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our
business, prospects and ability to achieve or sustain profitability.
If we are found in violation of federal
or state “fraud and abuse” laws or other healthcare laws and regulations, we may be required to pay a penalty and/or
be suspended from participation in federal or state healthcare programs, which may adversely affect our business, financial condition
and results of operation.
We may also be subject
to various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false
claims laws. Anti-kickback laws make it illegal for a prescription drug or biologic manufacturer to solicit, offer, receive or
pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular
drug or biologic. Other laws that we may be subject to include the civil False Claims Act, criminal False Claims Act, the HIPAA
fraud and abuse provisions, the Civil Monetary Penalties statute, Section 1927 of the Social Security Act, the Veterans Health
Care Act, the Foreign Corrupt Practices Act, federal and state statutes and regulations pertaining to payments made to physicians
and other health care providers, the HIPAA privacy and security provisions, and other analogous state laws. Due to the breadth
of the statutory provisions, it is possible that our practices might be challenged under anti-kickback, healthcare, or other fraud
and abuse laws. Moreover, recent healthcare reform legislation has strengthened these laws. For example, the recently enacted Patient
Protection and Affordable Care Act, or ACA, among other things, amends the intent requirement of the federal anti-kickback and
certain of the criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of
this statute or specific intent to violate it. In addition, the ACA clarifies that the government may assert that a claim that
includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim
for purposes of the civil False Claims Act. False claims laws prohibit anyone from knowingly presenting, or causing to be presented
for payment, to government third-party payors (including Medicare and Medicaid) claims for reimbursed drugs, or biologics or services
that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or
services. Liability may also arise from false certification of compliance with laws and regulations that are conditions of payment.
Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud
and abuse laws, and other healthcare statutes are punishable by criminal and civil sanctions, including fines and civil monetary
penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid) and corporate integrity
agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. We may further be
subject to such other actions as debarment from government contracts and future orders under existing contracts, refusal to allow
us to enter into supply contracts, including government contracts, reputational harm, diminished profits and future earnings and
the curtailment or restructuring of our operations, any of which could adversely affect our business.
Given the significant
penalties and fines that can be imposed on companies and individuals if convicted or found liable, allegations of violations under
fraud and abuse laws often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements
often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If
the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. In
addition, private individuals have the ability to bring similar actions under the False Claims Act. Our activities could be subject
to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given
to them by law enforcement authorities. Further, an increasing number of state laws require manufacturers to make reports to states
on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given
the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent
state authorities.
Similar rigid restrictions
are imposed on the promotion and marketing of medicinal products in the European Union and other countries. Laws (including those
governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are
strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products,
inappropriate activity by our international distribution partners can have adverse implications for us.
We may not be able to comply with
requirements of foreign jurisdictions in conducting trials outside of the United States.
To date, we have not
conducted any clinical trials outside of the United States. Our ability to successfully initiate, enroll and complete a clinical
trial in any foreign country, should we attempt to do so, is subject to numerous risks unique to conducting business in foreign
countries, including:
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difficulty in establishing or managing relationships with contract research organizations, or CROs, clinical sites and investigators;
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different standards for the conduct of clinical trials;
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our inability to locate qualified local consultants, physicians and partners;
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the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment; and
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the acceptability of data obtained from trials conducted outside the United States to the FDA in support of a BLA.
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Risks Related to Commercialization of
Our Product
If we are unable to establish effective
marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they
are approved, we may be unable to generate product revenues.
We currently do not
have a commercial infrastructure for the marketing, sale and distribution of biological products. If approved, in order to commercialize
our products, we must build our marketing, sales and distribution capabilities or make arrangements with third parties to perform
these services. We may not be successful in doing so. If vonapanitase is approved by the FDA, we plan to build a specialty sales
force in the United States of approximately 75-100 representatives, supported by reimbursement specialists and a medical affairs
team. We may seek to further penetrate the United States market in the future by expanding our sales force or through collaborations
with other pharmaceutical or biotechnology companies or third party manufacturing and sales organizations. If approved for marketing
outside the United States, we may commercialize outside the United States with our own specialty sales force and/or with a commercial
partner.
As a company we have
no prior experience in the marketing, sale and distribution of biological products, and there are significant risks involved in
the building and managing of a commercial infrastructure. The establishment and development of our own sales force and related
compliance plans to market any products we may develop will be expensive and time consuming and could delay any product launch,
and we may not be able to successfully develop this capability. We, or our future collaborators, will have to compete with other
companies to recruit, hire, train, manage and retain marketing and sales personnel. In the event we are unable to develop a marketing
and sales infrastructure, we may not be able to commercialize vonapanitase or any additional product candidates, which would limit
our ability to generate product revenues. Our ability to generate product revenues would be impaired by:
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our inability to recruit, train, manage and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to vascular surgeons or persuade adequate numbers of vascular surgeons to use vonapanitase or any additional product candidates;
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our inability to effectively oversee a geographically dispersed sales and marketing team;
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the costs associated with training sales personnel on legal compliance matters and monitoring their actions;
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liability for sales personnel failing to comply with the applicable legal requirements; and
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unforeseen costs and expenses associated with creating an independent sales and marketing organization.
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Although our current
plan is to hire most of our sales and marketing personnel only if vonapanitase is approved by the FDA, we will incur expenses prior
to product launch in recruiting this sales force and developing a marketing and sales infrastructure. If the commercial launch
of vonapanitase is delayed as a result of FDA requirements or other reasons, we would incur these expenses prior to being able
to realize any revenue from sales of vonapanitase. Even if we are able to effectively hire a sales force and develop a marketing
and sales infrastructure, our sales force and marketing teams may not be successful in commercializing vonapanitase or any additional
product candidates.
In the event we are
unable to hire a sales force or collaborate with a third-party marketing and sales organization to commercialize any approved product
candidates outside the United States, our ability to generate product revenues may be limited. To the extent we rely on third parties
to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these
products ourselves. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization
efforts.
Even if vonapanitase or any additional
product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary
for commercial success.
The commercial success
of vonapanitase and any product candidates that we may develop will depend upon the degree of market acceptance by physicians,
patients, healthcare payors and others in the medical community. Even if the FDA approves vonapanitase or one or more of our future
product candidates, physicians and patients may not accept and use them. Acceptance and use of any of our products will depend
upon a number of factors including:
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perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our products, and their advantages as compared to any competitive products;
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the timing of market introduction of the product candidate as well as competitive products;
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the clinical indications for which the product candidate is approved;
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any restrictions on or warnings regarding the use of the products;
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cost-effectiveness of our products relative to any competing products;
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availability of timely coverage and reimbursement for our products from government or other third-party payors; and
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effectiveness of marketing and distribution efforts by us and any our licensees and distributors.
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Because we expect sales
of vonapanitase, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of
vonapanitase to gain market acceptance would harm our business and would require us to seek additional financing.
Vonapanitase or any additional product
candidates, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving
significant market penetration and expansion.
The biotechnology and
pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary
products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical,
biotechnology and medical device companies, academic institutions, governmental agencies and public and private research institutions.
While we believe that vonapanitase’s features, safety and efficacy will differentiate it from any competitive products that
may become available in the future, we expect to face potential competition from many different sources, including larger and better-funded
pharmaceutical, specialty pharmaceutical and biotechnology companies and medical device companies, as well as from academic institutions
and governmental agencies and public and private research institutions that may develop potentially competitive products or technologies.
Some of our competitors
have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining regulatory approvals, marketing and selling approved products than we do. Smaller or early stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
The key competitive
factors affecting the success of vonapanitase, if approved, are likely to be its efficacy, safety, convenience, price, and the
availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated
if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any
products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly
than we may obtain approval for ours.
We are not aware of
products approved in the United States or Europe that would compete with vonapanitase for the improvement of secondary patency
and fistula use for hemodialysis. We are aware of companies with therapies in development including Vascular Therapies, Enceladus
Pharmaceuticals, Symic Biomedical, Aplagon, and Athera Biotechnologies, as well as companies developing vascular access technologies,
including BioConnect Systems, Avenu Medical, Phraxis, Brookhaven Medical, Fist Assist, Laminate Medical Technologies, Stent Tek
and TVA Medical. Other technologies in development include new synthetic grafts, including those that may be developed by companies
that currently compete in the graft market, such as W.L. Gore, C.R. Bard and Maquet, as well as tissue engineered grafts, including
those in development by Cytograft and Humacyte. Finally, vonapanitase’s commercial success could be affected by the development
of technologies to improve the outcomes of interventions to restore patency, including stents, stent grafts and drug-coated balloons.
Vonapanitase, or any additional product
candidates for which we seek approval as biologic products, may face competition sooner than anticipated.
The enactment of the
Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA, created an abbreviated pathway for the approval
of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA
to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable”
based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved
by the FDA until 12 years after the original branded product was approved under a BLA. Certain changes, however, and supplements
to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or
other related entity do not qualify for the 12-year exclusivity period.
The BPCIA is complex
and is still being interpreted and implemented by the FDA. ACA is also facing increased scrutiny by legislators. As a result, the
ultimate impact, implementation, meaning and continued effectiveness of BPCIA are subject to uncertainty. While it is uncertain
when such processes intended to implement the BPCIA may be fully adopted by the FDA or whether any aspects of BPCIA may change,
any such processes or changes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that vonapanitase,
or any additional product candidates approved as a biological product under a BLA, should qualify for the BPCIA’s 12-year
period of exclusivity. However, there is a risk that BPCIA will be repealed or amended, or the FDA will not consider vonapanitase
or any additional product candidates to be reference products for competing products, potentially creating the opportunity for
generic competition sooner than anticipated.
Additionally, this
period of regulatory exclusivity does not currently apply to companies pursuing regulatory approval via their own traditional BLA,
rather than via the abbreviated pathway. Moreover, the extent to which a biosimilar, once approved, will be substituted for any
one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet
clear, and will depend on a number of marketplace and regulatory factors that are still developing. It is possible that payers
will give reimbursement preference to biosimilars even over reference biologics absent a determination of interchangeability.
If the government or other third-party
payors fail to provide adequate and timely coverage and payment rates for vonapanitase or any additional product candidates or
if surgeons or hospitals choose not to use vonapanitase, our revenue and prospects for profitability will be limited.
In both domestic and
foreign markets, sales of our future products will depend substantially upon the availability of timely coverage and reimbursement
from government and other third-party payors. The majority of incident and prevalent hemodialysis patients have Medicare coverage,
while other patients have other third-party payors, including other government health programs such as Medicaid, managed care providers,
private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor
new drug and biologic products when more established or lower cost therapeutic alternatives are already available or subsequently
become available. Vonapanitase or any additional product candidates, if approved, may face competition from other therapies, biologics,
and drugs for limited financial resources. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness
of any future products to the satisfaction of outpatient clinics, hospitals, other target customers and their third-party payors.
These post-marketing studies might require us to commit a significant amount of management time and financial and other resources.
Our future products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not
be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.
Third-party payors,
whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare
costs. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate to allow us to establish
or maintain a market share sufficient to realize a sufficient return on our investments. If reimbursement is not available, or
is available only to limited levels, our product candidates may be competitively disadvantaged, and we, or our collaborators, may
not be able to successfully commercialize our product candidates. Alternatively, securing favorable reimbursement terms may require
us to compromise pricing and prevent us from realizing an adequate margin over cost. In addition, in the United States, no uniform
policy of coverage and reimbursement for drug and biologic products exists among third-party payors. Therefore, coverage and reimbursement
for drug and biologic products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement
will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and
reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate
in either the United States or international markets, which could have a negative effect on our business, results of operations,
financial condition and prospects.
Government programs
impose price controls on pharmaceutical and biological products and penalties for increasing commercial prices at rates that exceed
the government inflation index, which may limit the commercial price we charge and our realization on sales. Further, the net reimbursement
for drug and biologic products may be subject to additional reductions if there are changes to laws that presently restrict imports
of drugs and biologics from countries where they may be sold at lower prices than in the United States. An inability to promptly
obtain coverage and adequate payment rates from both government-funded and private payors for any our product candidates for which
we obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed
to commercialize products and our overall financial condition.
Risks Related to Dependence on Third
Parties
We and our contract manufacturers
are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which
we rely may not continue to meet regulatory requirements and have limited capacity.
We currently have a
relationship with only one supplier, Lonza, for the manufacturing of the API for vonapanitase for clinical testing purposes, and
intend to continue to use Lonza as our sole or primary supplier of the API for vonapanitase in the future. We have used two companies,
Jubilant HollisterStier and Patheon Manufacturing Services Inc. (formerly DSM Pharmaceuticals), to vial and make our vonapanitase
finished product. We also expect to rely upon third parties to produce materials required for the commercial production of vonapanitase
or any additional product candidates if we succeed in obtaining the necessary regulatory approvals. This may increase the risk
that we will not have sufficient quantities of our product candidates to conduct our clinical trials or such quantities at an acceptable
cost, which could result in the delay, prevention, or impairment of clinical development and commercialization of our product candidates.
All entities involved
in the preparation of drugs or biologics for clinical trials or commercial sale, including our existing contract manufacturers,
are subject to extensive regulation. Ingredients of a finished therapeutic biologic product approved for commercial sale or used
in clinical trials must be manufactured in accordance with cGMPs and equivalent foreign standards. These regulations govern manufacturing
processes and procedures (including record-keeping) and the implementation and operation of quality systems to control and assure
the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction
of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of product candidate that
may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support
of a BLA on a timely basis and must adhere to the FDA’s cGMPs regulations enforced by the FDA through its facilities inspection
program. Any failure by our third-party manufacturers to comply with cGMPs, or failure to scale-up and validate manufacturing processes,
including any failure to deliver sufficient quantities of product candidates in a timely manner for the process validation required
in connection with a BLA submission, could lead to a delay in, or failure to obtain, regulatory approval of vonapanitase or any
additional product candidates. For example, on November 27, 2013, our third-party supplier of finished biological product, Jubilant
HollisterStier, received a Warning Letter from the FDA alleging that the company was not complying with cGMPs. We received a letter
from the FDA on February 13, 2014, stating that the Warning Letter does not impact the batch of finished product we are using for
our Phase 3 clinical trials. However, if Jubilant HollisterStier or any other third-party supplier does not have an acceptable
cGMP compliance status at the time of review by the FDA of any BLA we might submit, approval of the BLA would be delayed. This
third party supplier or other third parties could encounter similar difficulties that could impede our clinical trials, approval
or commercialization.
Our facilities and
quality systems and the facilities and quality systems of some or all of our third-party contractors must also pass a pre-approval
inspection for compliance with the applicable regulations as a condition of regulatory approval of vonapanitase or any additional
product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved
with the preparation of our product candidate or the associated quality systems for compliance with the regulations applicable
to the activities being conducted. If these facilities and quality systems do not pass a pre-approval plant inspection from the
FDA or a comparable foreign authority, approval of our product candidate by the FDA or the equivalent approvals in other jurisdictions
will not be granted until the regulatory authority is satisfied that the facility complies with applicable regulations.
Regulatory authorities
also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party
contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our
product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory
authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that
may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure
of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
If we or any
of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among
other things, refusal to approve a pending application for a new drug or biologic product or revocation of a pre-existing approval.
If any such event occurs, our business, financial condition and results of operations may be materially harmed.
Currency fluctuations in the Swiss
Franc and changes in exchange rates could adversely affect our business by increasing our costs and cause our profitability to
decline.
Our contract with Lonza
for the manufacturing of the API is denominated in Swiss Francs. Therefore, fluctuations in the exchange rate for Swiss Francs
may affect our operating results. On January 15, 2015, the Swiss National Bank announced an edit to its policy of fixing the Swiss
Franc and Euro exchange rate, which caused volatility in the currency markets for Swiss Francs and an immediate increase in their
value, making our contractual payments to Lonza more expensive based on the current exchange rates. In the second quarter of 2015,
we entered into forward foreign currency contracts to purchase Swiss Francs to reduce our foreign currency exposure under our contract
with Lonza, all of which have been settled and are no longer outstanding. We have purchased Swiss Francs to mitigate our exposure
to fluctuations in the U.S. dollar value of forecasted transactions denominated in Swiss Francs. In the future we may purchase
additional forward foreign currency contracts to hedge certain forecasted transactions, including those with Lonza, and reduce
exposures to foreign currency fluctuations. Any use of these derivative instruments would be intended to mitigate a portion of
the exposure of these risks with the intent to reduce our risk or cost, but generally would not fully offset any change in operating
results as a consequence of fluctuations in foreign currencies. Any significant foreign exchange rate fluctuations could adversely
affect our financial condition and results of operations and any use of derivative instruments may not offset such fluctuations
and could exacerbate their impact on our financial condition and results of operations.
We rely on third parties to conduct
some or all aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and plan
to continue to rely on such third parties if we receive marketing approvals. These third parties may not perform satisfactorily.
We do not currently,
and do not expect in the future, to independently conduct all aspects of our product manufacturing, protocol development, research
and monitoring and management of our clinical programs. Vonapanitase API is produced by our contract manufacturer, Lonza. Vonapanitase
finished product is produced by our contract fill/finish provider, Jubilant HollisterStier. Release testing and stability for API
and finished product is performed by PPD, Inc. We currently rely, and expect to continue to rely, on third parties with respect
to these items for our continued and future clinical studies as well as for commercialization, if we receive regulatory marketing
approval. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day
performance. Nevertheless, we will be responsible for ensuring that the manufacturing is conducted in accordance with regulatory
requirements such as cGMPs. Our reliance on the third parties does not relieve us of our regulatory responsibilities.
Any of these third
parties may terminate their engagements with us under the terms of our agreements upon notice to us. If we need to enter into alternative
arrangements, our product candidate development and eventual commercialization activities may be delayed. Our reliance on these
third parties for research and development activities, and eventual commercial supply, reduces our day-to-day control over these
activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific
standards and any applicable trial protocols. For example, for vonapanitase or any additional product candidates that we develop
and commercialize on our own, we will remain responsible for ensuring that the product is manufactured in accordance with cGMPs,
each of our clinical trials is conducted in accordance with GCPs and its protocol and is analyzed in accordance with its statistical
analysis plan for the clinical trial.
If these third parties
do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory
requirements or our protocols, we may be delayed in completing, or unable to complete, the clinical trials required to support
future approval of vonapanitase or any additional product candidates, and, if ultimately approved for marketing, may not be able
to produce a sufficient amount of commercial supply.
We rely on our manufacturers
to purchase from third-party suppliers the materials necessary to produce our product candidate, vonapanitase, for our clinical
trials, and eventual commercial supply, if we receive regulatory approval. There are a small number of suppliers for certain raw
materials that we use to manufacture vonapanitase. These suppliers may not sell these raw materials to our manufacturers at the
times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition
of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of
these raw materials. Although the API and the finished product for each of our Phase 3 trials has already been manufactured and
is held in storage, we will need supply of finished product as part of the process validation and for any stability or other tests
in connection with a BLA submission and also to conduct additional clinical trials, for example for additional vonapanitase indications.
We will further require finished product for commercialization if we receive regulatory approval. Any significant delay in the
supply of vonapanitase’s ingredients due to the need to replace a third-party manufacturer could considerably delay completion
of our clinical trials, product testing and potential regulatory approval of vonapanitase or any additional product candidate,
and commercialization as we believe that replacing Lonza as the manufacturer of our API would take one to two years and replacement
of any of our other manufacturers may take a substantial amount of time. If our manufacturers or we are unable to purchase these
raw materials after regulatory approval has been obtained for our product candidate, our ability to commercially launch and/or
generate revenues from the sale of any approved product would be impaired. Reliance on third-party manufacturers entails exposure
to risks to which we would not be subject if we manufactured the product candidate ourselves, including:
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inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
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reduced day-to-day control over the manufacturing process for our product candidates as a result of using third-party manufacturers for all aspects of manufacturing activities;
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reduced control over the protection of our trade secrets and know-how from misappropriation or inadvertent disclosure;
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termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may be costly or damaging to us or result in delays in the development or commercialization of our product candidates; and
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disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.
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Any of these events
could lead to delays in the development of vonapanitase or any additional product candidates, including delays in our clinical
trials, or failure to obtain regulatory approval for our product candidates, or it could impact our ability to successfully commercialize
vonapanitase or any additional product candidates. Some of these events could be the basis for FDA or other regulatory action,
including Warning Letters, injunction, recall, seizure or total or partial suspension of production. Any of these events could
have a material adverse effect on our business.
We rely on third parties to conduct,
supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet
expected deadlines, we may not be able to obtain regulatory approval for, or commercialize, vonapanitase or any additional product
candidates and our business could be substantially harmed.
We rely on CROs and
clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing
their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible
for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, and legal, regulatory and
scientific standards and recognize that our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs are
required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that
the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants
are protected. The FDA and comparable foreign regulatory authorities enforce these GCPs through periodic inspections of trial sponsors,
principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated
in our future clinical trials may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require
us to perform additional clinical trials before approving any marketing applications. In addition, we are required to report certain
financial interests of our third-party investigators if these relationships provide for a financial interest in the outcome of
the study because of the way the payment was arranged (e.g., a royalty) or because the investigator has a proprietary interest
in the product (e.g., a patent) or because the investigator has an equity interest in the sponsor of the covered study exceeding
certain financial thresholds. The FDA or comparable foreign regulatory authorities may question the integrity of the data from
those clinical trials conducted by principal investigators who previously served or currently serve as scientific advisors or consultants
to us from time to time and receive cash compensation in connection with such services.’
Upon inspection,
the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a
sufficient number of test subjects to evaluate the safety and efficacy of vonapanitase or any additional product candidates. Accordingly,
if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat
such clinical trials, which would delay the regulatory approval process.
Our CROs are not our
employees, and we are therefore unable to monitor on a day-to-day basis whether or not they devote sufficient time and resources
to our clinical and preclinical programs. These CROs may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting clinical trials or other product development activities that could harm our competitive
position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or
if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols
or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not
be able to obtain regulatory approval for, or successfully commercialize, vonapanitase or any additional product candidates. If
any such event were to occur, we may be subject to regulatory enforcement actions, our financial results and the commercial prospects
for vonapanitase or any additional product candidates would be harmed, our costs could increase, and our ability to generate revenues
could be delayed.
If any of our relationships
with these third-party CROs terminates, we may not be able to enter into arrangements with alternate CROs or to do so on commercially
reasonable terms. Further, switching or adding additional CROs involves additional costs and requires management time and focus.
In addition, a transition period may be required when a new CRO commences work. As a result, delays may occur, which could materially
impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs,
there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will
not have a material adverse impact on our business, financial condition and prospects.
We also rely on other
third parties to store and distribute our products for the clinical trials that we conduct. Any performance failure on the part
of our distributors could delay clinical development or marketing approval of vonapanitase or any additional product candidates
or commercialization of our product, if approved, producing additional losses and depriving us of potential product revenue.
We may seek to form partnerships
in the future with respect to vonapanitase or any additional product candidates, and we may not realize the benefits of such partnerships.
We may form partnerships,
create joint ventures or collaborations or enter into licensing arrangements with third parties for the development and commercialization
of vonapanitase or any additional product candidates. We face significant competition in seeking appropriate strategic partners
and the negotiation process is time-consuming and complex. Any delays in entering into new strategic partnership agreements related
to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness
even if they reach the market. Moreover, we may not be successful in our efforts to establish a strategic partnership or other
collaborative arrangement for any additional product candidates. For example, potential partners may consider that our research
and development pipeline is insufficiently developed to justify a collaborative effort, or that vonapanitase or any additional
product candidates and programs do not have the requisite commercial or clinical potential in the target population. Even if we
are successful in establishing such a strategic partnership or collaboration, we cannot be certain that, following such a strategic
transaction or license, we will be able to progress the development and commercialization of the applicable product candidates
as envisioned, or that we will achieve the revenues that would justify such transaction.
Risks Related to Our Intellectual Property
If our efforts to protect our intellectual
property related to vonapanitase or any additional product candidates are not adequate, we may not be able to compete effectively
in our market.
We rely upon a combination
of patents, patent applications, know-how and confidentiality agreements to protect the intellectual property related to our only
product candidate, vonapanitase, and will use a similar strategy to protect any additional product candidates. The patent position
of biotechnology companies is generally uncertain because it involves complex legal and factual considerations. The standards applied
by the United States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied
uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of
claims allowable in biotechnology patents. The patent applications that we own may fail to result in issued patents with claims
that cover vonapanitase or any additional product candidates in the United States or in other countries. There is no assurance
that all potentially relevant prior art relating to our patents and patent applications has been found, and prior art that is not
before the patent examiners, as well as prior art that is before the patent examiners, could be used by a third party to invalidate
a patent or could be relied on to prevent a patent from issuing from a pending patent application. Even if patents do successfully
issue and even if these patents cover vonapanitase or any additional product candidates, third parties may challenge their validity,
enforceability or scope, which may result in our patents being narrowed or invalidated.
Furthermore, even if
they are unchallenged, our patents and patent applications may not adequately provide exclusivity for vonapanitase or any additional
product candidates, prevent others from designing around our patents with similar products that are outside the scope of our patents,
or prevent others from operating in jurisdictions in which we did not pursue patent protection. Any of these outcomes could impair
our ability to prevent competition from third parties, which may have an adverse impact on our business.
If patent applications
we hold with respect to vonapanitase or any additional product candidates fail to issue, if their breadth or strength of protection
is threatened, or if they fail to provide meaningful exclusivity for vonapanitase or any additional product candidates, it could
dissuade companies from collaborating with us. As of September 30, 2017 we own 37 issued patents and own 21 pending patent applications,
most of which cover aspects of vonapanitase or its use. We cannot offer any assurances about which, if any, of the pending patent
applications will issue as patents, the breadth of any such patents or any of our currently issued patents, or whether any issued
patents will be challenged by third parties or will be found invalid and unenforceable if challenged. Any successful challenge
to these patent applications, or patents that may issue from them, or to currently issued patents owned by us, could deprive us
of rights necessary for the successful commercialization of vonapanitase or any other product candidate that we may develop. Since
patent applications in the United States and most other countries are confidential for a period of time after filing, and some
remain so until issued, we cannot be certain that we were the first to file a patent application relating to any particular aspect
of a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United
States can be initiated by these third parties, or by the USPTO itself, to determine who was the first to invent any of the subject
matter covered by the patent claims of our patents and patent applications.
In the United States,
for patent applications filed prior to March 16, 2013, assuming the other requirements for patentability are met, the first to
invent is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent.
Our currently pending utility patent applications are examined under the system in place before March 16, 2013. Third parties are
allowed to submit prior art prior to the issuance of a patent by the USPTO, and may become involved in reexamination,
inter
partes
review or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding
or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position
with respect to third parties.
In addition, patents
have a limited lifespan. In most countries, the statutory term of a patent is 20 years from the earliest domestic priority date
claimed. In the United States, for applications filed after June 7, 1995, the statutory term of a patent is 20 years from earliest
non-provisional priority date claimed. Various extensions of patent protection may be available in particular countries; however,
in all circumstances, the life of a patent, and the protection it affords, has a limited term. If we encounter delays in obtaining
regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. We expect
to seek extensions of patent protection where these are available in any countries where we are prosecuting patents. Such possible
extensions include those permitted under the Drug Price Competition and Patent Term Restoration Act of 1984 in the United States,
which permits up to five years’ extension of patent protection and no more than fourteen years following product approval
for a single patent that covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active
ingredient that has not previously been marketed. The scope of protection available during an extension of a patent claiming a
product is limited to the approved product itself for approved uses, and the scope of protection available during an extension
of a patent claiming a method of using a product is limited to the uses claimed in the patent and approved for the product. The
actual length of the extension is calculated by adding one half of the time between the IND effective date and a company's initial
submission of a marketing application, plus the entire time between the submission of the marketing application and the FDA's approval
of the application. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent
regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse
to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be
able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data, and
then may be able to launch their product earlier than might otherwise be the case.
Any loss of, or failure
to obtain, patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from
entering the market with a product that is similar to or the same as our products.
Confidentiality agreements with employees
and third parties may not prevent unauthorized disclosure of proprietary information.
We seek to protect
our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants,
scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and know-how by maintaining
physical security of our premises and physical and electronic security of our information technology systems. Nonetheless, despite
these precautions, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition,
our know-how may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors
or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related
or resulting know-how and inventions.
Enforcing a claim that
a third party illegally obtained and is using any of our know-how is expensive and time consuming, and the outcome is unpredictable.
In addition, courts outside the United States sometimes are less willing than United States courts to protect know-how. Misappropriation
or unauthorized disclosure of our know-how could impair our competitive position and may have a material adverse effect on our
business.
We may become involved in lawsuits
to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful, and which may lead
to a finding that our patents are invalid and/or unenforceable.
Competitors may infringe
our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use,
litigation may be necessary to enforce or defend our intellectual property rights, to protect our know-how and/or to determine
the validity and scope of our own intellectual property rights. Intellectual property litigation can be expensive and time consuming.
Many of our current and potential competitors have the ability to dedicate substantially greater resources to litigate intellectual
property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating
our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm
our business and financial results. In addition, in an infringement proceeding, a court may decide that our patents are invalid
or unenforceable, and may refuse to stop the other party from using the technology at issue, including on the grounds that our
patents are invalid or unenforceable or do not cover the technology in question. An adverse result in any litigation proceeding
could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because
of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure during this type of litigation.
Third-party claims of intellectual
property infringement or misappropriation may prevent or delay our development and commercialization efforts.
Our commercial success
depends in part on our ability to develop, manufacture, market and sell vonapanitase or any additional product candidates, and
to use proprietary technologies without infringing the patents and proprietary rights of third parties. There is a substantial
amount of litigation and adversarial proceedings, both within and outside the United States, involving patent and other intellectual
property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions,
reexamination, and
inter partes
review proceedings before the USPTO and corresponding foreign patent offices. Third parties
own patent rights both within and outside the United States in the fields in which we are developing and may develop vonapanitase
or any additional product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the
risk increases that vonapanitase or any additional product candidates may be subject to claims of infringement of the patent rights
of third parties.
Third parties may assert
that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications
with claims that may cover vonapanitase or any additional product candidates and/or the use, manufacture, sale and/or offer for
sale of vonapanitase or any additional product candidates. We are aware of European Patent No. EP 1 012 307 B1, or the '307 patent,
which claims, among other things, autocatalytically cleavable zymogenic precursor of a serine protease wherein a naturally occurring
non-autocatalytic cleavage site is replaced in the zymogenic precursor by an autocatalytic cleavage site. The '307 patent expires
on August 12, 2018. We currently estimate that the soonest that we will market vonapanitase is after this date.
In some cases, we may
have failed to identify relevant third-party patents or patent applications. For example, applications filed before November 29,
2000, and certain applications filed after that date that will not be filed outside the United States remain confidential until
patents issue. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published
but, only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering
vonapanitase or future product candidates could have been filed by others without our knowledge. Additionally, pending patent applications
which have been published can, subject to certain limitations, be later amended in a manner that could cover vonapanitase or any
additional product candidates and/or the use, manufacture, sale and/or offer for sale of vonapanitase or any additional product
candidates.
If any valid and enforceable
third-party patents were held by a court of competent jurisdiction to cover vonapanitase or any additional product candidates and/or
their use, manufacture, sale, and/or offer for sale, the holders of any of these patents may be able to block our ability to develop
and commercialize the applicable product candidate until the patent expired or unless we obtain a license. Licenses may not be
available on acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could
result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing
a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement
claims, we are unable to enter into licenses on acceptable terms.
Some of our early research
of recombinant expression of vonapanitase, but not the corresponding development work, utilized some technology under license from
a third party. The third party may contend that we use the licensed technology for our commercial recombinant expression of vonapanitase.
Litigation may be necessary to defend against such a claim. Even if we are successful in defending against such a claim, litigation
could result in substantial costs and be a distraction to management. If we are not successful in defending against such a claim,
in addition to paying monetary damages, we may have to reconfigure the vonapanitase expression system, which would materially adversely
affect our commercial development efforts.
Parties making claims
against us may obtain injunctive or other equitable relief, which could effectively block our ability to commercialize vonapanitase
or any additional product candidates. We may face a claim of misappropriation if a third party believes that we inappropriately
obtained and used trade secrets of that third party. If we are found to have misappropriated a third party’s trade secrets,
we may be prevented from further using such trade secrets, limiting our ability to develop vonapanitase or any additional product
candidates, and we may be required to pay damages.
Defending against claims
of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus,
even if we were to ultimately prevail, or to settle at an early stage, any litigation could burden us with substantial unanticipated
costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management
team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against us,
we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties,
redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial
time and monetary expenditure.
During the course of
any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on
motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative,
the perceived value of our products, programs, or intellectual property could be diminished. Accordingly, the market price of our
Common Stock may decline.
If we are unable to adequately protect
our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our current product candidate,
vonapanitase, or any additional product candidates, others could compete against us more directly, which would have a material
adverse impact on our business, results of operations, financial condition and prospects.
We strive to protect
and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover
our products and compositions, their methods of use and any other inventions that are important to the development of our business.
We also rely on know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for,
patent protection.
Our success will depend
significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology,
inventions and know-how related to our business, defend and enforce our current patents and any future patents that may issue,
preserve the confidentiality of our know-how and operate without infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on know-how and in-licensing opportunities to develop, strengthen and maintain the proprietary position
of vonapanitase or any additional product candidates.
We cannot provide any
assurances that any of our pending patent applications will mature into issued patents and, if they do, that such patents or our
currently issued patents will include claims with a scope sufficient to protect vonapanitase or any additional product candidates
or otherwise provide any competitive advantage. For example, one of our patents that may provide coverage for vonapanitase only
covers particular formulations. As a result, this patent would not prevent third-party competitors from creating, making and marketing
alternative formulations that fall outside the scope of our patent claims. There can be no assurance that any such alternative
formulations will not be equally effective.
Moreover, other parties
have developed technologies that may be related or competitive to our approach, and may have filed or may file patent applications
and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the
same methods or formulations or by claiming subject matter that could dominate our patent position. These third party patent positions
may limit or even eliminate our ability to obtain patent protection for certain inventions.
The patent positions
of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and,
therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty.
Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. United States patents and patent applications
may also be subject to interference proceedings,
ex parte
reexamination, or
inter partes
review proceedings, and
challenges in district court. Patents may be subjected to opposition, revocation proceedings, or comparable proceedings lodged
in various foreign, both national and regional, patent offices. These proceedings 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 proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection
against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent
right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize vonapanitase or any additional
product candidates.
Furthermore, though
a patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may
not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if
a patent issues and is held to be valid and enforceable, competitors may be able to design around our patents, such as using pre-existing
or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs
or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or know-how by consultants,
vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the
same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in
these countries. If these developments were to occur, they could have a material adverse effect on our sales.
In addition, proceedings
to enforce or defend our patents, if and when issued, could put our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. These proceedings could also provoke third parties to assert claims against us, including that some or all
of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents, if and when issued,
covering vonapanitase or any additional product candidates, are invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents
held by third parties covered vonapanitase, or any additional product candidates, our financial position and results of operations
would also be materially and adversely impacted.
The degree of future
protection for our proprietary rights is uncertain, and we cannot ensure that:
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any of our patents or pending patent applications, if issued, will include claims having a scope sufficient to protect vonapanitase or any additional product candidates;
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any of our pending patent applications will issue as patents at all;
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we will be able to successfully commercialize product candidates, if approved, before our relevant patents expire;
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we were the first to make the inventions covered by each of our patents and pending patent applications;
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we were the first to file patent applications for these inventions;
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others will not develop similar or alternative technologies that do not infringe our patents;
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others will not use pre-existing technology to effectively compete against us;
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any of our patents will be found ultimately to be valid and enforceable;
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any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;
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we will develop additional proprietary technologies or product candidates that are separately patentable; or
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that our commercial activities or products will not infringe the patents or proprietary rights of others.
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We rely upon unpatented
know-how to maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees
and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed
by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements
breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and our confidential
know-how could become known to others through such breaches or violations. Further, our know-how could otherwise become known or
be independently discovered by our competitors. Further, the term of confidentiality requirements for current and terminated agreements
with some of our consultants, contract manufacturing or research organizations and other third parties is finite.
We may be subject to claims challenging
the inventorship or ownership of our patents and other intellectual property.
We enter into confidentiality
and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers
and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services
to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual
property rights to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which
the academic advisor is required to assign any inventions developed in connection with providing services to us, the academic advisor
may not have the right to assign these inventions to us, as it may conflict with his or her obligations to assign all intellectual
property to his or her employing institution.
Litigation may be necessary
to defend against these and other claims challenging inventorship or ownership of inventions. If we are unsuccessful in defending
against any of these claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a
distraction to management and other employees.
Obtaining and maintaining our patent
protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various
foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions
during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent
application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors
might be able to enter the market earlier than would otherwise have been the case.
Issued patents covering vonapanitase
or covering any additional product candidates could be found invalid or unenforceable if challenged in court.
If we initiated legal
proceedings against a third party to enforce a patent, if and when issued, covering vonapanitase or any additional product candidate,
the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation
in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity
challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement.
Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before
administrative bodies in the United States or abroad, even outside the context of litigation. These mechanisms include reexamination
and
inter partes
review in the United States and equivalent proceedings in foreign jurisdictions,
e.g.
, opposition
proceedings. These proceedings could result in revocation or amendment of our patents in such a way that they no longer cover,
for example, vonapanitase or competitive products. The outcome following legal assertions of invalidity and unenforceability is
unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, including prior
art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of
invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on the applicable product
candidate. A loss of patent protection would have a material adverse impact on our business.
We will not seek to protect our intellectual
property rights in all jurisdictions throughout the world, and we may not be able to adequately enforce our intellectual property
rights even in the jurisdictions where we seek protection.
Filing, prosecuting
and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States could be less extensive than those in the United
States, assuming that rights are obtained in the United States. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able
to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing
products made using our inventions in and into the United States or other jurisdictions.
Competitors may use
our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further,
may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that
in the United States. These products may compete with our products and our patents or other intellectual property rights may not
be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions,
our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign
countries do not protect intellectual property rights to the same extent as the laws of the 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 biotechnology. This could make it difficult for us to stop the infringement of
our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries
have compulsory licensing laws under which a patent owner must grant licenses to third parties. 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.
Many companies have
encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual
property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications
at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Some of our intellectual property
may have been discovered through government funded programs and thus may be subject to federal regulations such as government “march-in”
rights, certain reporting requirements, and a preference for United States industry. Compliance with these regulations may limit
our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract
with foreign manufacturers.
Some of our intellectual
property rights may have been generated through the use of United States government funding and therefore are subject to certain
federal regulations. For example, our patents relating to some therapeutic uses of vonapanitase and associated systems and kits
that include a catheter, which we refer to as the “therapy family,” arose from research funded by the United States
government. As a result, the United States government has certain rights to this intellectual property pursuant to the Bayh-Dole
Act of 1980, or Bayh-Dole Act. These United States government rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose.
In addition, the United States government has the right to require us to grant exclusive, partially exclusive, or non-exclusive
licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize
the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary
to meet requirements for public use under federal regulations, also referred to as “march-in rights.” The United States
government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention
to the government and fail to file an application to register the intellectual property within specified time limits. In addition,
the United States government may acquire title to these inventions in any country in which a patent application is not filed within
specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements,
compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the United States
government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured
substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property
can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that
would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially
feasible. This preference for United States manufacturers may limit our ability to contract with foreign product manufacturers
for products covered by the applicable intellectual property.
We currently do not
plan to apply for additional United States government funding, but if we do, and we discover compounds or drug or biological candidates
as a result of such funding, intellectual property rights to these discoveries may be subject to the applicable provisions of the
Bayh-Dole Act.
If we do not obtain additional protection
under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent protection for vonapanitase, our business
may be materially harmed.
Depending upon the
timing, duration and specifics of the first FDA marketing approval of vonapanitase and, if applicable, any additional product candidates,
a United States patent that we own or license may be eligible for limited patent term restoration under the Drug Price Competition
and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit extension
of one patent that covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient
that has not previously been marketed for up to five years and no more than fourteen years after product approval for patent term
lost during product development and the FDA regulatory review process. The length of the extension is calculated by adding one
half of the time between the IND effective date and a company's initial submission of a marketing application, plus the entire
time between the submission of the marketing application and the FDA's approval of the application. During this period of extension,
the scope of protection is limited to the approved product for approved uses (for patents claiming a product) and any use claimed
by the patent and approved for the product (for patents claiming a method of using a product).
Although we plan on
seeking patent term restoration for our products, it may not be granted if, for example, we fail to apply within applicable deadlines,
fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the applicable
time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term restoration
or the term of any such patent restoration is less than we request, our competitors may be able to enter the market and compete
against us sooner than we anticipate, and our ability to generate revenues could be materially adversely affected.
Changes in United States patent law
could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with
other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing
patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming
and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent
reform legislation, the Leahy-Smith America Invents Act, or America Invents Act. The America Invents Act includes a number of significant
changes to United States patent law. These include provisions that affect the way patent applications will be prosecuted, provides
expanded opportunities for post-grant administrative review of patents before the USPTO, and may also affect patent litigation.
It is not yet clear what, if any, impact the America Invents Act will have on the operation of our business. However, the America
Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of any patents that may issue from our patent applications, all of which could have a material adverse
effect on our business and financial condition.
In addition, recent
United States Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened
the rights of patent owners in certain situations. The full impact of these decisions is not yet known. For example, on March 20,
2012 in
Mayo Collaborative Services v. Prometheus Laboratories, Inc.
, the Court held that several claims drawn to measuring
drug metabolite levels from patient samples and correlating them to drug doses were not patent-eligible subject matter. The decision
appears to impact diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty
around the ability to obtain patent protection for certain inventions. Additionally, on June 13, 2013 in
Association for Molecular
Pathology v. Myriad Genetics, Inc.,
the Court held that claims to isolated genomic DNA are not patent-eligible, but claims
to complementary DNA molecules are patent-eligible because they are not a natural product. The effect of the decision on patents
for other isolated natural products is uncertain. However, on March 4, 2014, the USPTO issued a memorandum to patent examiners
providing guidance for examining claims that recite laws of nature, natural phenomena or natural products under the
Myriad
and
Prometheus
decisions. This guidance did not limit the application of
Myriad
to DNA, but, rather, applied the decision
to other natural products.
In addition to increasing
uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with respect
to the value of patents, once obtained. Depending on these and other decisions by the United States Congress, the federal courts
and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain
new patents or to enforce our current or future patents.
We may be subject to damages resulting
from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Our employees have
been previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors,
or at universities or academic medical centers. We also engage advisors and consultants who are concurrently employed at universities
or who perform services for other entities. Although we are not aware of any claims currently pending against us, we may be subject
to claims that we or our employees, advisors or consultants have inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of a former employer or other third party. We may in the future also
be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that person’s obligations
to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising
out of work performed for us. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a distraction to management. If we are unsuccessful in
defending against such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
A loss of key personnel or their work product could hamper or prevent our ability to commercialize vonapanitase or any additional
product candidates, which would materially adversely affect our commercial development efforts.
Numerous factors may limit any potential
competitive advantage provided by our intellectual property rights.
The degree of future
protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and
may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit
us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of
our technology, we may not be able to exercise or extract value from our intellectual property rights fully or at all. The following
examples are illustrative:
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we might not have been the first to make the inventions covered by a patent or pending patent application that we own;
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we might not have been the first to file patent applications covering an invention;
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others may independently develop similar or alternative technologies without infringing our intellectual property rights;
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third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
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pending patent applications that we own may not lead to issued patents;
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patents that we own may not provide us with any competitive advantages, or may be held invalid or unenforceable;
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third parties may assert an ownership interest in our intellectual property;
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we may not develop or in-license additional proprietary technologies that are patentable; and
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the patents or proprietary rights of others may have an adverse effect on our business.
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Should any of these events occur, they
could significantly harm our business and results of operations.
Risks Related to Our Business and Industry
If we fail to attract and keep senior
management and key scientific personnel, we may be unable to successfully develop our products, conduct our clinical trials and
commercialize our product candidates.
Our future growth and
success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management
team, in particular, Timothy Noyes, our President and Chief Executive Officer, Steven Burke, our Senior Vice President and Chief
Medical Officer, George Eldridge, our Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary, Scott
Toner, our Senior Vice President of Commercial, and Daniel Gottlieb, our Vice President, Corporate Development, as well as the
other principal members of our management and scientific teams. Although we have formal employment agreements with our executive
officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services
of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could
adversely affect our ability to execute our business plan and harm our operating results.
Because of the specialized
scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical
and managerial personnel. We do not currently carry “key person” insurance on the lives of members of executive management.
The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable
to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement
personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating
our research and development and commercialization strategy including, F. Nicholas Franano, our scientific founder. Our consultants
and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other
entities that may limit their availability to us.
We will need to significantly increase
the size of our organization, and we may experience difficulties in managing growth.
We are currently a
small company and in order to commercialize our potential products, we will need to increase our operations and expand our use
of our third-party contractors. We plan to continue to build our compliance, financial and operating infrastructure to ensure the
maintenance of a well-managed company including hiring additional staff within our regulatory and clinical groups as we move into
later stages of our Phase 3 development. We intend to recruit an in-house commercial organization in the United States focused
on promoting vonapanitase, if it is approved. We currently do not have a sales and marketing capability and therefore intend to
recruit a specialty sales force of approximately 75-100 representatives in anticipation of vonapanitase's approval. We estimate
it will take three to six months to recruit this specialty sales force. We will need to expand our employment base when we are
in the full commercial stages of our current potential product's life cycle.
Future growth will
impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate
additional employees. In addition, to meet our obligations as a public company, we will need to increase our general and administrative
capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our future
financial performance and our ability to commercialize our potential products and to compete effectively will depend, in part,
on our ability to manage any future growth effectively. To that end, we must be able to:
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manage our clinical trials and the regulatory process effectively;
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manage the manufacturing of product candidates and potential products for clinical and commercial use;
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integrate current and additional management, administrative, financial and sales and marketing personnel;
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develop a marketing and sales infrastructure;
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hire new personnel necessary to effectively commercialize vonapanitase and any additional product candidates;
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develop our administrative, accounting and management information systems and controls; and
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hire and train additional qualified personnel.
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Product candidates
that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development
and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial
resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage
successfully future market opportunities or our relationships with customers and other third parties.
Our disclosure controls and procedures
may not prevent or detect all errors or acts of fraud.
Upon completion of
our Initial Public Offering, or IPO, we became subject to the periodic reporting requirements of the Securities Exchange Act of
1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information
required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management,
and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe
that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people
or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements
due to error or fraud may occur and not be detected.
If product liability lawsuits are
successfully brought against us, our insurance may be inadequate and we may incur substantial liability.
We face an inherent
risk of product liability claims as a result of the clinical testing of vonapanitase or any additional product candidates. We will
face an even greater risk if we commercially sell vonapanitase or any additional product candidate that we develop. We maintain
primary product liability insurance and excess product liability insurance that cover our clinical trials, and we plan to maintain
insurance against product liability lawsuits for commercial sale of our potential products. Historically, the potential liability
associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current
insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of
coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the
future, commercial use of our potential products, for which our insurance coverage may not be adequate, and the cost of any product
liability litigation or other proceeding, even if resolved in our favor, could be substantial.
For example, we may
be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing,
marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a
failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have
been awarded in class action lawsuits based on drugs or biologics that had unanticipated adverse effects. Claims could also be
asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we
may incur substantial liabilities or be required to limit commercialization of vonapanitase or any additional product candidates.
Regardless of the merits or eventual outcome, liability claims may result in:
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reduced resources of our management to pursue our business strategy;
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decreased demand for our product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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initiation of investigations by regulators;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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significant costs to defend resulting litigation;
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diversion of management and scientific resources from our business operations;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We currently have a
$5 million product liability insurance coverage in connection with our clinical trials and we will need to increase our insurance
coverage if and when we begin selling vonapanitase or any additional product candidates if and when they receive marketing approval.
However, the product liability insurance we will need to obtain in connection with the commercial sales of vonapanitase or any
additional product candidates if and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable
cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance
coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit
the development and commercial production and sale of vonapanitase or any additional product candidates if and when they obtain
regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows
and prospects.
Additionally, we do
not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include
general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’
and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage.
Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial
position, cash flows and results of operations.
If we engage in acquisitions in the
future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.
We may attempt to acquire
businesses, technologies, services, products or product candidates in the future that we believe are a strategic fit with our business.
We have no present agreement regarding any material acquisitions. If we do undertake any acquisitions, however, the process of
integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen
operating difficulties and expenditures, including diversion of resources and management’s attention from our core business.
In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the
acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities
that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, actual
or contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect
our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.
We currently have our API produced
for us by a contract manufacturer exclusively in one manufacturing facility and if this or any future facility, any facility we
use for storage of the finished product or our equipment were damaged or destroyed, our ability to continue to operate our business
would be materially harmed.
Our executive offices
are located in Waltham, Massachusetts, and our API is manufactured at Lonza’s facility located in Visp, Switzerland. We expect
that Lonza plans to utilize this facility in the future to support commercial production if our product candidate is approved.
We have manufactured our entire finished product for the ongoing Phase 3 clinical trial of vonapanitase and currently store the
finished product in only one location. Extended delays in our Phase 3 clinical trial causing us to need to manufacture new clinical
supply would cause a significant disruption in our operations and cause us to incur unexpected costs to manufacture new finished
product. We are vulnerable to natural disasters, such as severe storms and other events that could disrupt our operations. We do
not carry insurance for natural disasters and we may not carry sufficient business interruption insurance to compensate us for
losses that may occur. If the current manufacturing facility or any future facility, stored product or equipment were damaged or
destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our
business would be materially harmed.
If supply is interrupted,
there could be a significant disruption in our clinical development and commercial supply. If the supply is interrupted after approval
of the BLA, an alternative manufacturer would need to be qualified through a BLA supplement which could result in further delay.
The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching
manufacturers may involve substantial costs and would likely result in a delay in our desired clinical and commercial timelines.
These factors could
cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of vonapanitase or any additional
product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore,
if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of
production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Our business and operations would
suffer in the event of system failures or security breaches.
Despite the implementation
of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable
to damage from computer viruses, unauthorized access, cyber attacks, natural disasters, terrorism, war and telecommunication and
electrical failures. If issues were to arise and cause interruptions in our operations, it could result in a material disruption
of our drug and biologic development programs. For example, the loss of clinical trial data from completed or ongoing or planned
clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce
the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of
vonapanitase or any additional product candidates could be delayed. We may also be vulnerable to cyber attacks by hackers, or other
malfeasance. This type of breach of our cybersecurity may compromise our confidential information and/or our financial information
and detrimentally impact our business or result in legal proceedings.
Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could
significantly harm our business.
We are exposed to
the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations
of the FDA and foreign regulators, provide accurate information to the FDA and foreign regulators, comply with healthcare fraud
and abuse laws and regulations in the United States and abroad, and report financial information or data accurately or disclose
unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject
to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information
obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have
a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions
we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
If any actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We have broad discretion in our use
of our cash and cash equivalents and may not use them effectively.
Our management has
broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve
our results of operations or enhance the value of our Common Stock. The failure of our management to apply these funds effectively
could result in financial losses that could have a material adverse effect on our business, cause the price of our Common Stock
to decline and delay the development of our product candidates. Pending their use to fund our operations, we may invest our cash
and cash equivalents in a manner that does not produce income or that loses value.
Recent federal legislation may increase
the difficulty and cost for us to commercialize vonapanitase and may affect the prices we may obtain, and impair our ability to
profitably sell vonapanitase, if approved.
In the United States
and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the
healthcare system that could prevent or delay marketing approval for vonapanitase, restrict or regulate post-approval activities
and affect our ability to profitably sell vonapanitase, if approved. Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional
legislative changes will be enacted, or whether the FDA regulations, targets or interpretations will be changed, or what the impact
of such changes on the marketing approvals of vonapanitase, if any, may be. In addition, increased scrutiny by the United States
Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more
stringent product labeling and post-marketing testing and other requirements.
In the United States,
the pharmaceutical industry has been significantly affected by legislative initiatives. For example, the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products.
The legislation expanded Medicare coverage for drug and biologic purchases by the elderly and introduced a new reimbursement methodology
based on average sales prices for drugs and biologics. Cost reduction initiatives and other provisions of this legislation could
decrease the coverage of, or the reimbursement rate that we receive for, vonapanitase, if approved, and could seriously harm our
business. While the MMA applies only to reimbursement of drugs and biologics under the Medicare program, private payors often follow
Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that
results from the MMA may result in a similar reduction in payments from non-governmental payors.
In March 2010, President
Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of
2010 or, collectively, the ACA, which substantially changes the way healthcare will be financed by both governmental and private
insurers, and significantly impacts the pharmaceutical industry. Among the provisions of the ACA of importance to our business,
including, without limitation, our ability to commercialize, and the prices we may obtain for, vonapanitase, if approved for sale,
are the following:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;
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increases in the statutory minimum rebates a manufacturer must pay as a condition to having a drug or biologic available for coverage under the Medicaid program;
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expansion of healthcare fraud and abuse laws, including the federal civil False Claims Act and the federal Anti-Kickback Statute, and the addition of new government investigative powers and enhanced penalties for non-compliance;
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extension of a manufacturer’s Medicaid rebate liability to covered drugs and biologics dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new eligibility categories for certain individuals with income at or below 133% of the federal poverty level beginning in 2014, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements under the federal Open Payments program and its implementing regulations;
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a new requirement to annually report drug and biologic samples that manufacturers and distributors provide to physicians;
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and
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a special Medicare Part B payment rate for biosimilars that favors them over the reference biological product.
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Other legislative changes
have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers
of up to 2% per fiscal year, which went into effect in April 2013. In January 2013 the American Taxpayer Relief Act of 2012 was
signed into law, which, among other things, reduced Medicare payments to several types of providers and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years. The full impact on our business
of the ACA and other new laws is uncertain but may result in additional reductions in Medicare and other healthcare funding. In
addition, with the new Administration and Congress, it is unclear whether there will be additional administrative or legislative
changes, including modification, repeal, or replacement of all, or certain provisions of, the ACA. Nor is it clear whether other
legislative changes will be adopted, if any, or how such changes would affect the demand for vonapanitase, if approved.
Governments outside the United States
tend to impose strict price controls, which may adversely affect our revenues, if any.
In international markets,
reimbursement and health care payment systems vary significantly by country, and many countries have instituted price ceilings
on specific products and therapies. In some countries, particularly the countries of the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can
take considerable time after the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval
in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate
to other available therapies. There can be no assurance that our products will be considered cost-effective by third-party payors,
that an adequate level of reimbursement will be available or that the third-party payors’ reimbursement policies will not
adversely affect our ability to sell our products profitably. If reimbursement of our products is unavailable or limited in scope
or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
Risks Related to Our Common Stock
We are an “emerging growth
company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our
Common Stock may be less attractive to investors.
We are an “emerging
growth company,” or EGC, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not EGCs, including: not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved.
We may take advantage
of these reporting exemptions until we are no longer an EGC. We will remain an EGC until the earlier of (1) the last day of the
fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of
at least $1 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common
Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more
than $1 billion in non-convertible debt during the prior three-year period.
We cannot predict whether
investors will find our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less
attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised
accounting standards. This allows an EGC to delay the adoption of these accounting standards until they would otherwise apply to
private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the
same new or revised accounting standards as other public companies that are not EGCs.
Even after we no longer
qualify as an EGC, we may still qualify as a “smaller reporting company” which would allow us to take advantage of
many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements. We cannot predict if investors will find our Common Stock less attractive because we will rely on these exemptions.
If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock
and our stock price may be more volatile.
The market price for our Common Stock
may be volatile, which could contribute to the loss of your investment.
Fluctuations in the
price of our Common Stock could contribute to the loss of all or part of your investment. Prior to our IPO, there was no public
market for our Common Stock. We are now listed on NASDAQ, but we cannot predict the extent to which investor interest in our Company
will lead to the development of or sustain an active trading market on NASDAQ or otherwise or how liquid that market might become.
If an active trading market for our Common Stock does not develop or is not sustained, the market price and liquidity of our Common
Stock will be materially and adversely affected and it may be difficult for stockholders to sell their shares of Common Stock at
prices that are attractive to them, or at all. Further, an inactive market may also impair our ability to raise capital by selling
shares of our Common Stock.
If an active market
for our Common Stock develops and continues, 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. Any of the factors listed below
could have a material adverse effect the price of our Common Stock and stockholders may also be unable to sell their shares of
Common Stock at prices that are attractive to them due to fluctuations in the market price of our Common Stock. In such circumstances
the trading price of our Common Stock may not recover and may experience a further decline.
Factors affecting the trading
price of our Common Stock may include:
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our failure to develop and commercialize vonapanitase or any additional product candidates;
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
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changes in the market’s expectations about our operating results;
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adverse results or delays in preclinical studies or clinical trials;
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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
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adverse regulatory decisions, including failure to receive regulatory approval for vonapanitase or any additional product candidates;
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success of competitive products;
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adverse developments concerning our collaborations and our manufacturers;
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inability to obtain adequate product supply for any product candidate for clinical trials or commercial sale or inability to do so at acceptable prices;
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the termination of a collaboration or the inability to establish additional collaborations;
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unanticipated serious safety concerns related to the use of any of vonapanitase or any additional product candidates;
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our ability to effectively manage our growth;
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the size and growth, if any, of the targeted market;
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our operating results failing to meet the expectation of securities analysts or investors in a particular period or failure of securities analysts to publish reports about us or our business;
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changes in financial estimates and recommendations by securities analysts concerning our company, our market opportunity, or the biotechnology and pharmaceutical industries in general;
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operating and stock price performance of other companies that investors deem comparable to us;
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overall performance of the equity markets;
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announcements by us or our competitors of acquisitions, new product candidates or programs, significant contracts, commercial relationships or capital commitments;
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our ability to successfully market vonapanitase or any additional product candidates;
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changes in laws and regulations affecting our business, including but not limited to clinical trial requirements for approvals;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for vonapanitase or any additional product candidates;
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commencement of, or involvement in, litigation involving our company, our general industry, or both;
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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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the volume of shares of our Common Stock available for public sale;
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additions or departures of key scientific or management personnel;
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any major change in our board or management;
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changes in accounting practices;
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ineffectiveness of our internal control over financial reporting;
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sales of substantial amounts of Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
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general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
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Broad market and industry
factors may materially harm the market price of our Common Stock irrespective of our operating performance. The stock market in
general, and NASDAQ and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading
prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for technology
or software stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the digital
simulation market or the stock market in general, could depress our stock price regardless of our business, prospects, financial
conditions or results of operations.
Actual or potential sales of our
Common Stock by our employees, including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock
price to fall or prevent it from increasing for numerous reasons, and actual or potential sales by such persons could be viewed
negatively by other investors.
In accordance with
the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number of our employees,
including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to
sell shares of our Common Stock from time to time in the future. Generally, sales under such plans by our executive officers and
directors require public filings. Actual or potential sales of our Common Stock by such persons could cause the price of our Common
Stock to fall or prevent it from increasing for numerous reasons. For example, a substantial number of shares of our Common Stock
becoming available (or being perceived to become available) for sale in the public market could cause the market price of our Common
Stock to fall or prevent it from increasing. Also, actual or potential sales by such persons could be viewed negatively by other
investors.
The issuance of additional sales
of our Common Stock, or the perception that such issuances may occur, including through our “At-The-Market” offering,
could cause the market price of our Common Stock to fall
.
We have entered into
a Sales Agreement with Cowen and Company, LLC, or Cowen, for the offer and sale of up to $40 million in aggregate amount of
our Common Stock from time to time through Cowen, as our sales agent, pursuant to a Registration Statement on Form S-3 which
became effective on January 12, 2016. We filed a prospectus supplement on March 16, 2017 because we are currently subject to General
Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the Registration Statement. Cowen is not required
to sell any specific number or dollar amount of shares of our Common Stock but will use its reasonable efforts, as our agent and
subject to the terms of the Sales Agreement, to sell that number of shares upon our request. Sales of the shares, if any, may be
made by any means permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415 of the
Securities Act of 1933, as amended, or the Securities Act, and will generally be made by means of brokers' transactions on the
NASDAQ Global Market or otherwise at market prices prevailing at the time of sale, or as otherwise agreed with Cowen.
We may terminate the
Sales Agreement at any time or it will terminate once proceeds of $40 million have been raised. For the nine months ended
September 30, 2017, we sold 896,811 shares of common stock under our At-The-Market, or ATM, program for aggregate net proceeds
of $1.3 million. Whether we choose to affect future sales under our ATM program will depend upon a variety of factors, including,
among others, market conditions and the trading price of our Common Stock relative to other sources of capital. The issuance from
time to time of these new shares of Common Stock through our ATM program or in any other equity offering, or the perception that
such sales may occur, could have the effect of depressing the market price of our Common Stock.
Our issuance of Common Stock under
our “At-The-Market” offering program may be dilutive, and there may be future dilution of our Common Stock.
After giving effect
to the issuance of Common Stock under our ATM offering program and the receipt of the expected net proceeds and the use of those
proceeds, there may be a dilutive effect on our estimated earnings per share and funds from operations per share in years during
which an offering is ongoing. The actual amount of potential dilution cannot be determined at this time and will be based on numerous
factors. Additionally, we are not restricted by our organizational documents, contractual arrangements or otherwise from issuing
additional Common Stock or preferred stock, including any securities that are convertible into or exchangeable or exercisable for,
or that represent the right to receive, Common Stock or preferred stock or any substantially similar securities in the future.
The market price of our Common Stock could decline as a result of issuances of a large number of shares of our Common Stock after
this offering or the perception that such issuances could occur.
Our management will have broad discretion
with respect to the use of the proceeds resulting from the issuance of Common Stock under our “At-The-Market” offering
program.
Our management has
significant flexibility in applying the net proceeds we expect to receive from the issuance of Common Stock under our ATM program.
We intend to use the net proceeds from this offering for general corporate purposes, which may include repaying debt. However,
because the net proceeds are not required to be allocated to any specific investment or transaction, investors cannot determine
at the time of issuance the value or propriety of our application of the net proceeds, and investors may not agree with our decisions.
In addition, our use of the net proceeds from the offering may not yield a significant return or any return at all. The failure
by our management to apply these funds effectively could have an adverse effect on our financial condition, results of operations
or the trading price of our Common Stock.
The resale of the shares of Common Stock issuable upon
the conversion of our Series A Convertible Preferred Stock could adversely affect the prevailing market price of our Common Stock
and cause stockholders to experience dilution.
On August 2, 2017,
we issued and sold 22,000 shares of our Series A Convertible Preferred Stock, par value $0.001 per share, for a purchase price
of $1,000 per share, or an aggregate purchase price of $22.0 million. Each share of Series A Convertible Preferred Stock
is convertible into approximately 1,005 shares of our Common Stock at a conversion price of $0.9949 per share, provided that any
conversion of Series A Convertible Preferred Stock by a holder into shares of Common Stock is prohibited if, as a result of such
conversion, the holder, together with its affiliates and any other person or entity whose beneficial ownership of our Common Stock
would be aggregated with such holder’s for purposes of Section 13(d) of the Exchange Act, would beneficially own more than
9.985% of the total number of shares of our Common Stock issued and outstanding after giving effect to such conversion (the “Blocker”).
Pursuant to the registration statement that we filed with the SEC for the resale by holders of our Series A Preferred Convertible
Stock, as selling stockholders, of the aggregate 22,112,775 shares of Common Stock that are issuable upon conversion of the Series
A Convertible Preferred Stock, the outstanding shares of Series A Convertible Preferred Stock may, at each holder’s election,
be converted into our Common Stock, subject to the Blocker. Although we cannot predict if and when the holders of Series A Convertible
Preferred Stock may sell such shares in the public market, any converted shares of Common Stock will be available for immediate
resale and be able to be freely sold in the open market. The conversion of shares of Series A Convertible Preferred Stock into
shares of Common Stock will result in substantial dilution to holders of our Common Stock. Further, the sale of a significant
amount of these shares of Common Stock in the open market or the perception that these sales may occur could adversely affect
prevailing market prices of our Common Stock, including causing the market price of our Common Stock to decline or become highly
volatile.
Raising additional funds through
debt or equity financing could be dilutive and may cause the market price of our Common Stock to decline.
Until such time, if
ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings
and debt financings, and potentially through strategic partnerships with third parties. To the extent that additional capital is
raised through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial
dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights
of our current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility
of such issuance, may cause the market price of our Common Stock to decline and existing stockholders may not agree with our financing
plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantial portion of our
operating cash flow being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions
on our operations, 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.
Additional funding may not be available to us on acceptable terms, or at all.
If securities analysts do not publish
research or reports about our business or if they downgrade our stock, the price of our Common Stock could decline.
The trading market
for our Common Stock will rely in part on the research and reports that industry or financial analysts publish about us, our business,
our markets and our competitors. We do not control these analysts. If securities analysts do not cover our Common Stock, the lack
of research coverage may adversely affect the market price of our Common Stock. Furthermore, if one or more of the analysts who
do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price
would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could
lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume
to decline and may also impair our ability to expand our business with existing customers and attract new customers.
The concentration of our capital
stock ownership with insiders will likely limit your ability to influence corporate matters.
As of September 30,
2017, our executive officers, directors, current 5% or greater stockholders, and their respective affiliates together beneficially
own or control, in aggregate, more than 50% of the shares of our outstanding Common Stock. As a result, these executive officers,
directors and principal stockholders, acting together, will have substantial influence over most matters that require approval
by our stockholders, including the election of directors, any merger, consolidation or sale of all or substantially all or of our
assets or any other significant corporate transaction. Corporate action might be taken even if other stockholders oppose such action.
These stockholders may delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain
control of our company, even if such change of control would benefit our other stockholders. This concentration of stock ownership
may adversely affect investors’ perception of our corporate governance or delay, prevent or cause a change in control of
our company, any of which could adversely affect the market price of our Common Stock.
Future sales and issuances of our
Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans, could result in additional dilution
of the percentage ownership of our stockholders and could cause our stock price to fall.
We have filed a registration
statement permitting shares of Common Stock issued in the future, pursuant to our employee benefit plans, to be freely resold by
plan participants in the public market, subject to applicable lock-up agreements, applicable vesting schedules and, for shares
held by directors, executive officers and other affiliates, volume limitations under Rule 144 for shares. Our 2014 Employee Incentive
Plan and 2014 Employee Stock Purchase Plan also contain a provision for the annual increase of the number of shares reserved for
issuance under such plan, which shares we also intend to register in the future as such annual increase occurs. If the shares we
may issue from time to time under our employee benefit plans are sold, or if it is perceived that they will be sold, by the award
recipient in the public market, the trading price of our Common Stock could decline.
We expect that significant
additional capital will be needed in the future to continue our planned operations, including conducting clinical trials, commercialization
efforts, expanded research and development activities and costs associated with operating a public company. 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 may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders,
and new investors could gain rights, preferences and privileges senior to the holders of our Common Stock.
We will incur significant increased
costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance
initiatives.
As a newly public company,
we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company. In addition, the Sarbanes-Oxley Act, and rules of the SEC and those of NASDAQ impose various requirements on public companies
including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel
devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will
continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
The Sarbanes-Oxley
Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls
and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial
reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section
404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest
to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the
first annual report on Form 10-K following the date on which we are no longer an EGC. Our compliance with Section 404 of the Sarbanes-Oxley
Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have
an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience
and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if
we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting
that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or
investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully
implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements.
We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and
controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced
systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control
over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under
Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our Common Stock, and
could adversely affect our ability to access the capital markets.
We do not expect to pay any cash
dividends for the foreseeable future.
You should not rely
on an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders
of our Common Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. Accordingly,
investors must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize
any return on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.
Our ability to use our net operating
loss carryovers and certain other tax attributes may be limited.
As described above
under “—Risks Related to Our Financial Condition and Need for Additional Capital,” we have incurred net losses
since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. Under the Internal
Revenue Code, as amended (the “Code”), a corporation is generally allowed a deduction for net operating losses, or
NOLs, carried over from a prior taxable year. Under that provision, we can carry forward our NOLs to offset our future taxable
income, if any, until such NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits.
If a corporation undergoes
an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year
period, Sections 382 and 383 of the Code, limit the corporation’s ability to use carryovers of its pre-change NOLs, credits
and certain other tax attributes to reduce its tax liability for periods after the ownership change. We completed an analysis to
determine if there were changes in ownership for tax years through 2015, as defined by Section 382 of the Internal Revenue Code
that would limit our ability to utilize certain net operating loss and tax credit carryforwards and it was determined there was
no change in ownership. We are in the process of completing an analysis to determine if there were changes in ownership for tax
years through 2016, as defined by Section 382. To the extent the Company undergoes a change in ownership, as defined by Section
382, utilization of our net operating losses and tax credits carryforwards may become limited. If this were to occur, this could
result in increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the
use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also be limited
to the extent that we do not generate positive taxable income in future tax periods.
We could be subject to securities
class action litigation.
In the past, securities
class action litigation has often been brought against a company following a decline in the market price of its securities. This
risk is especially relevant for us because biotechnology companies have experienced significant stock price volatility in recent
years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources,
which could harm our business.
Provisions in our amended and restated
certificate of incorporation, our amended and restated bylaws and Delaware law may have anti- takeover effects that could discourage
an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our
stockholders to replace or remove our current management.
Our amended and restated
certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying
or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and
bylaws include provisions that:
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authorize “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Common Stock;
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create a classified Board of Directors whose members serve staggered three-year terms;
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specify that special meetings of our stockholders can be called only by our Board of Directors;
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prohibit stockholder action by written consent;
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establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our Board of Directors;
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provide that our directors may be removed only for cause;
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provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum;
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specify that no stockholder is permitted to cumulate votes at any election of directors;
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expressly authorize our Board of Directors to modify, alter or repeal our amended and restated bylaws; and
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require supermajority votes of the holders of our Common Stock to amend specified provisions of our amended and restated certificate of incorporation and amended and restated bylaws.
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These provisions, alone
or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because
we are incorporated in the State of Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with
us.
Any provision of our
amended and restated certificate of incorporation or amended and restated bylaws or Delaware law 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, and could also affect the price that some investors are willing to pay for our Common Stock.
Our amended and restated
certificate of incorporation designates the Court of Chancery of the State of Delaware and federal court within the State of Delaware
as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit
our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated
certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware and federal
court within the State of Delaware will be exclusive forums for (1) any derivative action or proceeding brought on our behalf,
(2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us
or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation
Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) any other action asserting
a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any
interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended
and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees,
which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find
these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one
or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters
in other jurisdictions, which could adversely affect our business and financial condition.