Item
1. Business
Overview
Ritter Pharmaceuticals, Inc. develops novel therapeutic products that modulate the gut microbiome to treat
gastrointestinal diseases. We are advancing gut health research by exploring the gut microbiota and translating the functionality
of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health.
Our
first novel microbiome modulator, RP-G28, an orally administered, high purity galacto-oligosaccharide, is currently under development
for the treatment of lactose intolerance. RP-G28 is designed to selectively stimulate the growth of lactose-metabolizing bacteria
in the colon, thereby effectively adapting the gut microbiome to assist in digesting lactose (the sugar found in milk) that reaches
the large intestine. RP-G28 has the potential to become the first drug approved by the Food and Drug Administration (“FDA”)
for the treatment of lactose intolerance. RP-G28 has been studied in Phase 2a and Phase 2b clinical trials and is a first-in-class
compound.
On
March 28, 2017, we announced top-line results from our Phase 2b clinical trial of RP-G28 for the treatment of lactose intolerance.
The Phase 2b trial was a double-blind, placebo-controlled, three-arm, multi-center study evaluating safety, efficacy and tolerability
of two dosing regimens of RP-G28 in patients with lactose intolerance. Enrollment was initiated in March 2016 and the last
patient completed dosing in October 2016. The study aimed to evaluate a patient’s ability to consume dairy foods post-treatment
with improved tolerance and reduced digestive symptoms. A total of 368 subjects were randomized in the trial with 18 clinical
sites participating throughout the United States. Patients underwent a screening period and a 30-day treatment period, followed
by a 30-day post-treatment “real world” observation of milk and dairy product consumption period.
A
subset of subjects enrolled into a 12-month extension study to evaluate long-term durability of treatment. The extension study
also evaluated each participant’s microbiome, expanding knowledge of the effects that RP-G28 may have on adapting the gut
microbiota in a beneficial manner. We completed this study in the fourth quarter of 2017.
We held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products in March
2017, prior to the unblinding of our Phase 2b data, to discuss our development plans and Phase 2b clinical trial. The focus of
the meeting was to obtain the FDA’s feedback on our Phase 2b clinical trial, including our statistical analysis plan (“SAP”),
prior to unblinding any data.
We
held an End-of-Phase 2 meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products in August 2017. The
purpose of the meeting was to obtain the FDA’s feedback on our Phase 3 program. We reached general consensus with the FDA
on certain elements of our current Phase 3 program and have received clear guidance and recommendations on many necessary components
of our Phase 3 program; including the clinical, non-clinical, and chemistry, manufacturing and controls (CMC) requirements needed
to support an NDA submission.
We
have incorporated much of this guidance into our Phase 3 program. Our current Phase 3 clinical program will consist of two confirmatory
clinical trials of similar trial design as our Phase 2b clinical trial and will include additional components that may allow for
claims for durability of effect. These additional trials may be run in parallel. We anticipate that the first Phase 3 clinical
trial will begin in the second quarter of 2018.
The
Gut Microbiome
The
human gut is a relatively under-explored ecosystem but provides a great opportunity for using dietary intervention strategies
to reduce the impact of gastrointestinal disease. The human body carries about 100 trillion microorganisms in the intestines,
which is 10 times greater than the number of cells in the human body. This microbial population is responsible for a number of
beneficial activities such as fermentation, strengthening the immune system, preventing growth of pathogenic bacteria, providing
nutrients, and providing hormones. The increasing knowledge of how these microbial populations impact human health provides opportunities
for novel therapies to treat an assortment of diseases such as neurological disease, cardiovascular disease, obesity, irritable
bowel syndrome, inflammatory bowel disease, colon cancer, allergies, autism and depression.
Lactose
Intolerance
Lactose
intolerance is a common condition attributed to the absence or insufficient levels of the enzyme lactase, which is needed to properly
digest lactose, a complex sugar found in milk and milk-containing foods.
Studies
have suggested that lactose intolerance is a widespread condition affecting over one billion people worldwide and over 40 million
people in the United States (or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating
moderate to severe symptoms.
Current
annual spending on over-the-counter lactose intolerance aids in the United States has been estimated at approximately $2.45 billion
.
However, these options are limited and there is no long-term treatment available.
Unlike
many common gastrointestinal conditions, such as irritable bowel syndrome, inflammatory bowel diseases, gastroesophageal reflux
disease, or dyspepsia (among many others), lactose intolerance symptoms can be completely abated by avoiding dietary lactose.
In this regard, lactose intolerance is an avoidance condition, similar to celiac sprue, food intolerances, or various environmental
allergies. However, dairy avoidance may lead to inadequate calcium and vitamin D intake, which can predispose individuals to decreased
bone accrual, osteoporosis, hypertension, rickets, osteomalacia, and possibly certain cancers. Although supplements and calcium-rich
foods are available, several studies have shown that lactose intolerance patients had an average calcium intake of only 300-388
mg/day, significantly less than the 1000-1200 mg/day adult dietary recommended levels. The 2010 National Institutes of Health
conference on lactose intolerance highlighted the long-term consequences of dairy avoidance demonstrating both the importance
of treating the condition and the need to find improved solutions for patients.
Diagnosis
Lactose
intolerance is often diagnosed by evaluating an individual’s clinical history, which reveals a relationship between lactose
ingestion and onset of symptoms. Hydrogen breath tests may also be utilized to diagnose lactose malabsorption and a milk challenge
may be used to differentiate between lactose malabsorption and lactose intolerance. Further tests can be conducted to rule out
other digestive diseases or conditions, including: stool examination to document the presence of a parasite, blood tests to determine
the presence of celiac disease, and intestinal biopsies to determine mucosal problems leading to malabsorption, such as inflammatory
bowel disease or ulcerative colitis.
Health
Consequences
Substantial
evidence indicates that lactose intolerance is a major factor in limiting calcium intake in the diet of individuals who are lactose
intolerant. Studies suggest that these individuals avoid milk and dairy products, resulting in an inadequate intake of calcium
and significant nutritional and health risks.
At
the 2010 National Institute of Health (“NIH”) Consensus Development Conference: Lactose Intolerance and Health, the
NIH highlighted numerous health risks tied to lactose intolerance such as: osteoporosis; hypertension; and low bone density
.
There is substantial evidence indicating that lactose intolerance is a major factor in limiting calcium and nutrient intake
in the diet of people who are lactose intolerant. Adequate calcium intake is essential to reducing the risks of osteoporosis and
hypertension
.
In addition, chronic calcium depletion has been linked to increased arterial blood pressure, thereby establishing
a relationship between hypertension and low calcium intake
.
Moreover, there is evidence of a correlation between calcium
intake and both colon and breast cancer
.
Decreased
Calcium Intake Increases the Risk for Hypertension
Numerous
published reports show that chronic calcium depletion may lead to increased arterial blood pressure. Many additional papers have
corroborated this relationship between hypertension and a low calcium intake.
A
growing body of evidence indicates that a nutritionally sound diet rich in fruits, vegetables and a generous component of low-fat
dairy foods (sometimes referred to as the DASH diet) is optimal for reducing the risk of hypertension. Several reports have confirmed
this finding in middle-aged and elderly women. Further, it appears that the DASH diet with generous low-fat dairy is associated
with low prevalence of metabolic syndrome. Studies have suggested that the levels of dairy foods (three to four servings per day)
required to achieve these effects are well above current U.S. averages and even further above those of lactose intolerant individuals
who are avoiding dairy due to symptoms
.
Our
History
We
were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. Our first prototype,
Lactagen
™
, was an alternative lactose intolerance treatment method. In 2004, clinical testing was conducted,
which included a 61-subject double-blind placebo controlled clinical trial. The results were published in the Federation of American
Societies for Experimental Biology in May 2005 and demonstrated Lactagen
™
to be an effective and safe product
for reducing symptoms for nearly 80% of the clinical participants who were on Lactagen
™
.
In
2008, we expanded our focus by developing a prescription drug development program. We initiated the program by developing RP-G28,
a second generation edition of Lactagen
™
. We believe that RP-G28 enables us to state stronger claims, garner
more medical community support and reach a wider market in the effort to treat lactose intolerance.
To
help fund the development of RP-G28, we were awarded a grant from the United States government’s Health Care Bill program,
the Qualifying Therapeutic Discovery Project, in 2008. The grant program provides support for innovative projects that are determined
by the U.S. Department of Health and Human Services to have reasonable potential to result in new therapies that treat areas of
unmet medical need and/or prevent, detect or treat chronic or acute diseases and conditions.
On
September 16, 2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc.
We
completed our initial public offering in June 2015. Our common stock is traded on the Nasdaq Capital Market under the trading
symbol “RTTR”.
Our
Leading Product Candidate — RP-G28
Overview
RP-G28
is a novel highly purified GOS, which is synthesized enzymatically. The product is being developed for the treatment of lactose
intolerance. The therapeutic is taken orally (a powder solution mixed in water) for 30 consecutive days. The proposed mechanism
of action of RP-G28 is to increase the intestinal growth and colonization of bacteria that can metabolize lactose to compensate
for a patient’s intrinsic inability to digest lactose. Once colonization of bacteria has occurred, it is hypothesized that
patients will continue to tolerate lactose as long as they maintain their microflora balance. RP-G28 has the potential to become
the first FDA-approved drug for the reduction of symptoms associated with lactose intolerance.
Galacto-oligosaccharides
(GOS)
RP-G28
is a >95% purified GOS product derived from a commercially available GOS food ingredient, which is designated as generally
recognized as safe (GRAS) by the FDA. GOS refers to a group of compounds containing β-linkages of 1 to 6 galactose units
with a single glucose on the terminal end and are found at low levels in human milk. GOS is purified to a pharmaceutical grade
by minimizing residual glucose, lactose, galactose and other impurities. Further processing includes ultra-filtration, nano-filtration,
decolorization, deionization, and concentration to yield GOS 95 syrup, which is the starting material for RP-G28.
GOS
products resist hydrolysis by salivary and intestinal enzymes because of the configuration of their glycosidic bonds and reach
the colon virtually intact. The undigested GOS enhances the growth of beneficial, lactose metabolizing, colonic bacteria that
already exist in the subject’s digestive track, including multiple species and strains of bifidobacteria and lactobacilli.
Once colonies of these bacteria have increased, continued lactose exposure should maintain tolerability of lactose without further
exposure to RP-G28.
While
formal nonclinical studies evaluating the safety of RP-G28 have not been performed, other commercially available GOS products
have been evaluated in acute and repeat-dose general toxicology studies, reproductive toxicology studies, juvenile toxicology
studies, genetic toxicology studies, and in long-term safety studies.
Clinical
studies of GOS products were reviewed as part of the safety evaluation to support the Investigational New Drug Application (“IND”)
for RP-G28. These include studies in adults (including pregnant women and geriatrics), children, infants and newborns (preterm
and full term). The safety of GOS products in humans has been evaluated in 1316 adults at doses of 2.5 to 20 g/day for up to 12
months, and in 1125 children > 1 year of age at doses of 2.0 to 12 g/day for up to 1 year. Overall, no safety concerns attributable
to the consumption of GOS were reported. Where side effects were observed, they were typically mild and limited to increased flatulence,
abdominal discomfort, and changes in stool consistency and frequency; however, effects were not consistently observed in all studies.
Similar observations of increased flatulence have been reported following the consumption fructo-oligosaccharies (FOS) (15 g/day)
over a 7-day period (Alles, 1996), and this symptom represents a localized effect that is expected in association with the consumption
of indigestible fiber in large quantities. There were no reports of events in other System Organ Class (SOC) suggestive of systemic
toxicity.
The
significance of a higher purity GOS, namely RP-G28, was highlighted in a 2010 study by Klaenhammer. The in vitro study concluded
that RP-G28 promoted growth of lactobacilli and bifidobacteria, but did not promote multiple strains of E. coli. In contrast,
lower purity GOS stimulated both bifidobacteria as well as the strains of E. coli evaluated. (As seen below in Figure 1, NCK 430
(e. coli) grew in the presence of low purity GOS (GOS 2). Alternatively, the higher purity GOS (RP-G28/GOS 1) did not promote
the growth of E. coli.).
Figure
1
Mechanism
of Action
RP-G28
is understood to resist hydrolysis by salivary and intestinal enzymes due to the configuration of their glycosidic bonds and consequently
reach the colon virtually intact. The product is then broken down intracellularly by galactosidases, and eventually β-galactosidase
hydrolyzes the terminal lactose. This leads to selective alterations in the composition and activity of the microbiome in which
RP-G28 enhances the growth of lactose-metabolizing bacteria, including species of Bifidobacteria and Lactobacilli (30). In our
Phase 2a Clinical Trial (G28-001), shifts in the fecal microbiome in 82% of participants on treatment and increases in relative
abundance of both Bifidobacteria and Lactobacilli were reported. RP-G28 had a bifidogenic effect in 90% of responders, which included
species Bifidobacterium longum, Bifidobacterium adolenscentis, Bifidobacterium catenulatum, Bifidobacterium breve, and Bifidobacterium
dentium (30). The understood mechanism of action is that by increasing lactose-metabolizing bacteria, less undigested lactose
is fermented, and thus reduces gas production and related LI symptoms. Data correlating bacterial taxa and symptom metadata support
this proposed hypothesis. In the G28-001 study, microbiome changes correlated with clinical outcomes of improved lactose tolerance
in which an increase in Bifidobacterium was associated with decreased pain and cramping outcomes.
Our
Market Opportunity
Unmet
Medical Needs
Lactose
intolerance is a challenging condition to manage. According to a market research study conducted by Objective Insights in April
2012, approximately 60% of lactose intolerant sufferers reported experiencing symptoms daily, or bi-weekly. Not only can symptoms
be painful and embarrassing, they can also dramatically affect one’s quality of life, social activities, and health. Currently
there are few reliable, or effective, treatments available that provide consistent or satisfactory relief.
Currently,
there is no approved prescription treatment for lactose intolerance. Most persons with lactose intolerance avoid ingestion of
milk and dairy products while others substitute non-lactose-containing foods in their diet. However, complete avoidance of lactose-containing
foods is difficult to achieve (especially for those with moderate to severe symptoms) and can lead to significant long-term morbidity
(
i.e.
, dietary deficiencies of calcium and vitamin D).
Treatment
Options
Doctors
generally recommend the following treatments for the management of lactose intolerance: (1) dairy avoidance; (2) lactase supplements;
(3) probiotics/dietary supplements; and (4) dairy substitutes/lactose free products. Despite educating their patients on all viable
treatment options, physicians tend to advise their patients to refrain from consuming any dairy products whatsoever. However,
in a 2008 survey conducted by Engage Health, 47% of lactose intolerance sufferers reported that this method was not effective
(largely due to hidden dairy products in ingredients), and only 30% of lactose intolerance sufferers reported lactase supplements
as being effective in managing their lactose intolerance
.
Further, while probiotics/dietary supplements have been demonstrated
to aid and support one’s digestive system, helping break down general foods consumed, they don’t directly help with
lactose intolerance. The 2008 survey by Engage Health suggests that the majority of lactose intolerance patients are dissatisfied
with current treatment options.
Patients
Unsatisfied with Current Management Options
Growing
Awareness
Lactose
intolerance is a condition that continues to expand as society advances and evolves. It has been estimated that gastroenterologists
see approximately 15 new patients with lactose intolerance each month. Education and awareness have increased, and the American
diet has greatly changed over the past decade to include more dairy-based goods. As the populace is growing older, the prevalence
of lactose intolerance is increasing because more people tend to develop lactose intolerance later in life. Increased education
and diagnosis is making more people aware of their allergies and digestive conditions. Physicians may compound the growth of lactose
intolerance prevalence and its associated disorders by recommending individuals to avoid dairy products, a practice which in and
of itself may increase severity of the intolerance.
Our
Competitive Strengths
Market
Opportunity
RP-G28
has the potential to become the first approved drug in the United States and Europe for the treatment of lactose intolerance.
Renowned
Scientific Team and Management Team
Our
leadership team has extensive biotechnology/pharmaceutical expertise in discovering, developing, licensing and commercializing
therapeutic products. We have attracted a scientific team comprised of innovative researchers who are renowned in their knowledge
and understanding of the host-microbiome in the field of lactose intolerance and gastroenterology.
Patent
Portfolio
We
have issued patents in the United States, in select countries in Europe (Germany, the United Kingdom, France, Spain, the Netherlands,
Spain), and in other jurisdictions, directed to pharmaceutical compositions, methods of making such compositions, and methods
of using such compositions for the treatment of lactose intolerance and certain of its symptoms. Additional worldwide patent applications
are pending. The patent applications include claims covering pharmaceutical compositions, methods of making, methods of use, formulations
and packaging.
In
addition, in July 2015 we acquired the rights, title and interest to certain patents and related patent applications with claims
covering a process for producing ultra-high purity galacto-oligosaccharide active pharmaceutical ingredients, including RP-G28
from our supplier. See “Manufacturing” for additional details regarding the second amendment to the exclusive supply
agreement and our exercise of the exclusive option.
See
“Intellectual Property” for additional information regarding our patent portfolio.
Our
Growth Strategy
In
order to achieve our objective of developing safe and effective applications to treat conditions associated with microbiome disfunctions,
our near-term and long-term strategies include the following:
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proceed
into Phase 3 clinical trials of RP-G28 for the treatment of lactose intolerance;
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complete
remaining Phase 3 activities needed for an NDA;
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develop
and commercialize RP-G28 either by ourselves or in collaboration with others throughout the world;
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explore
the use of RP-G28 for additional potential therapeutic indications and orphan indications;
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establish
ourselves as a leader in developing therapeutics that modulates the human gut microbiome;
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continue
to develop a robust and defensible patent portfolio, including those we own and those we plan to in-license in the future;
and
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continue
to optimize our product development and manufacturing capabilities both internally and externally through outside manufacturers.
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Clinical
and Regulatory
IND
Application/Phase 1
The
IND for RP-G28 was activated initially to support a Phase 2a safety, tolerability and efficacy study in lactose intolerant patients.
Standard Phase 1 single and repeat dose safety and tolerability studies in healthy volunteers were not needed because other GOS
products that contain similar GOS constituents are generally regarded as safe (GRAS) and therefore supported the safety of RP-G28
in humans.
In
2018, a Phase 1 study will be conducted to understand the potential for systemic absorption of RP-G28 and any impact the presence
of food may have on the pharmacokinetic profile of RP-G28. A Phase 1 QT/QTc study may be needed if there is measurable systemic
exposure of RP-G28. Phase 1 systemic drug-drug-interaction (DDI) studies may also be needed if there is measurable systemic exposure
of RP-G28, or if DDI potential within the gut is suggested by the results of in vitro DDI studies.
Phase
2a Study
We
completed a double-blinded, randomized, multi-center, placebo-controlled Phase 2a clinical trial to validate the efficacy, safety
and tolerance of RP-G28 compared to a placebo. We evaluated RP-G28 in 62 patients with lactose intolerance over a treatment period
of 35 consecutive days. Post-treatment, subjects reintroduced dairy into their diets and were followed for an additional 30 days
to evaluate lactose digestion, as measured by hydrogen production and symptom improvements. In order to confirm lactose intolerance
and study participation, subjects underwent a 25-gram lactose challenge in the clinic. Lactose intolerance symptoms and hydrogen
production via hydrogen breath test were assessed for six hours post-lactose dose. Eligible subjects were required to demonstrate
a minimum symptom score and a “positive” hydrogen breath test in order to be eligible for randomization. A “positive”
breath test was defined as a hydrogen gas elevation of 20 parts per million (ppm) at two time-points within the six hours following
a lactose-loading dose. The primary endpoints included tracking patients’ gastrointestinal symptoms via a patient-reported
symptom assessment instrument (a Likert Scale, measuring individual symptoms of flatulence, bloating, cramping, abdominal pain
and diarrhea, on a scale of 0 (none) to 10 (worst)) at baseline, day 36 and day 66; as well as the measurement of hydrogen gas
levels in their breath following a 25-gram lactose challenge.
Positive
trends were seen when the entire per protocol study population was analyzed, including some statistically significant subgroup
analysis, suggesting a therapeutically positive effect. Although there were few primary and secondary efficacy endpoints with
statistically significant results, the combined data suggest that RP-G28 is exerting a positive therapeutic effect
Key
findings of the Phase 2a clinical trial included:
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RP-G28
was well tolerated with no significant study-drug related adverse effects. The benign adverse event safety profile of RP-G28
with dose levels up to 15 gm/day observed in this study is consistent with the known safety of GOS products administered up
to 20 gm/day reported in literature.
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Subjects
in the RP-G28 group reported a reduction in total symptoms after treatment. Reported symptom improvement continued 30 days
post-treatment. Improvement in symptoms was assessed in the study using several different measures, including a pain Likert
scale and a patient global assessment. Subjects receiving RP-G28 had greater improvement in most of their symptoms (cramps,
bloating and gas) following lactose challenge compared to placebo, but the differences were not statistically significant
given the small cohort size. However, a clinically meaningful reduction in abdominal pain was seen in subjects receiving RP-G28
compared to placebo.
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An
analysis of “responders” for abdominal pain (defined as subjects who reported a score of zero in abdominal
pain severity following a lactose challenge at Day 36/Hour 6 and Day 66/Hour 6) was performed. In the 55 subjects who noted
abdominal pain following the baseline (Day 0) lactose challenge, 50% of RP-G28-treated subjects reported no abdominal pain
compared to 17% of the placebo-treated subjects. This difference was statistically significant (p = 0.0190). See Figure 2
below.
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An
analysis of “responders” for abdominal pain (defined as subjects who reported a greater than 50% decrease in abdominal
pain severity following lactose challenge between Day 0/Hour 6 and Day 36/Hour 6) was performed. In the 55 subjects who noted
abdominal pain following the baseline (Day 0) lactose challenge, 72.2% of RP-G28-treated subjects reported a >50% reduction
in abdominal pain severity compared to 42.1% of the placebo-treated subjects. This difference was also statistically significant
(p=0.0288).
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Six
times as many patients in the treatment group versus the placebo group described themselves as lactose tolerant in the global
assessment and did not report symptoms associated with lactose intolerance on Day 66. After completion of study treatment
at Day 36, subjects were encouraged to re-introduce dairy foods into their diet. Thirty days later (Day 66), subjects were
asked to provide an assessment of their symptom status, i.e., whether they considered themselves still lactose intolerant
compared with subjects receiving placebo (Yes/No). As seen below in Figure 2 below, in the 58 subjects providing responses,
a significantly larger percentage of subjects receiving RP-G28 (30%) considered themselves no longer lactose intolerant compared
with subjects receiving placebo (5.6%); this result was statistically significant (p=0.0389).
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Shifts
in the fecal microbiome in 82% of participants on treatment (31) and increases in relative abundance of both Bifidobacteria
and Lactobacilli were reported. Pre-treatment, three distinct clusters were identified, while post-treatment (Day 66) two
distinct clusters were identified, demonstrating a clear shift in certain species represented before and after treatment.
RP-G28 had a bifidogenic effect in 90% of responders, which included species Bifidobacterium longum, Bifidobacterium adolenscentis,
Bifidobacterium catenulatum, Bifidobacterium breve, and Bifidobacterium dentium (30).
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Figure
2
The
clinical results of our Phase 2a study were published in Nutrition Journal in a manuscript entitled “
Improving lactose
digestion and symptoms of lactose intolerance with a novel galacto-oligosaccharide (RP-G28): a randomized, double-blind clinical
trial
.” The microbiome results were published in the Proceedings of the National Academy of Science in a manuscript
entitled
“Impact of short-chain galacto-oligosaccharides on the gut microbiome of lactose-intolerant individuals.”
Type
C Meeting with the FDA
We
held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February 2013. The purpose
of the meeting was to obtain the FDA’s feedback on the planned Phase 2 program and Phase 3 programs, inform the FDA of our
ongoing development plans, gain feedback on relevant clinical trial design and end points related to patient meaningful benefits,
and to inform the FDA of the status of our product characterization.
Phase 2b Clinical Trial
Enrollment in our Phase 2b clinical trial of RP-G28 was initiated in March 2016 and completed in August 2016.
The final patient completed dosing and all monitoring visits in October 2016.
The Phase 2b trial was a multi-center, randomized,
double-blind, placebo-controlled, parallel-group trial of 368 subjects designed to determine the efficacy, safety, and
tolerability of two dosing regimens of RP-G28 in subjects with moderate to severe lactose intolerance. Two hundred and forty-seven
(247) subjects received RP-G28 while 121 subjects received placebo. Twenty-four (24) subjects were discontinued prematurely from
the study and 344 (91.2%) completed the study.
The trial assessed patients with lactose intolerance
symptoms as measured on a Likert scale after a lactose challenge. Entry criteria in the Phase 2b trial included a hydrogen breath
test to validate lactase deficiency. The Phase 2b trial design included a screening period, a 30-day course treatment period,
and a 30-day post-treatment “real world” observation period during which subjects were followed while lactose containing
food products were re-introduced into their diets. The study was designed to escalate the dose beyond the 15 gm/day dose level
evaluated in the Phase 2a study. Study subjects abstained from lactose containing food products and were then randomized evenly
(1:1:1) to receive one of two doses of RP-G28 or placebo for 30 days.
The
primary endpoint for the Phase 2b clinical trial was a LI symptom composite score response at day 31. A response was based on
change from baseline (Day -7, visit 1) to end of treatment period at day 31 (visit 5), combined average of four maximum symptom
scores taken over 0.5, 1, 2, 3, 4, and 5 hours for each symptom (abdominal pain, cramping, bloating, and gas movement) after a
lactose challenge test. A response was defined as a 4-point or greater decrease from baseline or a composite score of zero at
day 31. The Phase 2b trial further required the collection of fecal samples from patients enrolled to evaluate the baseline and
changes to the patient’s microbiome that correlate to symptom reduction and lactose tolerance.
We held a Type C meeting with the FDA in March 2017, to discuss our development plans and Phase 2b clinical
trial. The focus of the meeting was to obtain the FDA’s feedback on our Phase 2b clinical trial, including our SAP, prior
to unblinding any data.
In order to gather long-term data on subjects exposed to RP-G28, we also offered enrollment in an observational
12-month extension study, G28-003XA, to subjects who completed the Phase 2b protocol. As RP-G28 is expected to provide extended
relief from lactose intolerance symptoms beyond the initial 30-day treatment phase, this extension study for the Phase 2b program
will assess the long-term treatment effect. The study is also evaluating each participant’s microbiome, expanding our knowledge
of the effects that RP-G28 may have on adapting the gut microbiota in a beneficial manner. We completed this study in the fourth
quarter of 2017. We intend for the results from this study to support durability of treatment and guide the need to evaluate an
additional 30-day course of treatment in subjects who experience the return of lactose intolerance symptoms after an initial course
of RP-G28.
Topline results of the Phase 2b clinical trial were announced in March 2017. Due to inconsistent data results
from one study site, the data from this site was excluded from the primary analysis population (Efficacy Subset mITT). After excluding
the data from the one anomalous study site, results showed a clinically meaningful benefit to subjects in the reduction of lactose
intolerance symptoms across a variety of outcome measures. The majority of analyses showed positive outcome measures and the robustness
of the data point to a clear drug effect. Treatment patients not only reported meaningful reduced symptoms, but also 30-days after
taking the treatment, patients reported adequate relief from lactose intolerance symptoms and satisfaction with the results of
the treatment, with RP-G28 preventing or treating their lactose intolerance symptoms. Greater milk and dairy product consumption
was also reported by patients.
Because
the efficacy data from one study site was found to be significantly different from that of the other study sites, the data from
this site was excluded from the primary analysis population (Efficacy Subset mITT. n=296). It was decided that, in addition to
the efficacy analysis for the mITT Population, the Efficacy Subset mITT population would be used to perform all efficacy analyses.
In
the Efficacy Subset mITT Analysis group, the primary endpoint met statistical significance, (39.7% of the pooled dosing group
compared to 25.8% of the placebo group responded (p=0.0159)). Because the primary analysis was statistically significant, the
primary endpoint comparison between the high dose group and the placebo group was then tested and also met statistical significance
(38.1% of the high dose group, compared to 25.8% of the placebo group responded (p=0.0294)). The comparison between the low dose
group and the placebo group further met statistical significance (p=0.0434).
In
the entire study population (mITT population), including patients from the excluded study site, taking at least one dose of drug
(n=368), the comparison between the pooled treatment groups and the placebo group narrowly missed statistical significance (p=0.0618),
(40.1% of the pooled treatment group responded compared to 31.4% of the placebo group). Both low dose and high dose group arms
demonstrated a higher proportion of responders than the placebo group.
In
the Efficacy Subset Per-protocol population (Efficacy Subset PP), significant and meaningful symptom improvement was consistently
seen across key individual lactose intolerance symptoms by patients reporting a ≥4-point improvement from baseline (proportion
of subjects on treatment that reported improvement in severity of each symptom). Of the treatment patients, 56.1% reported significant
improvement in abdominal pain compared to 45.7% in the placebo group (p=0.1046). Of the treatment patients, 54.5% reported statistically
significant improvement in cramping compared to 40.2% in the placebo group (p=0.0257). Of the treatment patients, 55% reported
statistically significant improvement in bloating compared to 41.3% in the placebo group (p=0.0282). Finally, 44.4% of treatment
patients reported significant improvement in gas movement compared to 32.6% in the placebo group (p=0.0599). See Figure 4 below.
Figure
4
In a more stringent assessment, many patients
reported that they experienced complete elimination of lactose intolerance symptoms, scoring a 0 out of 10 on a Likert pain scale
post-treatment (Efficacy Subset PP). Of the treatment patients, 37.0% reported complete elimination of abdominal pain compared
to 21.7% in the placebo group (p=0.0144). Of the treatment patients, 34.9% reported complete elimination of cramping compared
to 16.3% in the placebo group (p=0.0020). Of the treatment patients, 29.6% reported complete elimination of bloating compared
to 16.3% in the placebo group (p=0.015). Of the treatment patients, 16.4% reported complete elimination of gas movement compared
to 2.2% in the placebo group (p=0.0005). Symptoms of abdominal pain, cramping, bloating and gas movement were then combined into
a composite endpoint representing the key symptoms of lactose intolerance. Of the treatment patients, 13% experienced complete
elimination of lactose intolerance symptoms compared to 2% in the placebo group (p=0.004). See Figure 5 below.
Figure
5
Observing
global patient-reported assessments (Efficacy Subset PP) on multiple aspects of their symptom severity and treatment benefit experience
30 days after treatment and adding dairy and milk products back into their diets, 81.9% of treatment patients reported no or mild
lactose intolerance symptoms compared to 63.7% in the placebo group (p=0.0013). Of the treatment patients, 66.3% reported being
very or extremely satisfied with RP-G28 preventing or treating their lactose intolerance symptoms compared to 51.6% in the placebo
group (p=0.0302). Of the treatment patients, 83.2% reported adequate relief from lactose intolerance symptoms compared to 72.5%
in the placebo group (p=0.042). Of the treatment patients, 39.7% reported much or very much improvement in their lactose intolerance
symptoms compared to 25.3% in the placebo group (p=0.0343). See Figure 6 below.
Figure
6
Further,
a real-world milk intake assessment was conducted on treatment and placebo group patients (Efficacy Subset PP). At baseline, lactose
intolerance patients reported consuming 0.2 cups/d of milk. After RP-G28, treatment patients increased their milk consumption
to 1.5 cups/d of milk, consuming 1.3 cups/d more of milk (p=0.0084), 39% more milk consumed per day than placebo patients
reported consuming (See Figure 7 below). We believe this is significant because the USDA recommends healthy individuals to consume
1.5 cups/d of milk. Overall, 62% of treatment patients consumed ≥1 cups/d of milk after being treated (p=0.0095). The
increase in milk consumption is meaningful for dairy avoiders because it reflects increased lactose tolerance and may lead to
more dietary calcium intake post-treatment as milk contains a higher percentage of one’s daily intake of calcium.
Figure
7
No
serious adverse events related to treatment were reported and the number of adverse events reported was similar between treatment
and placebo groups.
End-of-Phase
2 Meeting with the FDA
We
held an End-of-Phase 2 meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products in August 2017. The
purpose of the meeting was to obtain the FDA’s feedback on our planned Phase 3 program. We reached general consensus with
the FDA on certain elements of our Phase 3 program and have received clear guidance and recommendations on many necessary components
of our Phase 3 program; including the clinical, non-clinical, and chemistry, manufacturing and controls (CMC) requirements needed
to support an NDA. We have incorporated much of this guidance into our Phase 3 program.
Elements
of our Phase 3 program are expected to include the following:
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Trial
Design: Will consist of two confirmatory clinical trials of similar trial design and
size as our Phase 2b clinical trial and will include additional components that may allow
for claims for durability of effect. The trials may be run in parallel.
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Protocol
design: Will consist of multi-center, randomized, doubled-blind, placebo-controlled, parallel-group trials designed to determine
the efficacy, safety and durability of RP-G28 compared to a placebo in subjects with lactose intolerance. The protocol designs
include screening to determine lactose intolerance, 30-day course of treatment, and 6-months of post-treatment observation.
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Primary
endpoint: Will evaluate a patient’s LI symptom composite score (including abdominal pain, cramping, bloating and gas)
after a lactose challenge, comparing the mean difference between baseline symptom score to 30-days post-treatment symptom
score.
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Secondary
endpoints: Will evaluate LI signs and symptoms and global assessment outcomes to evaluate and assess a patient’s continued
meaningful treatment benefit.
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In
preparation for Phase 3, we have had regular communications with the FDA and have received feedback from the FDA on the Phase
3 protocols, the statistical analysis plan (SAP), non-clinical matters, chemistry and controls, as well as other items.
The
FDA has provided the following recommendations with respect to our revised Phase 3 protocols, SAP and other items (all of which
we intend to implement):
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The
FDA has confirmed that two confirmatory pivotal studies are required for a NDA filing.
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A
primary endpoint was agreed upon
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The
FDA has indicated that retreatment must be evaluated in order to provide proper labeling information for clinicians regarding
when they should prescribe retreatment, and that we must continue the evaluation of efficacy and safety.
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The
FDA has indicated that a pharmacokinetic (PK) study, in a fed and fasted state, must be conducted to confirm no to low systemic
exposure in order to permit a broad definition of renal classes allowed for inclusion criteria.
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Nonclinical
Safety Plans
Given the established safety profile of GOS
in humans and the lack of significant safety concerns with RP-G28 administered to subjects in the Phase 2a and Phase 2b clinical
trials, it was agreed with the FDA (August 2017 End-of-Phase 2 meeting) that no additional non-clinical safety studies are
required to support continued evaluation of RP-G28 in the Phase 3 program. The FDA also agreed that no rat fertility, rat peri-post
natal reproductive toxicity, genotoxicity or, importantly, rodent carcinogenicity studies are needed for the NDA submission.
As
recommended by the FDA, we will continue to evaluate females of child-bearing potential who are willing to use appropriate contraception
throughout the duration of any study. ICH-compliant embryo-fetal development toxicology studies of RP-G28 in the rat and rabbit
will be conducted to support the NDA submission. Additional general toxicity studies may also need to be conducted for the NDA
submission.
Manufacturing
We
do not own or operate manufacturing facilities, nor do we have plans to develop our own manufacturing operations in the foreseeable
future. We have an exclusive worldwide agreement (the “Supply Agreement”) to manufacture a higher purity form of GOS
(referred to as “Improved GOS”) with Ricerche Sperimentali Montaleor (“RSM”) in connection with our clinical
and nonclinical studies we will need to conduct prior to receiving regulatory approval for RPG-28. RSM has also agreed that it
will not, except as necessary for RSM to perform its obligations under the Supply Agreement, market or sell Improved GOS, or any
galacto-oligosaccharides that are of greater purity to any third party.
Pursuant
to the terms of the Supply Agreement, as amended on July 24, 2015, we purchased the exclusive worldwide assignment of all right,
title and interest to the Improved GOS (the “Improved GOS IP”) on July 30, 2015 for $800,000. We also issued 100,000
shares of our common stock to RSM pursuant to a stock purchase agreement.
Under
the terms of the Supply Agreement, as amended, if we fail to make any future option payment required under the terms of the Supply
Agreement, we may be required to return the Improved GOS IP to RSM. The terms of the Supply Agreement, as amended, require us
to pay RSM $400,000 within 10 days following FDA approval of a new drug application for the first product owned or controlled
by us using Improved GOS as its active pharmaceutical ingredient.
Commercialization
Given
our stage of development, we have not yet established a commercial organization or distribution capabilities. RP-G28, if approved,
is intended to be prescribed to patients suffering from lactose intolerance. These patients are normally under the care of a gastroenterologist
and/or a primary care physician. Our current plan is to evaluate a possible partnership to commercialize RP-G28 for the treatment
of lactose intolerance in patients in the United States and Europe if it is approved. We may also build our own commercial infrastructure
or utilize contract reimbursement specialists, sales people and medical education specialists, and take other steps to establish
the necessary commercial infrastructure at such time as we believe that RP-G28 is approaching marketing approval. Outside of the
United States and Europe, subject to obtaining necessary marketing approvals, we will likely seek to commercialize RP-G28 through
distribution or other collaboration arrangements for patients suffering from lactose intolerance.
Competition
The
biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we know of no drug candidate,
other than RP-G28, in advanced clinical trials for treating lactose intolerance, other biopharmaceutical companies may be able
to develop compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational
pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research
institutions. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome-based development
companies such as Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix, Inc. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large,
established companies. We will also compete with providers of a wide variety of lactase supplements (the most widely used supplement
in the United States being Lactaid
®
), probiotic/dietary supplements, and lactose-free and dairy-free products.
We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy,
safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
Intellectual
Property
The
proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important
to our business. We have sought patent protection in the United States and internationally for uses of RP-G28 and our discovery
programs, and any other inventions to which we have rights, where available and when appropriate. Our policy is to pursue, maintain
and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions
and improvements that are commercially important to the development of our business. We also rely on trade secrets that may be
important to the development of our business. We do not have composition of matter patent protection in the United States for
RP-G28, which may result in competitors being able to offer and sell products so long as these competitors do not infringe any
other patents that we hold, including patents directed to methods of manufacturing and purified RP-G28 or directed to methods
of using RP-G28.
Our
commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of RP-G28 and
any future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents
against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our
products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted
to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes from commercial
competition. Furthermore, we cannot be sure that issued patents will not be challenged in court as invalid or in the Patent Office
as unpatentable. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors — Risks
Relating to Our Intellectual Property.”
Patents
and Proprietary Rights Covering Our Drug Candidates
We
strive to protect our product candidates and exclusivity rights, as well as both maintain and fortify our position in the field
of reduction of symptoms associated with lactose intolerance. We believe our intellectual property portfolio consists of early
and broad filings in the area. We have focused on patents and patent applications directed to use of our products in disease treatment.
We have sought and continue to seek the strongest possible intellectual property protection available to us in order to prevent
others from directly competing with us, as well as to exclude competition around our products, their manufacture, and methods
for use of the products in disease treatment. Our intellectual property portfolio directed to RP-G28 contains four issued patents
relating to RP-G28 and its uses. That portfolio also includes at least 15 other related, pending patent applications in the United
States and worldwide. We also own a patent family
,
including claims generally directed to processes for producing
an improved form of galacto-oligosaccharides (GOS) mixtures (higher purity); this family includes issued patents in United
States (not expiring until 2030), Italy (not expiring until 2029), and China
,
Germany, and the Netherlands (not expiring
until 2030), as well as applications pending in the United States, Japan, India, and other jurisdictions that, if issued, will
not expire until 2030.
This
portfolio includes patents and proprietary rights related to:
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U.S.
Patent No. 8,486,668, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for treating lactose intolerance comprising administering, for a predetermined number of days, a high purity galacto-oligosaccharides
(GOS) pharmaceutical composition, and wherein the administration leads to a persistent decrease in at least one symptom of
lactose intolerance;
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U.S.
Patent No. 8,492,124, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for treating lactose intolerance comprising administering, for a predetermined number of days, a controlled release pharmaceutical
composition that contains galacto-oligosaccharides (GOS), but does not contain a probiotic;
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U.S.
Patent No. 8,785,160, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for treating lactose intolerance comprising administering a hydrogen breath test, diagnosing lactose intolerance based upon
the hydrogen breath test, and administering a high purity galacto-oligosaccharides (GOS) pharmaceutical composition;
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U.S.
Patent No. 9,200,303, which has a current expiry date of August 6, 2030 (subject to the payment of maintenance fee), includes
claims generally directed to the processes for producing ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions
by utilizing sequential microbiological purifications;
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U.S.
Patent No. 9,370,532, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
for preventing or reducing diarrhea associated with lactose intolerance, and methods for the reduction of severity of diarrhea
associated with lactose intolerance, comprising administering a high purity galacto-oligosaccharides (GOS) having 1-10% by
weight pentasaccharides and at least a 45% by weight trisaccharides;
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U.S.
Patent No. 9,579,340, which has a current expiry date of February 17, 2030, includes claims generally directed to an oral
dosage form comprising a GOS composition having 95% or more galacto-oligosaccharides (GOS) by weight and less than 5% digestible
saccharides by weight, and having 45% by weight trisaccharides;
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U.S.
Patent No. 9,775,860, which has a current expiry date of February 17, 2030, includes claims generally directed to methods
of improving gastrointestinal health, including heartburn, stomach upset, bloating, diarrhea, constipation, or gas by administering
a composition having 95% or more GOS by weight and less than 5% digestible saccharides by weight, and having at least 45%
by weight trisaccharides;
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U.S.
Patent No. 9,592,248, which has a current expiry date of February 17, 2030, includes claims generally directed to an oral
dosage form having one or more dosing units, each having 0.1 to 10 g of a liquid GOS composition in a gelatin capsule, where
the GOS composition has at least about 95% GOS by weight, less than about 5% digestible saccharides by weight, and at least
45% by weight trisaccharides;
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U.S.
Patent No. 9,808,481, which has a current expiry date of February 17, 2030, includes claims generally directed to a GOS composition
having at least 95% by weight GOS and 5% or less by weight digestible saccharides, and having about 5-25% pentasaccharides;
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United
Kingdom Patent No. GB2480042, which has a current expiry date of February 16, 2030, includes claims generally directed to
a solid oral unit-dosage form of a high purity galacto-oligosaccharides (GOS);
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Canadian
Patent No. CA2752800, which has a current expiry date of February 16, 2030 (subject to payment of annuities), includes claims
generally directed to the daily use of GOS compositions to increase lactose tolerance or to treat lactose intolerance;
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Japanese
Patent No. JP6105680, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes claims
generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications;
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European
Patent No. EP 2,462,234, validated in six European countries, including Germany, Great Britain, and France, which has a current
expiry date of August 6, 2030 (subject to payment of annuities), includes claims generally directed to the processes for producing
preparing ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing sequential microbiological purifications;
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Italian
Patent No. IT 1,395,068, which has a current expiry date of August 7, 2029 (subject to the payment of annuities), includes
claims generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications; and
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Chinese
Patent No. ZL 201080035013.2, which has a current expiry date of August 6, 2030 (subject to payment of annuities), includes
claims generally directed to the production of ultra-pure galacto-oligosaccharides (GOS) pharmaceutical compositions by utilizing
sequential microbiological purifications.
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We
also are pursuing patent applications. These applications are pending in the United States, Europe, Japan and other jurisdictions,
and, if they issue as patents, will not expire until at least 2030, and include claims generally directed to (i) oral dosage forms
of a higher purity galacto-ologosaccharides (GOS), (ii) use of galacto-ologosaccharides (GOS) for treating lactose intolerance,
and (iii) methods of preventing or reducing certain symptoms of lactose intolerance using galacto-ologosaccharides (GOS) dosage
forms. For example, we have paid issue fees (and expect patents to issue in due course) in two United States patent applications:
one includes claims directed to an oral dosage forms comprising a prebiotic composition comprising 95% or more galacto-oligosaccharides
(GOS) by weight and less than 5% digestible saccharides by weight, in which the GOS comprises at least 45% by weight trisaccharides,
and the other includes claims directed to oral dosage forms of GOS, comprising 0.1 to 10 g of a liquid GOS composition encapsulated
in a gelatin capsule, in which the GOS composition comprises at least about 95% galacto-oligosaccharides (GOS) by weight, less
than about 5% digestible saccharides by weight, and at least 45% by weight trisaccharides.
Trade
Secrets
In
addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and
know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and
invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These
agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of
our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of
our information technology systems.
Government
Regulation and Product Approval
Governmental
authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other
things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing
and export and import of products such as those we are developing. Our product candidates must be approved by the FDA through
the NDA process before they may be legally marketed in the United States and by the European Medicines Agency (the “EMA”)
through the Marketing Authorization Application (“MAA”) process before they may be legally marketed in Europe. Our
product candidates will be subject to similar requirements in other countries prior to marketing in those countries. The process
of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and financial resources.
United
States Government Regulation
NDA
Approval Processes
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and implemented
regulations. Failure to comply with the applicable FDA requirements at any time during the product development process or approval
process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material
adverse effect on us. These sanctions could include:
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refusal
to approve pending applications;
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withdrawal
of an approval;
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imposition
of a clinical hold;
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warning
letters;
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product
seizures and/or condemnation and destruction;
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total
or partial suspension of production or distribution; or
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injunctions,
fines, disgorgement, or civil or criminal penalties.
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The
process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion
of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices (“GLPs”)
or other applicable regulations;
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submission
to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance
of adequate and well-controlled human clinical trials according to Good Clinical Practices (“GCPs”), to establish
the safety and efficacy of the proposed drug for its intended use;
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submission
to the FDA of a marketing application such as a NDA;
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satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with current Good Manufacturing Practices (“cGMPs”) to assure that the facilities, methods and controls are adequate
to preserve the drug’s identity, strength, quality and purity; and
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FDA
review and approval of the marketing application.
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Once
a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical
tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. A sponsor of an
IND must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA
as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results
of the nonclinical studies, the IND will also include a clinical protocol detailing, among other things, the objectives of the
clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase
lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the
FDA, within the 30-day time period, notifies the sponsor of a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an
IND, and may affect one or more specific studies or all studies conducted under the IND.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must
be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion
criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as an amendment
to the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually in the IND
Annual Report. Sponsors must also report to the FDA, within required timelines, serious and unexpected adverse reactions, any
clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation
brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to
the drug. An institutional review board (“IRB”) at each institution participating in the clinical trial must
review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding
the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor
the study until completed and otherwise comply with IRB regulations.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase
1
. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially
when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often
conducted in patients.
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Phase
2
. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance
and optimal dosage. Although there are no statutory or regulatory definitions for Phase 2a and Phase 2b, Phase 2a is commonly
used to describe a Phase 2 clinical trial designed to evaluate efficacy, adverse effects and safety risks and Phase 2b is
commonly used to describe a subsequent Phase 2 clinical trial that also evaluates dosage tolerance and optimal dosage.
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Phase
3
. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population
at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of
the product and provide an adequate basis for product labeling.
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Human
clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or
the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects
or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the
drug has been associated with unexpected serious harm to patients.
During
the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior
to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings with the FDA may be granted at other
times during the development program when requested. For instance, we held a Type C meeting with the FDA’s Division of Gastroenterology
and Inborn Errors Products on February 20, 2013. The purpose of the meeting was to obtain the FDA’s feedback on the planned
clinical development program and future necessary clinical studies, inform the FDA of our ongoing development plans, gain feedback
on relevant clinical trial design and end points related to patient meaningful benefits, and to inform the FDA of the status of
our product characterization. Following analysis of the Phase 2a clinical trial, discussions with the FDA during the Type C Meeting
in early 2013 about our clinical development plan, and further discussions with our regulatory consultants, we initiated the Phase
2b clinical trial of RPG-28 in March 2016 and completed final enrollment and dosing in October 2016.
FDA
meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide
advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical
results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new
drug. Sponsors may request a Special Protocol Assessment (“SPA”), only if the sponsor has already had an end-of-phase
2/pre-phase 3 meeting or end-of-phase 1 meeting as appropriate. The purpose of the SPA is to reach agreement with the FDA on clinical
trial protocol design and analysis that will form the primary basis of an efficacy claim.
According
to published guidance on the SPA process, a sponsor which meets the prerequisites may make a specific request for a SPA and ask
specific questions regarding the design and size of the proposed clinical trial. The FDA has a goal to evaluate the protocol within
45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request
for additional information. A SPA request must be made before the proposed trial begins, and all open issues must be resolved
before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will
be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement
of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or
efficacy of the drug was identified after the testing began.
Concurrent
with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about
the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product
in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the
drug and the manufacturer must develop methods for testing the identity, strength, quality, purity and potency of the drug. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate
does not undergo unacceptable deterioration over its proposed shelf-life.
The
results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part
of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver
of such fees may be obtained under specified circumstances. The FDA has 60 days from its receipt of an NDA to determine whether
the application will be accepted for filing based on the agency’s threshold determination of whether it is sufficiently
complete to permit substantive review. It may request additional information rather than accept an NDA for filing. In this event,
the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the
FDA accepts it for filing.
Once
the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug
representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may
refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data.
Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA
reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its
manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee,
but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where
the product is manufactured and tested.
Patent
Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the
time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an
NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the
application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office, in consultation
with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply
for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration
date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Market
exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not accept for review an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA submitted
by another company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, an application may be submitted after four years if it contains a certification of patent
invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement
to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the
applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages
or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations
and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity
will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct
or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Pediatric
Exclusivity and Pediatric Use
Under
the Best Pharmaceuticals for Children Act (“BPCA”), certain drugs may obtain an additional six months of exclusivity,
if the sponsor submits information requested in writing by the FDA (a Written Request) relating to the use of the active moiety
of the drug in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it
determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may
not produce health benefits in that population.
We
have not received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request for such
studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from
the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement,
in accordance with commonly accepted scientific principles, and submit reports of the studies. A Written Request may include studies
for indications that are not currently in the labeling if the FDA determines that such information will benefit the public health.
The FDA will accept the reports upon its determination that the studies were conducted in accordance with and are responsive to
the original Written Request or commonly accepted scientific principles, as appropriate, and that the reports comply with the
FDA’s filing requirements.
In
addition, the Pediatric Research Equity Act (“PREA”) requires all applications (or supplements to an application)
submitted under section 505 of the FDCA (21 U.S.C. §355) for a new active ingredient, new indication, new dosage form, new
dosing regimen or new route of administration to contain a pediatric assessment unless the applicant has obtained a waiver or
deferral. It also authorizes the FDA to require holders of approved NDAs for marketed drugs to conduct pediatric studies under
certain circumstances. In general, PREA applies only to those drugs developed for diseases and/or conditions that occur in both
the adult and pediatric populations. Products intended for pediatric-specific indications will be subject to the requirements
of PREA only if they are initially developed for a subset of the relevant pediatric population.
As
part of the Food and Drug Administration Safety and Innovation Act, Congress reauthorized both BPCA and PREA, which were slated
to expire on September 30, 2012, and made both laws permanent.
Orphan
Drugs
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition,
defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of
developing and making available the drug or biologic in the United States will be recovered from sales in the United States for
that drug or biologic.
If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for
the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA
may not approve any other applications, including a full NDA, to market the same product for the same indication for seven years,
except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the
FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug
exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same
drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for
certain research and a waiver of the NDA application user fee.
A
designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication
for which it received orphan designation. Orphan drug exclusive marketing rights in the United States also may be lost if the
FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition.
We
intend to explore orphan drug designation for RP-G28 for any orphan indication in which there is a medically plausible basis for
treatment of the indication through colonic adaptation of gut bacteria.
Post-approval
Requirements
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions
on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review
and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that
have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including,
among other things:
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compliance
with cGMPs;
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record-keeping
requirements;
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reporting
of adverse experiences with the drug;
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providing
the FDA with updated safety and efficacy information;
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drug
sampling and distribution requirements;
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notifying
the FDA and gaining its approval of specified manufacturing or labeling changes; and
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complying
with FDA promotion and advertising requirements.
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Drug
manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some
state agencies for compliance with cGMP and other laws.
We
rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products.
Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt
production or distribution, or require substantial resources to correct.
From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions
governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance
are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible
to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact
of such changes, if any, may be.
Regulation
Outside of the United States
In
addition to regulations in the United States, we will be subject to regulations of other countries governing clinical trials and
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval
by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such
countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market
products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required
for FDA approval.
Under
European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized
procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended
to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides
for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization
may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report,
each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization,
the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Reimbursement
Sales
of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors,
such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly
challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become
a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state
legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and
cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could
further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared
to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level of
payment may not be sufficient to allow us to sell our products on a profitable basis.
The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”) imposed new requirements for the
distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in
prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans
include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage
plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required
to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will
cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category
and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part
D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of
the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated
prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain.
Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage
policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result
in a similar reduction in payments from non-governmental payors.
The
American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different
treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the
Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research
and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended
to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the
sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also
possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect
the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other
available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not
be sufficient to allow us to sell our products on a profitable basis.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “ACA”), enacted in March 2010, is expected to have a significant impact on the health care industry.
The ACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard
to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered
under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the
impact of the ACA on pharmaceutical companies, as many of the ACA reforms require the promulgation of detailed regulations implementing
the statutory provisions which has not yet occurred. In addition, some members of the U.S. Congress have been seeking to repeal
at least portions of the legislation and we expect they will continue to review and assess this legislation and alternative health
care reform proposals. Any legal challenges to the ACA, as well as Congressional efforts to repeal the ACA, add to the uncertainty
of the legislative changes enacted as part of the ACA.
In
addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options
for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product
or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product
on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical
products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched
in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Employees
As
of the date of this Annual Report, we had nine employees, all of whom were full time employees. None of our employees are represented
by a labor union, and we consider our relationship with our employees to be good.
Available
Information
We
file with the Securities and Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections
13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may obtain these filings at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The SEC also maintains
a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding Ritter
Pharmaceuticals, Inc. and other companies that file materials with the SEC electronically. As soon as practicable after filing
with the SEC, we make copies of our reports on Form 10-K, Forms 10-Q and Forms 8-K available to the public, free of charge, through
the investor relations tab on our web site,
http://www.ritterpharmaceuticals.com/investors
.
Item
1A. Risk Factors
We
operate in a dynamic and rapidly changing business environment that involves multiple risks and substantial uncertainty. The following
discussion addresses risks and uncertainties that could cause, or contribute to causing, actual results to differ from expectations
in material ways. In evaluating our business, investors should pay particular attention to the risks and uncertainties described
below and in other sections of this Annual Report and in our subsequent filings with the SEC. These risks and uncertainties, or
other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations,
cash flows and financial condition. The trading price of our common stock could also decline due to any of these risks, and you
could lose all or part of your investment. The following information should be read in conjunction with Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes
included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report.
Risks
Relating to Our Financial Position and Need for Additional Capital
We
have incurred net losses in each year since our inception. Currently, we have no products approved for commercial sale. As a result,
our ability to reduce our losses and reach profitability is unknown, and we may never achieve or sustain profitability.
We
have incurred net losses in each year since our inception. The accompanying financial statements have been prepared assuming that
we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities
in the normal course of business.
To
date, we have devoted most of our financial resources to our corporate overhead and research and development, including our drug
discovery research, preclinical development activities and clinical trials. We currently have no products that are approved for
commercial sale. We expect to continue to incur net losses and negative operating cash flow for the foreseeable future, and we
expect these losses to increase as we continue our development of, and seek regulatory approvals for, RP-G28, prepare for and
begin the commercialization of RP-G28, and add infrastructure and personnel to support our product development efforts and operations.
We anticipate that any such losses could be significant for the next several years as we begin our Phase 3 clinical trials for
RP-G28 and related activities required for regulatory approval of RP-G28. If RP-G28 does not gain regulatory approval, or does
not achieve market acceptance, we may never become profitable, unless we are able to develop and market some other product. Our
net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and
working capital.
Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses
could increase if we are required by the FDA or the EMA, to perform studies or trials in addition to those currently expected,
or if there are any delays in completing our clinical trials or the development of RP-G28, or any other product candidates we
may develop in the future. The amount of future net losses will depend, in part, on the rate of future growth of our expenses
and our ability to generate revenues.
We
will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available,
may require us to delay, limit, reduce or cease our operations.
Developing
pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. To complete the work necessary
to file an NDA in the United States and a MAA in the European Union for RP-G28, which is currently anticipated to occur in 2019,
we will require substantial additional funding. If the FDA or EMA requires that we perform additional nonclinical studies or clinical
trials, our expenses would further increase beyond what we currently expect and the anticipated timing of any potential NDA or
MAA would likely be delayed.
We
will need to secure additional financing in order to complete clinical development of and commercialize RP-G28, if approved, and
generally fund our operations. We can provide no assurances that any additional sources of financing will be available to us on
favorable terms, if at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail
our research and development program. We also could be required to seek funds through arrangements with collaborative partners
or otherwise that may require us to relinquish rights to RP-G28 or otherwise agree to terms unfavorable to us.
We
may sell additional equity or debt securities to fund our operations, which would result in dilution to our stockholders and imposed
restrictions on our business.
We
may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding,
commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Additional funding may not be available to us on acceptable terms or at all. To the extent that we raise additional funds by issuing
equity securities (including any common stock issued to Aspire Capital Fund, LLC (“Aspire Capital”) pursuant to our
financing arrangement with Aspire Capital), our stockholders may experience significant dilution. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Aspire Capital Financing Arrangement.”
Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are not
able to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue
the development and/or commercialization of RP-G28; (ii) seek collaborators for RP-G28 and possibly on terms that are less favorable
than might otherwise be available; or (iii) relinquish or otherwise dispose of rights related to RP-G28. In addition, the terms
of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional shares by
us, or the possibility of such issuance, may cause the market price of our shares to decline.
Risks
Relating to Regulatory Review and Approval of RP-G28
We
cannot be certain that RP-G28 will receive regulatory approval, and without regulatory approval we will not be able to market
RP-G28.
The
development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the
FDA in the United States, the EMA in Europe, and regulatory authorities in other countries, with regulations differing from country
to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of
a NDA from the FDA or a MAA from the EMA, respectively. We have not submitted any marketing applications for RP-G28.
NDAs
and MAAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s
safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry,
manufacturing and controls for the product. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process,
and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval
is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing.
We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators of other jurisdictions,
such as the EMA, have their own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA,
as the case may be, 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 drug candidates with which we must
comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country
does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections
of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory
requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different
interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of
new information regarding our product candidates or other products. Also, regulatory approval for any of our product candidates
may be withdrawn.
We have completed a Phase 2a clinical trial and a Phase 2b clinical trial for RP-G28. We held an End-of-Phase
2 meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products in August 2017, regarding the path forward
for RP-G28. We reached general consensus with the FDA on many elements of our Phase 3 program and received clear guidance and recommendations
on many other necessary components of our Phase 3 program; including the clinical, non-clinical, and chemistry, manufacturing and
controls (CMC) requirements needed to support an NDA submission. However, not all clinical, non-clinical, and CMC items have been
agreed to with the FDA, and remaining items will need to be reviewed by the agency and agreed to by us.
We
will also need to conduct rat and embryo-fetal development toxicity studies.
Additional
non-clinical development may be required to be conducted based on future FDA feedback and guidance. We cannot predict whether
our future trials and studies will be successful or whether regulators will agree with our conclusions regarding the preclinical
studies and clinical trials we have conducted to date.
If
we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for RP-G28, we will not be able to market
RP-G28. If we are unable to market RP-G28, we may not be able to ever become profitable.
The
FDA and other regulatory agencies outside the United States, such as the EMA, may not agree to our proposed endpoint for approval
of RP-G28 for the treatment of lactose intolerance in patients, in which case we would need to complete additional clinical trials
before seeking market approval.
We
do not know if the FDA, the EMA or regulatory authorities in other countries will agree with our final primary endpoint for approval
of RP-G28. The FDA, the EMA and regulatory authorities in other countries in which we may seek approval for and market RP-G28,
may require additional nonclinical studies and/or clinical trials prior to granting approval, if at all. It may be expensive and
time consuming to conduct and complete additional nonclinical studies and clinical trials that the EMA and other regulatory authorities
may require us to perform. As such, any requirement by the EMA or other regulatory authorities that we conduct additional nonclinical
studies or clinical trials could materially and adversely affect our business, financial condition and results of operations.
Furthermore, even if we receive regulatory approval of RP-G28 for the treatment of lactose intolerance in patients, the labeling
for RP-G28 in the United States, Europe or other countries in which we seek approval may include limitations that could impact
the commercial success of RP-G28.
Delays
in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our
ability to obtain regulatory approval for RP-G28.
Delays
in the commencement, enrollment and completion of clinical trials could increase our product development costs or limit the regulatory
approval of RP-G28. The commencement, enrollment and completion of clinical trials may be delayed or suspended for a variety of
reasons, including:
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inability
to obtain sufficient funds required to conduct a clinical trial;
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inability
to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
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clinical
holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval
to commence a clinical trial in countries that require such approvals;
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discussions
with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials;
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inability
to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial
programs, including some that may be for the same indications targeted by RP-G28;
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inability
to obtain approval from institutional review boards (“IRBs”), to conduct a clinical trial at their respective
sites;
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severe
or unexpected drug-related adverse effects experienced by patients;
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inability
to timely manufacture sufficient quantities of RP-G28 required for a clinical trial;
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difficulty
recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment
criteria for our study and competition from other clinical trial programs for the same indications as RP-G28;
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the
FDA’s rejection of our end points as indicators of efficacy; and
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inability
to retain enrolled patients after a clinical trial is underway.
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Changes
in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols to reflect these changes
with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination,
which may impact the costs, timing or successful completion of a clinical trial. In addition, a clinical trial may be suspended
or terminated at any time by us, our future collaborators, the FDA or other regulatory authorities due to a number of factors,
including:
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our
failure or the failure of our potential future collaborators to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols;
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unforeseen
safety issues or any determination that a clinical trial presents unacceptable health risks;
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lack
of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
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a
breach of the terms of any agreement with, or for any other reason by, future collaborators who have responsibility for the
clinical development of RP-G28.
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In
addition, if we or any of our potential future collaborators are required to conduct additional clinical trials or other nonclinical
studies of RP-G28 beyond those contemplated, our ability to obtain regulatory approval of RP-G28 and to generate revenue from
its sales would be similarly harmed.
Clinical
failure can occur at any stage of clinical development and may prevent us from receiving regulatory approval. The results of earlier
clinical trials related to RP-G28 are not necessarily predictive of future results.
Clinical
failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and
we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies.
In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret
our data as favorably as we do, which may delay, limit or prevent regulatory approval. Successful results from preclinical studies
and early clinical trials do not ensure that subsequent clinical trials will generate the same or similar results or otherwise
provide adequate data to demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical
industry, including those with greater resources and experience than us, have suffered significant setbacks in later clinical
trials, even after seeing promising results in earlier clinical trials.
In
addition, 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. We may be unable to design and execute
a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical
or feasible to continue development efforts.
In
some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations,
adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not
know whether the clinical trials that we or any of our potential future collaborators may conduct will demonstrate the consistent
or adequate efficacy and safety that would be required to obtain regulatory approval and market RP-G28. Our Phase 3 clinical trials
for RP-G28 may not provide sufficient support for NDA approval.
The
FDA may require us to conduct one or more additional clinical trials, possibly involving a larger sample size or a different clinical
trial design, or may require longer follow-up periods. If we are unable to bring RP-G28 to market, our ability to create long-term
stockholder value will be limited.
RP-G28
may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require them to
be taken off the market, require them to include safety warnings or otherwise limit their sales.
There were no notable differences observed between placebo-treated subjects and RP-G28-treated subjects in
the Phase 2b trial. However, unforeseen side effects from RP-G28, could arise at any time during clinical development or, if approved,
after the approved product has been marketed. Any undesirable or unacceptable side effects associated with RP-G28 could interrupt,
delay or halt clinical trials, and results in delay of, or failure to obtain, marketing approval from the FDA and other regulatory
authorities.
In
addition:
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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we
may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or
change the labeling of the product;
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we
may be subject to limitations on how we may promote the product;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from
generating significant revenues from the sale of our products.
Reimbursement
decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement
for our products, it is less likely that they will be widely used.
Market
acceptance and sales of RP-G28, or any other product candidates we develop in the future, will depend on reimbursement policies
and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment
levels. We cannot be certain that reimbursement will be available for RP-G28 or any other product candidates that we may develop
in the future. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our
products. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize
RP-G28, or other product candidates that we develop in the future.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”),
changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded
Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of
drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average
sales prices for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan
will likely be lower than the prices we might otherwise obtain in the United States. Moreover, while the MMA applies only to drug
benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their
own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental
payors.
The
United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy
makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States,
the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. We expect to experience pricing pressures in connection with the sale of RP-G28, and any other product candidates
that we develop in the future, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations
and additional legislative proposals.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “ACA”), enacted in March 2010, is a sweeping law intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes and fees on health industry and impose additional health policy
reforms. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates
for drugs covered under Medicaid programs and make changes to the coverage requirements under Medicare Part D program. Although
it is too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical pricing,
especially under the Medicare program, and may also increase our regulatory burdens and operating costs. Since its enactment,
there have been judicial and Congressional challenges to certain aspects of the ACA. Congress and President Trump have expressed
their intentions to repeal and replace the ACA. President Trump issued an Executive Order and both chambers of Congress passed
bills, all with the goal of fulfilling their intensions. However, to date, the Executive Order has had limited effect and the
Congressional activities have not resulted in the passage of a law. If a law is enacted, many if not all of the provisions of
the ACA may no longer apply to prescription drugs.
If
we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent
terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending
upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for a limited
Patent Term Extension under the Drug Price Competition and Patent Term Restoration Act of 1984, which is sometimes referred to
as the Hatch-Waxman Act, provided our U.S. patent claims a method of treating lactose intolerance that is approved by the FDA.
The Hatch-Waxman Act, 35 U.S.C. §156, permits a patent extension of up to five years as compensation for patent term lost
during the FDA regulatory review process. The scope of protection afforded by the patent during the extended term is not commensurate
with the scope of the unextended portion of the patent; for example, the “rights derived” from a method of use patent
during the extended period are “limited to any use claimed by the patent and approved for the product.” 35 U.S.C.
§156(b)(2). We may not be granted an extension because of, for example, failing to apply for the extension within applicable
deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable statutory and/or
regulatory requirements including, for example, the requirement that the patent to be extended “claim” the approved
product or a method of using the approved product. Moreover, the applicable period of extension could be less than we request.
If we are unable to obtain patent term extension or if the term of any such extension is shorter than we request, the period during
which we will be able to exclude others from marketing their versions of our product will be shortened and our competitors may
obtain approval of generic products following our patent expiration, and our revenue could be reduced, possibly materially. Similar
concerns are associated with obtaining Supplemental Protection Certificates of certain patents issued in Europe and owned by Inalco
SpA, to which we have an exclusive options of assignment, based upon patent terms lost during European regulatory review processes.
In the event that we are unable to obtain any patent term extension, the issued patents for RP-G28 are expected to expire in 2030,
assuming they withstand any challenge toothier validity and/or patentability.
If
we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws,
we may be subject to civil or criminal penalties.
In
addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws,
commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices
in the pharmaceutical industry. Other jurisdictions such as Europe have similar laws. These laws include false claims and anti-kickback
statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business
activities could be subject to challenge under one or more of these laws.
Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare
program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers
on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most
states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to
items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative,
civil and criminal sanctions may be imposed under these federal and state laws.
Over
the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety
of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other
monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement
rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce
liability for Medicaid rebates.
Any
delay or disruption in the manufacture and supply of RP-G28 may negatively impact our operations.
We
do not intend to manufacture RP-G28. We have an agreement with RSM, our contract manufacturer, for the production of Improved
GOS, the active pharmaceutical ingredient in RP-G28, and the formulation of sufficient quantities of Improved GOS for the
clinical and nonclinical studies that we believe we will need to conduct prior to seeking regulatory approval for RP-G28.
However, we do not have agreements for commercial supplies of RP-G28 and we may not be able to reach agreement with RSM or
any other contract manufacturer for sufficient supplies to commercialize RP-G28 if it is approved.
Reliance
on third-party manufacturers entails risks, to which we would not be subject if we manufactured the products ourselves, including:
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the
possibility that we are unable to enter into a manufacturing agreement with third parties to manufacture RP-G28;
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the
possible breach of the manufacturing agreements by third parties because of factors beyond our control; and
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the
possible termination or nonrenewal of manufacturing agreements by the third parties before we are able to arrange for a qualified
replacement third-party manufacturers.
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Any
of these factors could cause the delay of approval or commercialization of RP-G28, or cause us to incur higher costs. Furthermore,
if RP-G28 is approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely
basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production
at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be
unable to meet demand for our product and could lose potential revenue. It may take several years to establish an alternative
source of supply for RP-G28 and to have any such new source approved by the government agencies that regulate our products. In
the event we do need to identify alternative manufacturing partners, we may have to secure licenses to manufacturing and/or purification
technologies, including third-party patent licenses, to allow us to manufacture RP-G28 that is suitable for the late-stage regulatory
review process and/or adequate to manufacture commercial quantities of RP-G28.
If
the FDA and EMA and other regulatory agencies do not approve the manufacturing facilities of our future contract manufacturers
for commercial production, we may not be able to commercialize RP-G28.
The
facilities used by any contract manufacturer to manufacture RP-G28 must be the subject of a satisfactory inspection before the
FDA or the regulators in other jurisdictions approve the product candidate manufactured at that facility. We are completely dependent
on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of
our finished products. If our manufacturers cannot successfully manufacture material that conform to our specifications and cGMP
requirements of any governmental agency whose jurisdiction to which we are subject, our product candidates will not be approved
or, if already approved, may be subject to recalls.
Even
if RP-G28 receives regulatory approval, we may still face future development and regulatory difficulties.
RP-G28,
and any other product candidates we develop in the future, if approved, will be subject to ongoing regulatory requirements for
labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information.
In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and
EMA requirements and requirements of other similar agencies, including ensuring that quality control and manufacturing procedures
conform to cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of
regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse
reactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply with certain requirements
concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject
to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved
label. Accordingly, we may not promote our approved products, if any, for indications or uses for which they are not approved.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market.
If RP-G28 fails to comply with applicable regulatory requirements, a regulatory agency may:
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mandate
modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require
us or our potential future collaborators to enter into a consent decree or permanent injunction, 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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impose
other administrative or judicial civil or criminal penalties;
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withdraw
regulatory approval;
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refuse
to approve pending applications or supplements to approved applications filed by us or our potential future collaborators;
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impose
restrictions on operations, including costly new manufacturing requirements; or
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detain,
seize and/or condemn and destroy products.
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Risks
Relating to the Potential Commercialization of RP-G28
Even
if approved, RP-G28 may not achieve broad market acceptance among physicians, patients and healthcare payors, and as a result
our revenues generated from its sales may be limited.
The
commercial success of RP-G28, if approved, will depend upon its acceptance among the medical community, including physicians,
health care payors and patients. The degree of market acceptance of RP-G28 will depend on a number of factors, including:
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limitations
or warnings contained in our product candidates’ FDA-approved labeling;
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changes
in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for
such product candidates;
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limitations
in the approved clinical indications for RP-G28;
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demonstrated
clinical safety and efficacy compared to other products;
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lack
of significant adverse side effects;
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sales,
marketing and distribution support;
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availability
of reimbursement from managed care plans and other third-party payors;
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timing
of market introduction and perceived effectiveness of competitive products;
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the
degree of cost-effectiveness;
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availability
of alternative therapies at similar or lower cost, including generics and over-the-counter products;
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enforcement
by the FDA and EMA of laws and rulings that prohibit the illegal sale of RP-G28 as a dietary supplement;
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the
extent to which RP-G28 is approved for inclusion on formularies of hospitals and managed care organizations;
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whether
RP-G28 is designated under physician treatment guidelines for the treatment of or reduction of symptoms associated with the
indications for which we have received regulatory approval;
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adverse
publicity about RP-G28 or favorable publicity about competitive products;
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convenience
and ease of administration of RP-G28; and
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potential
product liability claims.
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If
RP-G28 is approved, but does not achieve an adequate level of acceptance by physicians, patients, the medical community and healthcare
payors, sufficient revenue may not be generated from its sales and we may not become or remain profitable. In addition, efforts
to educate the medical community and third-party payors on the benefits of RP-G28 may require significant resources and may never
be successful.
We
have no internal sales, distribution and/or marketing capabilities at this time and we will have to invest significant resources
to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.
We
have no internal sales, distribution and/or marketing capabilities at this time. To develop these capabilities, we will have to
invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that
RP-G28 will be approved. We could also face a number of additional risks, including:
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we
or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;
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the
cost of securing or establishing a marketing or sales force may exceed the revenues generated by RP-G28; and
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our
direct sales and marketing efforts may not be successful.
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We
may have limited or no control over the sales, marketing and distribution activities of third parties. Our future revenues could
depend heavily on the success of the efforts of third parties.
We
may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely
affect our ability to develop RP-G28.
Because
developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities
and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more experience.
Additionally, if RP-G28 receives marketing approval, we may enter into sales and marketing arrangements with third parties with
respect to our unlicensed territories. If we are unable to enter into arrangements on acceptable terms, we may be unable to effectively
market and sell RP-G28 in our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration
arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to
maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements
for the development of RP-G28.
If
we collaborate with a third party for the development and commercialization of RP-G28, we can expect to relinquish some or all
of the control over the future success of RP-G28. For example, we may relinquish rights to RP-G28 in jurisdictions outside of
the United States. Our collaboration partner may not devote sufficient resources to the commercialization of RP-G28 or may otherwise
fail in its commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us.
In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of RP-G28. In some
cases, we may be responsible for continuing preclinical and initial clinical development of RP-G28 or research programs under
a collaboration arrangement, and the payment we receive from our collaboration partner may be insufficient to cover the cost of
this development. If we are unable to reach agreements with suitable collaborators, we would face increased costs, we may be forced
to limit the territories in which we commercialize RP-G28. If we fail to achieve successful collaborations, our operating and
financial condition will be materially and adversely affected.
Risks
Relating to Our Business and Strategy
We
may face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to
compete effectively.
Although
we know of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid and significant technological change. We have potential competitors
in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology
companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of these
potential competitors have greater financial and other resources, such as larger research and development staff and more experienced
marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical
testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have
significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading
companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and
development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete.
As a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval
or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome based development
companies: Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix Inc. In addition, many
universities and private and public research institutes may become active in our target disease areas. These potential competitors
may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective
or less costly than RP-G28, which could render RP-G28 obsolete and noncompetitive.
We
believe that our ability to successfully compete will depend on, among other things:
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our
ability to commercialize and market RP-G28;
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the
efficacy, safety and reliability of RP-G28;
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the
price of RP-G28;
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adequate
levels of reimbursement under private and governmental health insurance plans, including Medicare;
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our
ability to protect intellectual property rights related to RP-G28;
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our
ability to manufacture and sell commercial quantities of RP-G28 to the market; and
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acceptance
of RP-G28 by physicians and other health care providers.
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If
our competitors market products that are more effective, safer or less expensive than RP-G28, or that reach the market sooner
than RP-G28, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological
change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes
in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological
advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive
or not economical.
We
depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively
as if we performed these functions ourselves.
We
outsource substantial portions of our operations to third-party service providers, including the conduct of preclinical studies
and clinical trials, collection and analysis of data, and manufacturing. Our agreements with third-party service providers and
CROs are on a study-by-study and project-by-project basis. Typically, we may terminate the agreements with notice and are responsible
for the supplier’s previously incurred costs. In addition, any CRO that we retain will be subject to the FDA’s and
EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over
compliance with these regulations by these providers. Consequently, if these providers do not adhere to applicable governing practices
and standards, the development and commercialization of our product candidates could be delayed or stopped, which could severely
harm our business and financial condition.
Because
we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing
these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner
or may fail to perform at all. Although we have not experienced any significant difficulties with our third-party contractors,
it is possible that we could experience difficulties in the future. In addition, the use of third-party service providers requires
us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
There are a limited number of third-party service providers that specialize or have the expertise required to achieve our business
objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming
and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources
we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully
manage the performance of third-party service providers in the future, our business may be adversely affected, and we may be subject
to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.
A
variety of risks associated with our possible international business relationships could materially adversely affect our business.
We
may enter into agreements with other third parties for the development and commercialization of RP-G28, or other product candidates
we develop in the future, in international markets. International business relationships subject us to additional risks that may
materially adversely affect our ability to attain or sustain profitable operations, including:
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differing
regulatory requirements for drug approvals internationally;
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potentially
reduced protection for intellectual property rights;
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potential
third-party patent rights in the United States and/or in countries outside of the United States;
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the
potential for so-called “parallel importing,” which is what occurs when a local seller, faced with relatively
high local prices, opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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economic
weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several
countries in Europe;
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compliance
with tax, employment, immigration and labor laws for employees traveling abroad;
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taxes
in other countries;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident
to doing business in another country;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business
interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes,
volcanoes, typhoons, floods, hurricanes and fires.
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We
will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As
we advance RP-G28 through clinical trials to commercialization and increase the number of ongoing product development programs,
we will need to increase our product development, scientific and administrative headcount to manage these programs. 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 need to effectively manage our
operations, growth and various projects requires that we:
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successfully
attract and recruit new employees or consultants with the expertise and experience we will require;
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manage
our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop
a marketing and sales infrastructure; and
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continue
to improve our operational, financial and management controls, reporting systems and procedures.
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If
we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
We
may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We
may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the
intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are
not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints
that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our
ability to implement our business strategy.
We
are highly dependent on the development, regulatory, commercialization and business development expertise of Michael D. Step,
our Chief Executive Officer, Andrew J. Ritter, our Founder and President, and Ira E. Ritter, our Executive Chairman and Chief
Strategic Officer. If we were to lose one or more of these key employees, our ability to implement our business strategy successfully
could be seriously harmed. Any of our executive officers may terminate their employment at any time. Replacing any of these persons
would be difficult and could take an extended period of time because of the limited number of individuals in our industry with
the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
There
is also a risk that other obligations could distract our officers and employees from our business, which could have negative impact
on our ability to effectuate our business plans.
In
addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and
clinical strategies. Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors
are not our employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their
availability to us, and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between
their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements
with other companies to assist those companies in developing products or technologies that may compete with ours.
If
we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately
report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and,
as a result, the value of our common stock.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
controls and procedures. We are required, under Section 404 of the Sarbanes-Oxley Act, to furnish with our annual report on Form
10-K a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment
must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting
that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will
not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from
our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However,
for as long as we remain an emerging growth company, as defined in the JOBS Act, we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies including,
but not limited to, not being required to comply with the independent registered public accounting firm’s requirement to
attest to the effectiveness of our internal controls over financial reporting.
Our
compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts. We
may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and
testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable
to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material
weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain
internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results
of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or
if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal
control over financial reporting once that firm begin its Section 404 reviews, we could lose investor confidence in the accuracy
and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions
or investigations by the NASDAQ stock market, the SEC, or other regulatory authorities. Failure to remedy any material weakness
in our internal control over financial reporting, or to implement or maintain other effective control systems required of public
companies, could also restrict our future access to the capital markets.
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (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, 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 or insufficient disclosure due to error or fraud may occur and not be detected.
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 non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply
with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately
or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care 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 adopted an employee handbook, 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 such 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
face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability
for a product candidate and may have to limit its commercialization.
The
use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose
us to the risk of product liability claims. Product liability claims may be brought against us or our potential future collaborators
by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our
products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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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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costs
of related litigation;
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substantial
monetary awards to patients or other claimants;
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decreased
demand for our product candidates and loss of revenues;
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impairment
of our business reputation;
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diversion
of management and scientific resources from our business operations; and
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the
inability to commercialize our product candidates.
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We
have product liability insurance coverage for our clinical trials in the United States and in selected other jurisdictions where
we intend to conduct clinical trials at levels we believe are sufficient and consistent with industry standards for companies
at our stage of development. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for
any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we
may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due
to product liability. We intend to expand our insurance coverage for products to include the sale of any commercial products for
which we obtain marketing approval, but we may be unable to obtain commercially reasonable product liability insurance for any
products approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated
side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our
insurance coverage, could decrease our cash resources and adversely affect our business.
Our
insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured
liabilities.
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 ($2.0 million coverage), employment practices liability, workers’ compensation, and directors’
and officers’ insurance at levels we believe are typical for a company in our industry and at our stage of development.
We currently carry clinical trial liability insurance for our clinical trials at levels we believe are sufficient and consistent
with industry standards for companies at our stage of development. 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 adversely
affect our financial position and results of operations.
If
we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect
our business operations or our stockholders.
From
time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further
the expansion and development of our business. These initiatives may include acquiring businesses, technologies or products or
entering into a business combination with another company. If we pursue such a strategy, we could, among other things:
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issue
equity securities that would dilute our current stockholders’ percentage ownership;
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incur
substantial debt that may place strains on our operations;
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spend
substantial operational, financial and management resources to integrate new businesses, technologies and products;
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assume
substantial actual or contingent liabilities;
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reprioritize
our development programs and even cease development and commercialization of our product candidates; or
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merge
with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or
shares of the other company on terms that certain of our stockholders may not deem desirable.
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Although
we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have no agreements
or understandings with respect to any acquisition, reorganization or business combination at this time.
Risks
Relating to Our Intellectual Property
It
is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position
does not adequately protect our product candidates, others could compete against us more directly, which would harm our business,
possibly materially.
Our
commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving
and enforcing current trade secret protection. In particular, it will depend in part on our ability to obtain, maintain and enforce
patents, especially those directed to methods of using our current product, RP-G28, and other future drug candidates, and those
directed to the methods used to develop and manufacture our products, as well as successfully defending these patents against
third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products
depends on the extent to which we have rights under valid and enforceable patents (and/or trade secrets) that cover these activities.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted
to us in the future will withstand subsequent challenges to their validity, enforceability, and/or patentability, or if they will
be commercially useful in protecting our product candidates, discovery programs and processes. Furthermore, we cannot be sure
that our existing patents and patent applications will embrace (or “claim”) the particular uses for RP-G28 that will
be approved by the FDA.
The
patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions
for which important legal principles remain unresolved.
No
consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged,
to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they
substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of any claims that will issue or will be enforceable
in the patents that have or may be issued from the patents and applications we currently own or may in the future own or license
from third parties. Further, if any patents we obtain, or to which we obtain licenses, are deemed invalid, unpatentable and unenforceable,
our ability to commercialize or license our technology could be adversely affected.
In
the future others may file patent applications directed to products, uses for products, and manufacturing techniques and related
technologies that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent
or patent application owned by a third party will not have priority over patent applications filed or in-licensed by us in the
future, or that we or our licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings
before U.S. or non-U.S. patent offices or courts.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others
may be able to develop a platform similar to, or better than, ours in a way that does not infringe our patents;
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others
may be able to make compounds that are similar to our product candidates but that do not infringe our patents;
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others
may be able to manufacture compounds that are similar or identical to our product candidates using processes that do not infringe
our method of making patents;
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others
may obtain regulatory approval for uses of compounds, similar or identical to our product, that do not infringe our pharmaceutical
composition patents or our method of use patents;
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we
may not be able to obtain licenses for patents that are essential to the process of making the product;
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we
might not have been the first to make the inventions claimed in our issued patents and pending patent applications;
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we
might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our technologies;
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any
patents that we obtain may not provide us with any competitive advantages;
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we
may not develop additional proprietary technologies that are patentable; or
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the
patents of others may have an adverse effect on our business.
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Patents
directed to pharmaceutical compositions containing RP-G28 or methods of using RP-G28 expire in 2030 if the appropriate maintenance
fee renewal, annuity, or other government fees are paid, unless a patent term extension based on regulatory delay is obtained.
We expect that expiration in 2030 of some of our pharmaceutical composition and method-of-use patents directed to RP-G28 and its
use in treating lactose intolerance will have a limited impact on our ability to protect our intellectual property in the United
States, where we have additional issued patents directed to such compositions and uses that extend until 2030. In other countries,
our issued patents and pending patent applications directed to compositions containing or methods of using RP-G28 for treating
other indications, if issued, would expire in 2030. We will attempt to mitigate the effect of patent expiration by seeking data
exclusivity, or the foreign equivalent thereof, in conjunction with product approval, as well as by filing additional patent applications
covering improvements in our intellectual property.
We
expect that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity
or other governmental fees are paid, would expire in 2030. We own pending applications in the United States, Europe, and certain
other countries directed to uses of RP-G28 to treat a variety of disorders, including lactose intolerance. Patent protection,
to the extent these patents issue, would be expected to extend to 2030, unless a patent term extension based on regulatory delay
is obtained.
Due
to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not
obtain patents directed to all of our product candidates or methods involving these candidates in the parent patent application.
We plan to pursue divisional patent applications or continuation patent applications in the United States and other countries
to obtain claims directed to inventions that were disclosed but not claimed in the parent patent application.
We
also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate
or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets,
our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully
disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade
secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes
less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our
patents are not directed to RP-G28 as a composition of matter.
Although
we own certain patents and patent applications with claims directed to specific pharmaceutical compositions and methods of using
RP-G28 to treat lactose intolerance, we do not have patents directed to RP-G28 as a composition of matter in the United States
or elsewhere. As a result, we may be limited in our ability to list our patents in the FDA’s Orange Book if our product
or the use of our product, consistent with its FDA-approved label, would not fall within the scope of our patent claims. Also,
our competitors may be able to offer and sell products so long as these competitors do not infringe any other patents that we
(or third parties) hold, including patents with claims directed to the manufacture of RP-G28, pharmaceutical compositions containing
RP-G28, and/or method of using RP-G28. In general, pharmaceutical composition patents and method of use patents are more difficult
to enforce than composition of matter patents because, for example, of the risks that FDA may approve alternative uses of the
subject compounds not covered by the method of use patents, and others may engage in off-label sale or use of the subject compounds.
Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although
off-label prescriptions may infringe our method of use patents, the practice is common across medical specialties and such infringement
is difficult to prevent or prosecute. FDA approval of uses that are not covered by our patents would limit our ability to generate
revenue from the sale of RP-G28, if approved for commercial sale. Off-label sales would limit our ability to generate revenue
from the sale of RP-G28, if approved for commercial sale.
We
may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property
rights.
If
we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual or
company may seek a post grant review (including inter partes review) of our patents, and has the right to ask the court to rule
that such patents are invalid or should not be enforced against that third party. These lawsuits and administrative proceedings
are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we
were successful in stopping the infringement of such patents. In addition, there is a risk that the court or administrative body
will decide that such patents are not valid or unpatentable and that we do not have the right to stop the other party from using
the inventions. There is also the risk that, even if the validity/patentability of such patents is upheld, the court will refuse
to stop the other party on the ground that such other party’s activities do not infringe our patents. In addition, the U.S.
Supreme Court and the Court of Appeals for the Federal Circuit have articulated and/or modified certain tests used by the U.S.
Patent and Trademark Office (the “USPTO”), in assessing patentability and by the courts in assessing validity and
claim scope, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood that others
may succeed in challenging any patents we obtain or license.
We
may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our product candidates.
Our
success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee
that our products, our methods of manufacture, or our uses of RP-G28 (or our other product candidates), will not infringe third-party
patents. Furthermore, a third party may claim that we or our manufacturing or commercialization collaborators are using inventions
covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities,
including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert
the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization
collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered
by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need
to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators
to pay the other party damages for having violated the other party’s patents. In the future, we may agree to indemnify our
commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical
and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including
us, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation
by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, the patentee would need to
demonstrate, by a preponderance of the evidence that our products or methods infringe the patent claims of the relevant patent,
and we would need to demonstrate either that we do not infringe or, by clear and convincing evidence, that the patent claims are
invalid; we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if
we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing
these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of
others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity
or enforceability of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources
to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing
technology, otherwise fail to defend an infringement action successfully or have a court hold that any patent we infringe is invalid
or unenforceable, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to
market and we may be precluded from manufacturing or selling our product candidates.
We
cannot be certain that others have not filed patent applications for technology claimed in our pending applications, or that we
were the first to invent the technology, because:
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some
patent applications in the United States may be maintained in secrecy until the patents are issued;
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patent
applications in the United States are typically not published until at least 18 months after the earliest asserted priority
date; and
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publications
in the scientific literature often lag behind actual discoveries.
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Our
competitors may have filed, and may in the future file, patent applications directed to technology similar to ours. Any such patent
application may have priority over our patent applications, which could further require us to obtain rights to issued patents
directed to such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have
to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The
costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to
us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss
of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications,
and other parties may be entitled to priority over our applications in such jurisdictions.
Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Obtaining
and maintaining our patent portfolio depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patents could be deemed abandoned or eliminated for non-compliance
with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime
of the patents and/or applications. We employ an outside firm to pay fees due to non-U.S. patent agencies and this outside firm
has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S. governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process.
We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured
by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would
have a material adverse effect on our business.
We
may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology
and products could be significantly diminished.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees,
or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
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.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees,
consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other
proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently
discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently
considering whether to make additional information publicly available on a routine basis, including information that we may consider
to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies
may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
Failure
to secure trademark registrations could adversely affect our business.
We
have not developed a trademark for our RP-G28 product. Hence, we do not currently own any actual or potential trademark rights
associated with our RP-G28 product. If we seek to register additional trademarks, including trademarks associated with our RP-G28
product, our trademark applications may not be allowed for registration or our registered trademarks may not be maintained or
enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond
to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many
other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such
proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against
third parties than we otherwise would.
Risks
Relating to Our Capital Stock
An
active trading market for our common stock may not develop or be sustained.
Prior
to our initial public offering, there was no public market for our common stock. Since our initial public offering in June 2015,
there has been, and we expect that there will continue to be, only a limited volume of trading in our common stock. An active
trading market in our common stock may not develop or, if developed, may not be sustained. The lack of an active market may impair
your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital
to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using
our shares as consideration.
Our
share price may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell
your shares at or above your purchase price.
The
market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this
section, and others beyond our control, including:
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results
of our clinical trials;
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results
of clinical trials of our competitors’ products;
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regulatory
actions with respect to our products or our competitors’ products;
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actual
or anticipated fluctuations in our financial condition and operating results;
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actual
or anticipated changes in our growth rate relative to our competitors;
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actual
or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;
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competition
from existing products or new products that may emerge;
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announcements
by us, our potential future collaborators or our competitors of significant acquisitions, strategic collaborations, joint
ventures, or capital commitments;
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issuance
of new or updated research or reports by securities analysts;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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inconsistent
trading volume levels of our shares;
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additions
or departures of key management or scientific personnel;
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disputes
or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our technologies;
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announcement
or expectation of additional financing efforts;
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sales
of our common stock by us, our insiders or our other stockholders;
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market
conditions for biopharmaceutical stocks in general; and
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general
economic and market conditions.
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Furthermore,
the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market
prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market
conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market
price of shares of our common stock. In addition, such fluctuations could subject us to securities class action litigation, which
could result in substantial costs and divert our management’s attention from other business concerns, which could seriously
harm our business.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
share price and trading volume could decline.
The
trading market for our common stock will depend on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide
favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our
share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
There
is no active, public market for our Series A Preferred stock.
There
is no established public trading market for our Series A Preferred stock. We do not intend to apply to list the Series A Preferred
stock on a securities exchange. Without an active trading market, the liquidity of the Series A Preferred stock will be limited.
Holders
of Series A Preferred have limited voting rights.
Except
with respect to certain material changes in the terms of the Series A Preferred stock and certain other matters and except as
may be required by Delaware law, holders of Series A Preferred stock have no voting rights.
Future
sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline,
even if our business is doing well.
Sales
by our stockholders of a substantial number of shares of our common stock in the public market could occur in the future. These
sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could
reduce the market price of our common stock.
We
may sell up to $6.5 million of our shares of common stock to Aspire Capital pursuant to financing arrangement with Aspire Capital.
The sale of a substantial number of shares of our common stock by Aspire Capital, or anticipation of such sales, could cause the
trading price of our common stock to decline or make it more difficult for us to sell equity or equity-related securities in the
future at a time and at a price that we might otherwise desire. However, we have the right to control the timing and amount of
sales of our shares to Aspire Capital, and we may terminate the financing arrangement at any time at our discretion without any
penalty or cost to us.
Exercise
of options or warrants or conversion of convertible securities may have a dilutive effect on your percentage ownership and may
result in a dilution of your voting power and an increase in the number of shares of common stock eligible for future resale in
the public market, which may negatively impact the trading price of our shares of common stock.
The
exercise or conversion of some or all of our outstanding options, warrants, or convertible securities could result in significant
dilution in the percentage ownership interest of investors in this offering and in the percentage ownership interest of our existing
common stockholders and in a significant dilution of voting rights and earnings per share.
Additionally,
the issuance of shares of our common stock upon exercise of stock options outstanding under our stock incentive plans will further
dilute our stockholders’ voting interests. To the extent options and/or warrants and/or conversion rights are exercised,
additional shares of common stock will be issued, and such issuance will dilute stockholders.
Our
executive officers, directors and principal stockholders maintain the ability to exert substantial influence over all matters
submitted to stockholders for approval.
Our
executive officers, directors and principal stockholders beneficially own shares representing approximately 28.5% of our
outstanding capital stock. As a result, if these stockholders were to choose to act together, they would be able to exert substantial
influence over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these
persons, if they choose to act together, would exert substantial influence over the election of directors and approval of any
merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent
an acquisition of our Company on terms that other stockholders may desire.
We
are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable
to emerging growth companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” 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 “emerging growth companies”
including not being required to comply with the auditor attestation requirements of Section 404(b) 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 shareholder approval of any golden parachute
payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may 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.
We
may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain
an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary
of the date we completed our initial public offering, which was June 29, 2015, (b) in which we have total annual gross revenue
of at least $1.07 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 exceeded $700.0 million as of the prior June 30th, or (ii) the date on which we have
issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Our
failure to meet the continued listing requirements of NASDAQ could result in a de-listing of our common stock.
If
we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum
closing bid price requirement, NASDAQ may take steps to de-list our common stock. Such a de-listing would likely have a negative
effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do
so. In the event of a de-listing, we would take actions to restore our compliance with NASDAQ’s listing requirements, but
we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid
price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
On
June 7, 2017, we received a notice from NASDAQ that, because the closing bid price of our common stock has been below $1.00 per
share for 30 consecutive business days, it no longer complies with the minimum bid price requirement for continued listing on
The NASDAQ Capital Market. NASDAQ Listing Rule 550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per
share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency
continues for a period of 30 consecutive business days.
On
November 2, 2017, our board of directors approved a reverse stock split of our outstanding shares of common stock at a ratio within
a range of 1-for-8 to 1-for-15, to be determined by the board of directors at a later date, and subject to stockholder approval.
At a special meeting of stockholders held on December 20, 2017, our stockholders approved the reverse stock split within a range
of 1-for-8 to 1-for-15. On March 1, 2018, our board of directors approved a 1-for-10 reverse stock split, with an anticipated
effective date of on or before March 23, 2018.
We
have until June 4, 2018 to regain compliance with the minimum bid price requirement. During the compliance period, our shares
of common stock will continue to be listed and traded on The Nasdaq Capital Market. To regain compliance, the closing bid price
of our common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar
day grace period.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent
a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions
in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might
be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition,
because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate
or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders
to replace members of our board of directors. Among other things, these provisions provide that:
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the
authorized number of directors can be changed only by resolution of our board of directors;
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our
bylaws may be amended or repealed by our board of directors or our stockholders;
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stockholders
may not call special meetings of the stockholders or fill vacancies on the board of directors;
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our
board of directors is authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined
at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the
stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
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our
stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common
stock outstanding will be able to elect all of our directors; and
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our
stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder
meeting.
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Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law (the “DGCL”), which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging
or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15%
of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Claims
for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against
us and may reduce the amount of money available to us.
As
permitted by Section 102(b)(7) of the DGCL, our amended and restated certificate of incorporation limits the liability of our
directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our amended and restated
certificate of incorporation and our amended and restated bylaws provide that we shall indemnify, to the fullest extent authorized
by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer
of our company or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. Our amended and restated certificate of incorporation provides that the
right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition,
provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director
or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification.
If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification,
except in the case of a claim for an advancement of expenses, in which case such period is 20 days, our restated certificate of
incorporation and our restated bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense
to such action.
Section
145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted
in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful.
In a derivative action, (
i.e.
, one brought by or on behalf of the corporation), indemnification may be provided only for
expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action
or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to
be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine
that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
The
rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized
to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify
such persons. We have entered into indemnification agreements with each of our officers and directors.
The
above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers
for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us.
Although we plan to increase the coverage under our directors’ and officers’ liability insurance, certain liabilities
or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts
may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations,
which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to
bring a claim against our company.
We
have never paid dividends on our common stock and do not anticipate paying dividends for the foreseeable future, and accordingly,
stockholders must rely on stock appreciation for any return on their investment.
We
have never paid dividends on our common stock and we do not anticipate paying dividends on our common stock for the foreseeable
future. Accordingly, any return on an investment in our common stock will be realized, if at all, only when stockholders sell
their shares. In addition, our failure to pay dividends may make our stock less attractive to investors, adversely impacting trading
volume and price.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As
of December 31, 2017, we had federal net operating loss carryforwards (“NOLs”) of approximately $39.0 million
which begin to expire in 2028. Our ability to utilize our NOLs may be limited under Section 382 and 383 of the Internal Revenue
Code. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when
certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage
in a testing period (typically three years). Although we have not undergone a Section 382 analysis, it is possible that the utilization
of the NOLs, could be substantially limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be
utilized against future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state
tax purposes. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.