ITEM 1A. RISK FACTORS
The following description of risk factors includes any material changes to, and supersedes the description of, risk factors associated with
the Companys business previously disclosed in the section entitled Risk Factors in the Companys Annual Report on
Form 10-K,
filed with the SEC on March 15, 2018. Our business,
financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the
Companys actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely
affect the Companys business, financial condition, results of operations and common stock price. Other factors may exist that we do not consider significant based on information that is currently available. In addition, new risks may emerge at
any time, and we cannot predict those risks or estimate the extent to which they may affect us. Past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to
anticipate results or trends in future periods.
The following discussion of risk factors contains forward-looking statements.
These risk factors may be important to understanding any statement in this
Form 10-Q
or elsewhere. The following information should be read in conjunction with our financial statements and related notes
in Part I, Item 1, Financial Statements and Part I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on
Form 10-Q.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception and do not expect to generate revenue for at least the next several years. We expect to incur
losses for at least the next several years and may never achieve or maintain profitability.
We are a clinical-stage
biopharmaceutical company with no approved products, and we have not generated any revenue from product sales to date. To date, we have focused exclusively on developing our product candidates and have funded our operations primarily through the
sale of common stock and warrants, convertible preferred stock and issuances of convertible debt to our investors. We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the
pharmaceutical industry, and you should analyze our company in light of such risks and uncertainties.
Since inception, we have incurred
significant operating losses. Our net loss was $19.1 million for the three months ended March 31, 2018 and $15.5 million for the year ended December 31, 2017. We have devoted substantially all of our efforts to research and
development. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.
We anticipate that our expenses will increase substantially as clinical trials for any of our product candidates commence or progress. Our
expenses will increase if and as we:
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seek to discover or develop additional product candidates;
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seek marketing approvals for any of our product candidates that successfully complete clinical trials;
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in-license
or acquire other products and technologies;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical, quality control and scientific personnel; and
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.
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Our recurring losses from operations could raise substantial doubt regarding our ability to continue as a
going concern.
We currently operate with limited resources. We believe that our cash, cash equivalents and marketable securities
balance of $39.9 million as of March 31, 2018 will be sufficient to fund our projected operations through the second quarter of 2019. Depending on the level of cash used in operations, additional capital may be required to sustain
operations. We have incurred significant losses since our inception and have never generated revenue or profit, and it is possible we will never generate revenue or profit. Meaningful revenues will likely not be available until and unless any future
product candidates are approved by the FDA or comparable regulatory agencies in other countries and successfully marketed, either by us or a partner, an outcome which may not occur. There is no assurance that other financing will be available when
needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations. If we are
unable to continue as a going concern, you could lose all or part of your investment in our Company.
We currently have no source of product revenue
and have not yet generated any revenues from product sales.
To date, we have not completed the development of any products and
have not generated any revenues from product sales. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize products, including any of our current product candidates, or
other product candidates that we may
in-license
or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we may never generate revenues that are
significant enough to achieve profitability. Our ability to generate revenue from product sales from our current or future product candidates also depends on a number of additional factors, including our ability to:
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successfully complete development activities, including the necessary clinical trials;
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complete and submit biologics license applications (BLAs) to the FDA, and obtain regulatory approval for indications for which there is a commercial market;
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complete and submit applications to, and obtain approval from, foreign regulatory authorities;
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set a commercially viable price for our products;
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develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in the markets which we choose to commercialize on our own;
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find suitable distribution partners to help us market, sell and distribute our products in other markets; and
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obtain coverage and adequate reimbursement from third parties, including government and private payors.
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In addition, because of the numerous risks and uncertainties associated with product development, including that any of our product candidates
may not advance through development or achieve the desired endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we
are able to complete the development and regulatory process for any product candidates, we anticipate incurring significant costs associated with commercializing these products.
Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we do achieve profitability, we may
not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital to expand our business or continue our
operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We have a need for substantial
additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of
CF-301
and preclinical development of
CF-404,
and, possibly, acquire and develop new product candidates or technologies. Accordingly, we will need to obtain substantial
additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future
commercialization efforts.
Our future capital requirements will depend on many factors, including:
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the complexity, timing and results of our clinical trials of our product candidates;
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the costs, timing and outcome of regulatory review of our product candidates;
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the costs of developing our product candidates for additional indications;
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our ability to establish scientific or business collaborations on favorable terms, if at all;
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the costs of preparing, filing and prosecuting patent or other intellectual property applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;
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the extent to which we
in-license
or acquire other product candidates or technologies; and
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the scope, progress, results and costs of product development for our product candidates.
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Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the
necessary data or results to obtain marketing approval and achieve product sales. In addition, if approved,
CF-301,
CF-404
or any other product candidate that we develop
may not achieve commercial success. Accordingly, we may need to continue to rely on additional financing to achieve our business objectives. In addition, we may seek additional capital due to favorable market conditions or strategic considerations,
even if we believe that we have sufficient funds for our current or future operating plans. Adequate additional financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or
product candidates.
Until such time, if ever, as we can generate substantial product revenues, we may finance our cash needs
through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third
parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt
financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market
ourselves.
Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
We were incorporated in 2008 and commenced active research operations in 2010. Our operations to date have been limited
to organizing and staffing our company, business planning, raising capital and acquiring and developing
CF-301,
CF-404
and other potential product candidates. We have
not yet demonstrated our ability to successfully complete Phase 2 or Phase 3 clinical trials, obtain marketing approval, manufacture a commercial scale product, or arrange for a third-party to do so on our behalf, or conduct sales and marketing
activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to
transition from a company with a product development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
The timing of the milestone and royalty payments we are required to make under certain agreements, including to Rockefeller and Trellis, is uncertain
and could adversely affect our cash flows and results of operations.
We are party to certain agreements, including with
Rockefeller and Trellis, pursuant to which we have acquired licenses to certain patents and patent applications and other intellectual property related to a series of compounds, including
CF-301
and
CF-404,
to develop and commercialize therapeutics. Under our agreements with Rockefeller and Trellis, we have obligations to achieve diligence minimums and to make payments upon achievement of specified development
and regulatory milestones. We will also make additional payments upon the achievement of future sales milestones and for royalties on future net sales.
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The timing of milestone payments under our licenses and sponsored research agreements is subject
to factors relating to the clinical and regulatory development and commercialization of products, many of which are beyond our control. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment,
which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the Code), if a corporation
undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporations ability to use its
pre-change
net
operating loss carryforwards and other
pre-change
tax attributes to offset its post-change income may be limited. As a result of our past transactions, we may have experienced an ownership change.
At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since our formation, due to the costs and complexities
associated with such a study. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes to reduce
future tax liabilities may be substantially restricted. Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take full advantage of these carryforwards for
federal or state tax purposes. As of December 31, 2017, we had federal and state net operating loss carryforwards of approximately $145.7 million and $156.0 million, respectively, and federal research and development credits of
approximately $1.8 million, the use of which could be limited or eliminated by virtue of one or more ownership changes.
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
We are heavily dependent on the success of our leading product candidates,
CF-301
and
CF-404.
The approval process of the FDA and comparable foreign regulatory authorities is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for
CF-301,
CF-404
or any other product candidate our business will be substantially harmed.
Our near-term business prospects are substantially dependent on our ability to develop and commercialize
CF-301
and
CF-404.
We cannot market or sell
CF-301,
CF-404
or any other product candidate
in the United States without FDA approval, but this approval, if ever issued, is at least several years away. To commercialize
CF-301,
CF-404
or any other product
candidate outside of the United States, we will need applicable foreign regulatory approvals. The clinical development of
CF-301,
CF-404
or any other product candidate
is susceptible to the inherent risks of any drug development program, including a failure to achieve efficacy across a broad population of patients, the potential occurrence of severe adverse events and the risks that the FDA or any applicable
foreign regulatory authority will determine that a drug product is not approvable.
The process required to obtain approval for
commercialization from the FDA and similar foreign authorities is unpredictable, and typically takes many years even after the commencement of clinical trials, depending on numerous factors. In addition, approval policies, regulations, or the type
and amount of clinical data necessary to obtain regulatory approval may change during the course of a products clinical development. We may fail to obtain regulatory approval for
CF-301,
CF-404
or any other product candidate for many reasons, including the following:
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we may not be able to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that
CF-301,
CF-404
or any
other product candidate is safe and effective for any indication;
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the results of clinical trials may not meet the level of clinical or statistical significance required for approval by the FDA or comparable foreign regulatory authorities;
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may not be able to demonstrate that
CF-301,
CF-404
or any other product candidates clinical and other benefits outweigh its safety
risks;
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the FDA or comparable foreign regulatory authorities may identify deficiencies in data generated at our clinical trial sites;
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the FDA or comparable foreign regulatory authorities may identify deficiencies in the clinical practices of the third-party contract research organizations (CROs) we use for clinical trials; and
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the FDA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators enter into agreements for
clinical and commercial supplies.
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This lengthy approval process as well as the unpredictability of future clinical trial results
may prevent us from obtaining regulatory approval to market
CF-301,
CF-404
or any other product candidate, which would significantly harm our business.
If clinical trials of
CF-301,
CF-404
or any other product candidate that
we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in
completing, or ultimately be unable to complete, the development and commercialization of
CF-301,
CF-404
or any other product candidate.
Before obtaining marketing approval from regulatory authorities for the sale of
CF-301,
CF-404
or any other product candidate, we must complete preclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is
expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials
may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses,
and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive
marketing approval or commercialize our product candidates, including:
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clinical trials of our product candidates may produce negative or inconclusive results, or significant adverse side effects, and we may decide, or regulators may require us, to conduct additional clinical trials or
abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these
clinical trials at a higher rate than we anticipate;
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our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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regulators or institutional review boards (IRBs) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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we may voluntarily suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
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regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being
exposed to unacceptable health risks;
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the cost of clinical trials of our product candidates may be greater than we anticipate;
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
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our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs to suspend or terminate the trials.
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If we are required to conduct additional clinical trials or other testing of
CF-301,
CF-404
or any other product candidate that we develop beyond those that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these
trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval or sales revenues for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
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be subject to additional post-marketing testing requirements; or
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have the product removed from the market after obtaining marketing approval.
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Our product development costs will also increase if we experience delays in testing or marketing
approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the
exclusive right to commercialize our product candidates or may allow our competitors to bring products to market before we do and may impair our ability to successfully commercialize our product candidates and may harm our business and results of
operations.
We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude
approval of
CF-301,
CF-404
or any other product candidates.
Our clinical trials may be suspended at any time for a number of reasons. For example, it is possible that exposure to
CF-301
could result in adverse clinical events such as localized inflammation in the region surrounding blood vessels, or having a hypersensitivity reaction, such as serum sickness or anaphylaxis. A clinical trial
may be prevented from commencing or may be suspended or terminated by us, our collaborators, IRBs, the FDA or other regulatory authorities due to the risks of or occurrence of such adverse events, an unacceptable safety risk to participants, a
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational drug,
changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the data safety monitoring board or IRBs for a clinical trial. We may voluntarily suspend or
terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. If we elect or are forced to suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects
of such product candidates will be harmed and our ability to generate product revenues, if at all, from any of these product candidates will be delayed or eliminated. Any of these occurrences may significantly harm our business.
Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent
our ability to obtain regulatory approval and commence product sales as currently contemplated.
We may experience delays in
clinical trials of our product candidates. Our planned clinical trials might not begin on time, might need to be redesigned, might not enroll a sufficient number of patients or might not be completed on schedule, if at all. Clinical trials can be
delayed for a variety of reasons, including the following:
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imposition of a clinical hold by the FDA or other regulatory authorities;
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delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
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delays in recruiting suitable patients to participate in a trial;
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delays in having patients complete participation in a trial or return for post-treatment
follow-up;
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clinical sites dropping out of a trial to the detriment of enrollment;
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adverse side effects in patient populations;
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time required to add new sites;
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delays resulting from negative or equivocal findings of the data safety monitoring board for a trial;
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delays in completing, or as a result of findings from, preclinical studies; or
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delays in developing adequate processes for manufacture of, or formulations for, sufficient supplies of clinical trial materials.
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Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the
patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians and patients perceptions as to the potential advantages
of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Any of these delays in completing our clinical trials could increase our costs, slow down our
product development and approval process and jeopardize our ability to commence product sales and generate revenues.
We are significantly dependent
on our license agreements with Rockefeller that relate to
CF-301.
Under our various
license agreements with Rockefeller, we are obligated to use our diligent efforts to develop and commercialize licensed products, including
CF-301.
Rockefeller may terminate the agreement in the event of our
breach of the terms of the license agreements. In the event of such termination, Rockefeller has the right to retain its license and other rights under the agreement, subject to continuing royalties and other obligations. Our breach of the
agreement, including
non-payment
of any milestone payment, and Rockefellers subsequent termination of the agreement, could result in the loss of our rights to develop and commercialize
CF-301,
which would seriously harm our ability to generate revenues or achieve profitability.
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We rely on CROs to conduct our preclinical studies and will rely on CROs to conduct our clinical trials. If
these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of
CF-301,
CF-404
or any other product candidates.
We have
relied and will continue to rely on CROs for the execution of our preclinical studies and to recruit patients and monitor and manage data for our clinical programs for
CF-301,
CF-404
or any other product candidate. We control only certain aspects of our CROs activities, but we are responsible for ensuring that each of our studies is conducted in accordance with the applicable
protocol and legal, regulatory and scientific standards. Our reliance on the CROs does not relieve us of these regulatory responsibilities. We and our CROs are required to comply with the FDAs regulations and current good clinical practices
(GCPs), which is an international guideline meant to protect the rights and health of clinical trial subjects. The FDA enforces its regulations and GCPs through periodic inspections of trial sponsors, principal investigators and clinical
trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials before approving our product
candidates. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs. In addition, to evaluate the safety and effectiveness of
CF-301,
CF-404
or any other product candidate to a statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any clinical trial that a CRO conducts abroad on our behalf
is subject to similar regulation.
Accordingly, if our CROs fail to comply with these regulations or recruit a sufficient number of
patients, we may have to repeat clinical trials, which would delay the regulatory approval process.
In addition, our CROs are not our
employees and we cannot control whether or not they devote sufficient time and resources to our
non-clinical,
preclinical or clinical programs. Our CROs may also have relationships with other commercial
entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If our CROs do not successfully
carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or
regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize
CF-301,
CF-404
or any other product candidate that we seek to develop. As a result, our financial results and the commercial prospects for
CF-301,
CF-404
or any other product candidate that we seek to develop would be harmed, our costs could increase and our ability to generate revenues could be delayed or ended.
We have no experience as a company in bringing a drug to regulatory approval.
As a company, we have never obtained regulatory approval for, or commercialized, a drug or biologic. It is possible that the FDA may refuse to
accept any or all of our planned BLAs for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval of
CF-301,
CF-404
or any other product candidate. If the FDA does not accept or approve any or all of our planned BLAs, it may require that we conduct additional preclinical, clinical or manufacturing validation studies, which
may be costly, and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA required studies, approval of any BLA or application that we submit may be significantly delayed, possibly for several
years, or may require us to expend more resources than we have available. Any delay in obtaining, or an inability to obtain, regulatory approvals would prevent us from meeting our timelines for commercializing
CF-301,
CF-404
or any other product candidate, generating revenues and achieving and sustaining profitability.
Even if the FDA approves
CF-301,
CF-404
or any other product candidate,
adverse effects discovered after approval could adversely affect our markets.
If we obtain regulatory approval for
CF-301,
CF-404
or any other product candidate that we develop, and we or others later discover that our products cause adverse effects, a number of potentially significant
negative consequences could result, including:
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regulatory authorities may withdraw their approval of the product;
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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or imposition of a risk management strategy;
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we may be required to change the way the product is administered, conduct additional clinical studies or restrict the distribution of the product;
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we could be sued and held liable for harm caused to patients and our liability insurance may not adequately cover those claims; and
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our reputation may suffer.
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Any of these events could prevent us from maintaining market
acceptance of the affected product candidate and could substantially increase the costs of, or prevent altogether, the commercialization of our product candidates.
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There are underlying risks associated with the manufacture of our product candidates, which could include
cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely availability of raw materials.
We do not currently have nor do we plan to build the infrastructure or capability internally to manufacture
CF-301,
CF-404
or any other product candidates.
We employ
the services of Fujifilm Diosynth Biotechnologies UK LTD (Fujifilm UK) to supply the active pharmaceutical ingredient for
CF-301
and Fujifilm Diosynth Biotechnologies U.S.A., Inc., to supply the
active pharmaceutical ingredient for
CF-404.
We have not yet manufactured supplies for late phase human clinical trials, scaled up the process for manufacture of such supplies, validated the processes, or
contractually secured our commercial supplies.
We employ the services of other vendors to produce
CF-301
in its final vialed drug product form.
We do not have contracts for the commercial supply
of
CF-301
drug product.
We intend to pursue agreements with third-party manufacturers regarding
commercial supply at an appropriate future time. We intend to locate second fill finish third-party manufacturers to supply other world regions such as the European Union or Asia.
Late stage process development activities, including manufacturing process scale up and validation of the bulk drug substance, pose inherent
risks that may be greater for biological products than for small molecules. The process will undergo scale up from the current clinical process and then be repeated under protocol successfully three times for validation.
In addition, regulatory requirements could pose barriers to the manufacture of our active pharmaceutical ingredient and finished drug product
for our product candidates. Our third-party manufacturers are required to comply with current good manufacturing practices (cGMPs). As a result, the manufacturing facilities and processes used by Fujifilm UK and any of our future
manufacturers must pass inspection by the FDA as part of our BLA review and before approval of the applicable product candidate. Similar regulations apply to manufacturers of our products for use or sale in foreign countries. If our manufacturers
cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, we will not be able to secure the applicable approval for our product
candidates. If these facilities are not deemed compliant with cGMPs for the commercial manufacture of our product candidates, we may need to find alternative manufacturing facilities, which would result in significant delays of up to several years
in obtaining approval. In addition, our manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements.
If Fujifilm UK, or any alternate supplier of active pharmaceutical ingredient, or any supplier of finished drug product for our product
candidates experiences any significant difficulties in its respective manufacturing processes, does not comply with the terms of its agreement with us or does not devote sufficient time, energy and care to providing our manufacturing needs, we could
experience significant interruptions in the supply of our product candidates, which could impair our ability to supply our product candidates at the levels required for our clinical trials and commercialization and prevent or delay its successful
development and commercialization. For example, a lot of the
CF-301
investigational drug product did not meet manufacturing release specifications, resulting in the delay of our Phase 2 study.
Developments by competitors, many of which have greater financial and other resources than we do, may render our products or technologies obsolete or
non-competitive.
The pharmaceutical and biotechnology industries are intensely competitive. We
compete directly and indirectly with other pharmaceutical companies, biotechnology companies and academic and research organizations in developing therapies to treat diseases. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large, established companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and
experienced marketing and manufacturing organizations and well-established sales forces. We compete with companies that have products on the market or in development for the same indications as our product candidates. We may also compete with
organizations that are developing similar technology platforms. Competitors may develop more effective, more affordable or more convenient products or may achieve earlier patent protection or commercialization of their products. These competing
products may render our product candidates obsolete or limit our ability to generate revenue from our product candidates. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being
concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in
developing, acquiring or licensing, on an exclusive basis, drug products that are more effective or less costly than
CF-301,
CF-404
and our other product candidates.
31
The level of commercial success of
CF-301,
CF-404
and any other product candidates that we develop will depend upon attaining significant market acceptance of these products among physicians and payors.
Even if
CF-301,
CF-404
or any other product candidates that we
develop is approved by the appropriate regulatory authorities for marketing and sale, physicians may not prescribe the approved product. Market acceptance of
CF-301,
CF-404
and any other product candidate that we develop by physicians, patients and payors will depend on a number of factors, many of which are beyond our control, including:
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the indications for which the product is approved;
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acceptance by physicians and payors of each product as a safe and effective treatment;
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the availability, efficacy and cost of competitive drugs;
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the effectiveness of our or any third-party partners sales force and marketing efforts;
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the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;
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whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;
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the availability of adequate reimbursement by third parties, such as insurance companies and other health care payors, and/or by government health care programs, including Medicare and Medicaid;
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limitations or warnings contained in a products
FDA-approved
labeling; and
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prevalence and severity of adverse side effects.
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Even if the medical community accepts that
our product candidates are safe and efficacious for their approved indications, physicians may not immediately be receptive to the use or may be slow to adopt our product candidates as accepted treatments for their approved indications. While we
believe our product candidates may demonstrate significant advantages in clinical studies, we cannot assure you that labeling approved by the FDA will permit us to promote these advantages. In addition, our efforts to educate the medical community
and third-party payors on the benefits of any product candidates that we develop may require significant resources and may never be successful.
Coverage and reimbursement may not be available for
CF-301,
CF-404
or
any other product candidates that we develop, which could make it difficult for us to sell our products profitably.
Market
acceptance and sales of
CF-301,
CF-404
or any other product candidate that we develop will depend on coverage and reimbursement policies and may be affected by health
care reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. We cannot be sure that reimbursement
will be available for
CF-301,
CF-404
or any other product candidate that we develop. Also, we cannot be sure that the amount of reimbursement available, if any, will not
reduce the demand for, or the price of, our products. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize
CF-301,
CF-404
or any other product candidate that we develop.
In both the United States and some foreign
jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. In the United States, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act (MMA), changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by those
covered by Medicare under a new Part D and introduced a new reimbursement methodology based on average sales prices for Medicare Part B physician-administered drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to
use formularies whereby they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to
contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm our business. While the MMA applies only to
drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and therefore any reduction in Medicare reimbursement may result in a similar
reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act (collectively, the Affordable Care Act), became law in the United States. The goal of the Affordable Care Act is to reduce the cost of health care and substantially change the way health care is financed
by both governmental and private insurers. The Affordable Care Act, among other things, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in
Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, required manufacturers to participate in a discount program for certain outpatient drugs under Medicare Part D and promoted programs
that increase the federal governments comparative effectiveness research, which will impact existing government healthcare programs and will result in the development of new programs. An expansion in the governments role in the United
States healthcare industry may further lower rates of reimbursement for pharmaceutical products.
32
The current presidential administration and U.S. Congress have recently attempted to repeal or
repeal and replace the Affordable Care Act. Although those efforts did not succeed, we expect that the presidential administration and U.S. Congress will continue to seek to modify, repeal, or otherwise invalidate all, or certain
provisions of, the Affordable Care Act. In January 2017, the House and Senate passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Affordable Care Act and permits such legislation
to pass with a majority vote in the Senate. President Trump has also issued an executive order in which he stated that it is his administrations policy to seek the prompt repeal of the Affordable Care Act and directed executive departments and
federal agencies to waive, defer, grant exemptions from, or delay the implementation of the burdensome provisions of the Affordable Care Act to the maximum extent permitted by law. There is still uncertainty with respect to the impact President
Trumps administration and the U.S. Congress may have on the Affordable Care Act, if any, and any changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans
that were authorized by the Affordable Care Act. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2,
2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the
years 2013 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year,
which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012
was signed into law, or the ATRA, which, among other things, further reduced Medicare payments to several providers. Recently there has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed
products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government program reimbursement methodologies. For example, the Cures Act changes the reimbursement methodology for infusion
drugs and biologics furnished through durable medical equipment in an attempt to remedy over- and underpayment of certain drugs.
While we
cannot predict the impact these new laws will have in general or on our business specifically, they may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of
CF-301
or any future products.
We expect to experience pricing pressures in connection with the
sale of
CF-301,
CF-404
and any other product candidate that we develop, due to the trend toward managed health care, the increasing influence of health maintenance
organizations and additional legislative proposals. If we fail to successfully secure and maintain coverage and reimbursement for our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our
products and our business will be harmed.
Even if we obtain FDA approval of
CF-301,
CF-404
or any other product candidate, we may never obtain approval or commercialize our products outside of the United States, which would limit our ability to realize their full market potential.
In order to market
CF-301,
CF-404
or any other products outside
of the United States, we must comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and
regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review
periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary
widely from country to country and satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in the United States or any
foreign country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in the United States or any foreign country and we do not have experience as a
company in obtaining regulatory approval in international markets.
We currently have no marketing and sales organization and have no experience in
marketing drug products. If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.
We do not have the capabilities to market, sell and distribute any of our drug products. In order to commercialize any products,
we must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution of our products. The establishment and development of our own sales force would be expensive and time consuming and could
delay any product launch, and we cannot be certain that we would be able to successfully develop this capability. As a result, we may seek one or more third parties to handle some or all of the sales, marketing or distribution for
CF-301,
CF-404
or any other product candidate in the United States or elsewhere. However, we may not be able to enter into arrangements with third parties to sell
CF-301,
CF-404
or any
33
other product candidate on favorable terms or at all. In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization,
we would not be able to commercialize
CF-301,
CF-404
or any other product candidate that we develop, which would negatively impact our ability to generate product
revenues. Further, whether we commercialize products on our own or rely on a third party to do so, our ability to generate revenue will be dependent on the effectiveness of the sales force. In addition, to the extent we rely on third parties to
commercialize our approved products, we may likely receive less revenues or profits than if we commercialized these products ourselves.
We may form
or seek strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form or seek strategic
alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to
CF-301,
CF-404
and any future product candidate that we may develop. Any of these relationships may require us to incur
non-recurring
and other charges, increase our
near-and
long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and
business. In addition, we face significant competition in seeking appropriate strategic alliances and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic collaboration or
other alternative arrangements for
CF-301,
CF-404
and any future product candidate because it may be deemed to be at too early of a stage of development for
collaborative effort and third parties may not view
CF-301,
CF-404
and any future product candidate as having the requisite potential to demonstrate safety and efficacy.
Any delays in entering into new strategic collaboration agreements could delay the development and commercialization of
CF-301,
CF-404
and any other product candidate
that we develop, which would harm our business prospects, financial condition and results of operations.
Risks Related to Regulatory
Approval of Our Product Candidates and Other Legal Compliance Matters
If we are not able to obtain, or if there are delays in obtaining,
required regulatory approvals, we will not be able to commercialize, or will be delayed in commercializing,
CF-301,
CF-404
and any future product candidate, and our
ability to generate revenue will be materially impaired.
CF-301,
CF-404
and any other product candidate that we develop and the activities associated with their development and commercialization, including their design, testing, manufacture, recordkeeping, labeling, storage,
approval, advertising, promotion, sale, distribution, importation and exportation are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to
obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any product from regulatory authorities in any jurisdiction. Securing regulatory approval requires
the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidates safety and efficacy. Securing regulatory approval
also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority.
CF-301,
CF-404
and any other product candidate that we develop may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects or other characteristics that may
preclude our obtaining marketing approval or prevent or limit commercial use.
The process of obtaining marketing approvals, both in the
United States and abroad, is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in
marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an
application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional
preclinical, clinical or other studies. If we experience delays in obtaining approvals or if we fail to obtain approval of our product candidates that we develop, our ability to generate revenues will be materially impaired.
We face extensive regulatory requirements and our products may face future development and regulatory difficulties.
Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses or
marketing of the approved product, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. The holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product
to meet the specifications in the BLA. The holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and
promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In addition, drug product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with cGMPs and adherence to commitments made in the BLA. If we or 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, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market
or suspension of manufacturing.
34
If the FDA or a comparable foreign regulatory authority approves any of our product candidates,
the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include
submissions of safety and other post-marketing information and reports, registration requirements and continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval.
If we or our partners fail to comply with applicable regulatory requirements following approval of any of our future product candidates, a
regulatory agency may:
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issue a warning or untitled letter asserting that we are in violation of the law;
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seek an injunction or impose civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval;
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suspend any ongoing clinical trials;
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refuse to approve a pending BLA or supplements to a BLA submitted by us;
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refuse to allow us to enter into supply contracts, including government contracts.
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Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to
commercialize our future products and generate revenues.
In addition, we cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current presidential administration may impact our business and industry. Namely,
the administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDAs ability to engage in routine regulatory and oversight
activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the current Executive Orders, will be
implemented, and the extent to which they will impact the FDAs ability to exercise its regulatory authority. If these executive actions impose constraints on FDAs ability to engage in oversight and implementation activities in the normal
course, our business may be negatively impacted.
If foreign approval for
CF-301,
CF-404
or any other product candidate is obtained, there are inherent risks in conducting business in international markets.
Commercialization of our product candidates in international markets is an element of our long-term strategy. If approved for commercialization
in a foreign country, we intend to enter into agreements with third parties to market
CF-301,
CF-404
or any other product candidate whenever it may be approved and
wherever we have the right to market it. Consequently, we expect that we will be subject to additional risks related to entering into international business relationships, including:
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potentially reduced protection for intellectual property rights;
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the potential for
so-called
parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with
low or lower 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 in particular foreign economies and markets;
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compliance with laws for employees working and traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenues;
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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 active pharmaceutical ingredient and/or finished drug product supply or manufacturing capabilities abroad;
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business interruptions resulting from
geo-political
actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires; and
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failure to comply with the rules and regulations of the Office of Foreign Asset Control, the Foreign Corrupt Practices Act and other applicable anti-bribery rules and regulations in other jurisdictions.
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These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets
and therefore materially adversely affect our business.
Product liability lawsuits against us could divert our resources, cause us to incur
substantial liabilities and limit commercialization of any products that we may develop.
We face an inherent risk of product
liability exposure related to the testing of
CF-301,
CF-404
and any other product candidate that we develop in human clinical trials and we will face higher degrees of
this risk if we commercially sell any products that we develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual
outcome, liability claims may result in:
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distraction of our management or other internal resources from pursuing our business strategies;
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We maintain product
liability insurance coverage in relation to our clinical trials. Such coverage may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a
reasonable cost or in an amount adequate to satisfy any liability that may arise.
If we fail to comply with environmental, health and safety laws
and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may
also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury
resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure
to comply with such laws and regulations.
Although we maintain workers compensation insurance to cover us for costs and expenses we
may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Our product candidates may face competition sooner than anticipated.
The Affordable Care Act includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an
abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an
FDA-licensed
reference biological product. Under the BPCIA, an application for a biosimilar product may
not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which
the reference product was first licensed. During this
12-year
period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the
competing product containing the sponsors own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and
implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a
material adverse effect on the future commercial prospects for our biological products.
36
We believe that any of our product candidates approved as a biological product under a BLA should
qualify for the
12-year
period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product
candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been
the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for
non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates
for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
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the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to
induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity
does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of
the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
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the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the
federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme
to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;
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the federal transparency requirements under the Affordable Care Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the
Childrens Health Insurance Program (with certain exceptions) to report to the Department of Health and Human Services information related to physician payments and other transfers of value and ownership and investment interests held by
physicians and their immediate family members and payments or other transfers of value made to such physician owners; and
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analogous state laws and regulations, such as state anti-kickback and false claims laws, and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed
by
non-governmental
third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and
the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures and pricing
information.
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Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare
laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse
or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business
are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
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The unfavorable consequences of any plaintiff attorney investigation or the adverse outcome of litigation
or arbitration proceedings commenced by or against us could materially harm our business.
The unfavorable consequences of any
investigation by a plaintiff attorney could damage our reputation and disrupt our business. The adverse outcome of any litigation or arbitration proceedings commenced by or against us could have a material adverse effect on our business and impede
the achievement of our development and commercialization objectives.
In the ordinary course of our operations, claims involving our
actions, actions of third parties or agreements to which we are a party may be brought by and against us. The claims and charges can involve actual damages, as well as contractually agreed upon liquidated sums. These claims, if not resolved through
negotiation, are often subject to lengthy and expensive litigation or arbitration proceedings.
Risks Related to Employee Matters and
Managing Growth
Our future success depends on our ability to attract and retain qualified personnel, and changes in management may negatively
affect our business.
We are dependent on the principal members of our management and scientific teams. Our success and the
execution of our growth strategy depend largely on the continued service of these employees. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at
any time. The loss of the services of any of these persons could be disruptive to our operations, impede our ability to raise additional funding or delay the achievement of our development and commercialization objectives. Additionally, we cannot be
certain that changes in management will not lead to additional management departures or changes, affect our ability to hire or retain key personnel, or otherwise negatively affect our business. We do not maintain key person insurance for
any of our executives or other employees.
Recruiting and retaining qualified scientific and clinical personnel is critical to our
success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also compete for the hiring of scientific and clinical
personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and
advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We expect to expand our development, regulatory and sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in
managing our growth, which could disrupt our operations.
We expect to experience growth in the number of our employees and the
scope of our operations, particularly in the areas of drug discovery, drug development, regulatory affairs and commercialization. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and
financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the various levels of experience of our management team in managing a company with significant
anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management
and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Risks Related to Our Intellectual Property
If we or our licensors are unable to obtain and maintain patent protection for our owned or licensed technology and products, or if the scope of the
patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
Our success depends in large part on our and our licensors ability to obtain and maintain patent protection in the United
States and other countries with respect to our proprietary technology and products or technology or products that may have been licensed to us. Similar to our licensors, we seek to protect our proprietary position by filing patent applications in
the United States and abroad related to our novel technologies and product candidates that are important to our business. This process is expensive and time-consuming, and we or our licensors may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors will fail to identify patentable aspects of either our or their research and development output before it is too late to obtain
patent protection. Moreover, if we license technology or product candidates from third parties in the future, these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to maintain the
patents, covering this intellectual property. These agreements could also give our licensors the right to enforce the licensed patents without our involvement, or to decide not to enforce the patents without our consent. Therefore, in these
circumstances, we could not be certain that these patents and applications would be prosecuted and enforced in a manner consistent with the best interests of our business.
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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain
and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights and any patent rights we may license from a third party are highly uncertain. Our or
our licensors pending and future patent applications may not result in issued patents that protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our or our licensors patents or narrow the scope of such patent protection.
The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law
restricts the patentability of methods of treatment of the human body more than United States law does. Assuming the other requirements for patentability are met, historically, in the United States, the first to make the claimed invention was
entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. The United States currently uses a first
inventor-to-file
system in which, assuming the other requirements for patentability are met, the first inventor to file a patent application will be entitled to the
patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases
not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Moreover, we may be subject
to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, litigation, inter partes review or interference proceedings, in the United States or
elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our
technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection
provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even if our or our licensors patent applications issue as patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a
non-infringing
manner.
The issuance of a patent is not conclusive as to its inventorship, scope,
validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being
narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to prevent others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our
technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized and
such patents may not be able to claim the benefits of any patent term extension laws or regulations. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to
ours.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming
and unsuccessful, and which could result in our patents or other intellectual property rights becoming invalidated.
Competitors
may infringe our or our licensors patents, trademarks, copyrights or other intellectual property. To stop infringement or unauthorized use, we or our licensors may be required to file infringement claims, which can be expensive and time
consuming. Any claims we or our licensors assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that some or all of our patents or other intellectual property rights are not valid or that we or
our licensors infringe their patents or other intellectual property rights. In addition, in a patent infringement proceeding, a court may decide that a patent of ours or our licensors is invalid or unenforceable, in whole or in part, construe the
patents claims narrowly, or may refuse to stop the other party from using the technology at issue on the grounds that such patents do not cover the technology in question and therefore cannot be infringed. Similarly, if we assert trademark
infringement claims, a court may determine that the marks we have asserted are invalid, unenforceable, or not infringed, or that the party against whom we have asserted trademark infringement claims has superior rights to the marks in question. In
this case, we could ultimately be forced to cease use of such marks. In any infringement litigation, any award of monetary damages may be unlikely or very difficult to obtain, and any such award we may receive may not be commercially valuable.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that we could incur substantial litigation costs or that some of our confidential information could be
compromised by disclosure during this type of litigation.
Third parties may initiate legal proceedings alleging that we or our licensors are
infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market, or sell our or our licensors product candidates and use
our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become
party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including reexamination or interference proceedings before the U.S. Patent and Trademark
Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights.
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If we or our licensors are found to infringe a third partys intellectual property rights,
we or our licensors could be enjoined from further using certain products and technology or may be required to obtain a license from such third party to continue developing and marketing such products and technology. However, we may not be able to
obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be
non-exclusive,
thereby giving our competitors access to the same technologies
licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys fees if we are
found to have willfully infringed a patent or other intellectual property rights of a third party. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which
could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership
of what we regard as our own intellectual property.
Many of our employees were previously employed at universities or other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we use customary
non-disclosure
agreements and try to ensure that our employees do not use the
proprietary information or
know-how
of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other
proprietary information, of any such employees former employer. Litigation may be necessary to defend against these claims.
In
addition, while we typically require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an
agreement with each party who in fact develops intellectual property that we regard as our own, or such agreements may be inadequately drafted at times thereby not ensuring assignment to us of all potential intellectual property rights. If we fail
in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result
in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources and could
distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings
relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of
hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings
could substantially increase our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct or defend such
litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how,
technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into
non-disclosure
and confidentiality agreements with parties
who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. However, we cannot guarantee that we have executed these agreements
with each party that may have or have had access to our trade secrets, nor can we guarantee that such agreements will always be adequately drafted so as to be enforceable. If we are unable to protect the confidentiality of our trade secrets, our
business and competitive position would be harmed.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret
is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, because of potential differences in laws in different jurisdictions, some courts inside and outside the United States are less willing or unwilling to protect
trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete
with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
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We have not yet registered our trademarks in all of our potential markets, and failure to secure those
registrations could adversely affect our business.
Our future trademark applications may not be allowed for registration, and our
registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections from the U.S. Patent and Trademark Office or other applicable foreign intellectual property offices. Although we are given
an opportunity to respond to those rejections, we may be unable to overcome such rejections, or have to expend additional resources to secure registrations, such as commencing cancellation proceedings against third-party trademark registrations to
remove them as obstacles to our trademark applications. In addition, in the U.S. Patent and Trademark Office and in comparable agencies in many foreign 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.
In addition, we have not yet proposed a proprietary name for
our product candidates in any jurisdiction. Any proprietary name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark.
The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant
additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
Risks Related to Our Securities
The price of our common stock may be volatile and you could lose all or part of your investment.
There has been significant volatility in the market price and trading volume of equity and derivative securities, which is unrelated to the
financial performance of the companies issuing the securities. In addition, equity markets have experienced significant price and volume fluctuations that have affected the market prices for the securities of biotechnology and also newly public
companies for a number of reasons, including reasons that may be unrelated to the business or operating performance of the companies. These broad market fluctuations may negatively affect the market price of our common stock.
Prior to our initial public offering, there was no public market for our common stock. The trading price of our securities is likely to be
highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this Risk Factors section and
elsewhere in this Quarterly Report, these factors include:
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our ability to implement our preclinical, clinical and other development or operational plans;
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adverse regulatory decisions;
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strategic actions by us or our competitors, such as acquisitions or restructurings;
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new laws or regulations, or new interpretations of existing laws or regulations, applicable to our business;
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actual or anticipated fluctuations in our financial condition or annual or quarterly results of operations;
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public reaction to our press releases, other public announcements and filings with the SEC;
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changes in investor and financial analyst perceptions of the risks and condition of our business;
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changes in, or our failure to meet, performance expectations of investors or financial analysts (including, without limitation, with respect to the status of development of our lead product candidates);
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changes in market valuations of biotechnology companies;
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changes in key personnel;
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sales of common stock by us or members of our management team;
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trading volume of our common stock;
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issuances of debt or equity securities;
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the granting or exercise of employee stock options or other equity awards;
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changes in accounting standards, policies, guidance, interpretations or principles;
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ineffectiveness of our internal controls;
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actions by institutional or other large shareholders;
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significant lawsuits, including patent or stockholder litigation;
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general political, market and economic conditions; and
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other events or factors, many of which are beyond our control.
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In addition, the stock market
in general, and the Nasdaq Capital Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad
market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods of
volatility in the market price of a companys securities. This type of litigation, if instituted, could result in substantial costs and a diversion of managements attention and resources, which would harm our business, operating results
or financial condition.
We are required to meet the Nasdaq Capital Markets continued listing requirements and other Nasdaq rules, or we may
risk delisting. Delisting could negatively affect the price of our common stock, which could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.
We are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding
director independence and independent committee requirements, minimum stockholders equity, minimum share price and certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed
common stock of $1.00 per share. If we do not meet these continued listing requirements, our common stock could be delisted. Delisting from the Nasdaq Capital Market would cause us to pursue eligibility for trading of these securities on other
markets or exchanges, or on the pink sheets. In such case, our stockholders ability to trade, or obtain quotations of the market value of our common stock would be severely limited because of lower trading volumes and transaction
delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices of these securities. There can be no assurance that our securities, if delisted from the Nasdaq Capital Market in the future, would be listed on a
national securities exchange, a national quotation service, the
over-the-counter
markets or the pink sheets. Delisting from the Nasdaq Capital Market, or even the
issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our securities, decrease securities analysts coverage of
us or diminish investor, supplier and employee confidence.
We may issue additional shares of common stock, warrants or other securities to finance
our growth.
We may finance the development of our product pipeline or generate additional working capital through additional
equity financing. Therefore, subject to the rules of the Nasdaq, we may issue additional shares of our common stock, warrants and other equity securities of equal or senior rank, with or without shareholder approval, in a number of circumstances
from time to time. The issuance by us of shares of our common stock, warrants or other equity securities of equal or senior rank will have the following effects:
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the proportionate ownership interest in us held by our existing shareholders will decrease;
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the relative voting strength of each previously outstanding share of common stock may be diminished; and
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the market price of our common stock may decline.
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In addition, if we issue shares of our
common stock and/or warrants in a future offering (or, in the case of our common stock, the exercise of outstanding warrants to purchase our common stock), it could be dilutive to our security holders.
Future sales of our common stock or warrants may cause the market price of our securities to decline.
Sales of substantial amounts of shares of our common stock or warrants in the public market, or the perception that these sales may occur,
could adversely affect the price of our securities and impair our ability to raise capital through the sale of additional equity securities. As of May 7, 2018, we have approximately 73.7 million shares of common stock outstanding, of which
approximately 71.4 million shares of our outstanding common stock are freely tradable, or may become freely tradable, without restriction, in the public market unless held by our affiliates, as defined under Rule 144 of the
Securities Act of 1933, as amended (the Securities Act). Additionally, we have warrants to purchase approximately 36.3 million shares of our common stock outstanding as of May 7, 2018. Approximately 35.9 shares of common stock
underlying the warrants will be freely tradable upon exercise unless held by our affiliates.
We have registered 6,932,507 shares of our
common stock as of May 7, 2018 that we may issue under our employee benefit plans. These shares can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer restrictions attached to
them. Additionally, pursuant to the 2014 Omnibus Incentive Plan (the 2014 Plan), our management is authorized to grant stock options and other equity linked award to our employees, directors and consultants. The 2014 Plan provides that
the number of shares available for future grant under our 2014 Plan will automatically increase on January 1st each year, from January 1, 2015 through January 1, 2024, by an amount equal to four percent of all shares of our capital
stock outstanding as of December 31st of
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the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to
increase the number of shares underlying our 2014 Plan each year, our stockholders may experience additional dilution, which could cause our stock price to decline.
If shares of our common stock become subject to the penny stock rules, it would become more difficult to trade them.
The SEC has adopted regulations which generally define a penny stock to be an equity security that has a market price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions, including an exemption for any securities listed on a national securities exchange. The rules impose additional sales practice requirements on
broker-dealers for transactions involving penny stock, with some exceptions. If shares of our common stock were delisted from the Nasdaq Capital Market and determined to be penny stock, broker-dealers may find it more
difficult to trade such securities and investors may find it more difficult to acquire or dispose of such securities on the secondary market.
There
can be no assurance that we will ever provide liquidity to our investors through a sale of our company.
While acquisitions of
pharmaceutical companies like ours are not uncommon, potential investors are cautioned that no assurances can be given that any form of merger, combination, or sale of our company will take place, or that any merger, combination, or sale, even if
consummated, would provide liquidity or a profit for our investors. You should not invest in our company with the expectation that we will be able to sell the business in order to provide liquidity or a profit for our investors.
We incur significant costs as a result of operating as a public company and our management is required to devote substantial time to complying with
public company regulations.
We completed an initial public offering on August 1, 2014. As a public company, we incur
significant legal, accounting and other expenses, including costs associated with our public company reporting requirements under the Securities Exchange Act of 1934, as amended (the Exchange Act). We must also follow the rules,
regulations and requirements subsequently adopted by the SEC and the Nasdaq and any failure by us to comply with such rules and requirements could negatively affect investor confidence in us and cause the market price of our common stock to decline.
Our executive officers and other personnel will also need to devote substantial time and financial resources to comply with these rules, regulations and requirements.
The rules and regulations applicable to public companies have substantially increased our legal and financial compliance costs and made some
activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of
operations. The increased costs decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business. For example, we expect these rules and regulations to make it more difficult and more expensive for
us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these
requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Any failure to maintain effective internal control over financial reporting could have a significant adverse effect on our business and the price of our
common stock.
Our management is required to report annually on the effectiveness of our internal control over financial reporting
pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant
documentation, testing and possible remediation.
In the future, we may identify material weaknesses or significant deficiencies in our
internal control over financial reporting, and we may not be able to remediate them in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the
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requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation report from
our independent registered public accounting firm, if such a report is required. We will be unable to issue securities in the public markets through the use of a shelf registration statement if we are not in compliance with Section 404.
Furthermore, failure to achieve and maintain an effective internal control environment could materially adversely affect our business, reduce the markets confidence in our common stock, adversely affect the price of our common stock and limit
our ability to report our financial results accurately and timely.
Reports published by analysts, including projections in those
reports that exceed our actual results, could adversely affect the price and trading volume of our common stock.
The projections
of securities research analysts may vary widely and may not accurately predict the results we actually achieve. The price of our common stock may decline if our actual results do not match the projections of these securities research analysts.
Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of these analysts ceases coverage
of us or fails to publish reports on us regularly, the price or trading volume of our common stock could decline.
If securities or industry
analysts do not publish research or reports about our business, the prices of our securities and trading volume could decline.
The
trading market for our securities depends, in part, 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. If no securities or industry analysts commence
coverage of our company, the trading prices for our securities may be negatively impacted.
We have broad discretion in the use of the net proceeds
from our public offerings and private placement and may not use them effectively.
Our management has broad discretion in the
application of the net proceeds from our public offerings and private placement and could spend the proceeds in ways that do not enhance the value of our common stock. Because of the number and variability of factors that will determine our use of
the net proceeds from our completed offerings, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could delay the development of our product candidates or have
a material adverse effect on our business. Pending their use, we may invest the net proceeds from the offerings in a manner that does not produce income or that loses value. If we do not apply or invest the net proceeds from the offerings in ways
that enhance stockholder value, we may fail to achieve expected financial results, which could cause the price of our securities to decline.
We are
an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and may remain an emerging growth company until December 31,
2019. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions
include:
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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing
additional information about the audit and the financial statements;
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reduced disclosure obligations regarding executive compensation; and
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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We have taken advantage of certain reduced reporting burdens. We cannot predict whether investors will find our securities less attractive if
we rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our common stock, and the prices for our securities may be more volatile.
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We have no present intention to pay cash dividends and, even if we change that policy, we may be restricted
from paying cash dividends on our common stock.
We do not intend to pay cash dividends for the foreseeable future. We currently
expect to retain all future earnings, if any, for use in the development, operation and expansion of our business. Any determination to pay cash dividends in the future will depend upon, among other things, our results of operations, plans for
expansion, tax considerations, available net profits and reserves, limitations under law, financial condition, capital requirements and other factors that our board of directors considers to be relevant.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, 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 corporate
charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us 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 our securities, thereby depressing the market prices of our securities. 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:
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board of directors;
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establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
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limit who may call stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a shareholder rights plan, or
so-called
poison
pill, that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
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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, 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.
Risks Related to Cybersecurity, Data Protection and
Privacy
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and
reputation to suffer.
In the ordinary course of our business, we store sensitive data, including intellectual property,
proprietary business information and personally identifiable information, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite
our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our networks and the information
stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in significant costs to address and remediate the incident, lead to legal claims or proceedings, disrupt our
operations, and damage our reputation.
We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our
losses from any future breaches of our systems.
Our collection, processing, storage, use and transmission of personal data could give rise to
liabilities as a result of governmental regulation, conflicting legal requirements, and differing views on data privacy.
The
regulatory environment with regard to privacy and data protection issues is increasingly challenging. In particular, the European Union (EU) has recently adopted a comprehensive overhaul of its data protection regime from the current
national legislative approach to a single European Economic Area Privacy Regulation, the General Data Protection Regulation (GDPR), which comes into effect in May of 2018. The proposed EU data protection regime extends the scope of the
EU data protection law to all foreign companies processing data of EU residents. It provides for a harmonization of the data protection regulations throughout the EU, thereby making it easier for
non-European
companies to comply with these regulations. It imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide turnover, or 20 million and includes new rights such as the
portability of personal data. Although the GDPR will apply across the EU without a need for local implementing legislation, as has been the case under the current data protection regime, local data protection authorities
(DPAs) will still have the ability to interpret the GDPR, which has the potential to create inconsistencies on a
country-by-country
basis.
We are in the process of implementing the GDPR and its requirements. Our actual or alleged failure to comply with this regulation, or to
protect personal data, could result in enforcement actions and significant penalties against us, which could result in negative publicity, increase our operating costs, subject us to claims or other remedies and have a material adverse effect on our
business, financial condition, and results of operations.