Item 1A.
Risk Factors.
This report contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in this report.
Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere
in this report and in any documents incorporated in this report by reference.
You should carefully consider the following
risk factors, together with all other information in this report, including our financial statements and notes thereto, and in
our other filings with the SEC. If any of the following risks, or other risks not presently known to us or that we currently believe
to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could
be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose
all or part of their investment.
Risks Related to Our Business
We have no approved products and
currently are dependent on the future success of our HBV-cure and Microbiome programs.
To date, we have no approved products on
the market and have generated no product revenues. Our prospects are substantially dependent on our ability to develop and commercialize
our HBV and microbiome product candidates. Unless and until we receive approval from the FDA or other regulatory authorities for
our product candidates, we cannot sell our product candidates and will not have product revenues. We will have to fund all of our
operations and capital expenditures from cash on hand, any future securities offerings or debt financings and any fees we may generate
from out-licensing, collaborations or other strategic arrangements. If we are unable to develop and commercialize any product candidates
from our HBV-cure and Microbiome programs, we will be unable to generate revenues or build a sustainable or profitable business.
In addition, all of our product candidates
are currently in early clinical development or in varying stages of nonclinical development and their risk of failure is high.
The data supporting our drug discovery and nonclinical and clinical development programs are derived from either laboratory, nonclinical
studies or Phase 1a/1b clinical data. We cannot predict when or if any one of our product candidates will prove safe and effective
in humans or will receive regulatory approval. The scientific evidence to support the feasibility of our product candidates and
therapeutic approaches is limited, and many companies, some with more resources than we have, are and may be developing competitive
product candidates. For these and other reasons, our drug discovery and development may not be successful, and we may not generate
viable products or revenue.
We depend entirely on the success
of product candidates from our HBV-cure program and our Microbiome program. We cannot be certain that we or our collaborators will
be able to obtain regulatory approval for, or successfully commercialize, product candidates from either of our current programs
or any other product candidates we may subsequently identify.
We and our collaborators are not permitted
to market or promote any product candidates in the United States, Europe or other countries before we receive regulatory approval
from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for our current product
candidates. We have not submitted a biologics license application (BLA) or new drug application (NDA) to the FDA or comparable
applications to other regulatory authorities and do not expect to be in a position to do so in the foreseeable future.
All of our product candidates are currently
in early clinical development or in varying stages of nonclinical development. It may be years before the larger, pivotal trials
necessary to support regulatory approval of our product candidates are initiated, if ever. The clinical trials of our product candidates
are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation
by numerous government authorities in the United States and in other countries where we intend to test and, if approved, market
any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must successfully
meet a number of critical developmental milestones, including:
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developing dosages that will be tolerated, safe and effective;
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reaching agreement with the FDA or comparable foreign regulatory authorities regarding the scope, design and data necessary to support regulatory approval for the product candidate;
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demonstrating through clinical trials that the product candidate is safe and effective in patients for the intended indication;
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determining the appropriate delivery mechanism;
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demonstrating that the product candidate formulation will be stable for commercially reasonable time periods; and
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completing the development and scale-up to permit manufacture of our product candidates in quantities sufficient to execute on our clinical development plans and, eventually, in commercial quantities and at acceptable prices.
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The time necessary to achieve these developmental
milestones for any individual product candidate is long and uncertain, and we may not successfully complete these milestones for
our HBV and microbiome therapies or any other product candidates that we may develop. We have not yet completed and may never complete
the development of any products. If we are unable to complete clinical development of our HBV or microbiome therapies, or any other
product candidates that we may identify, we will be unable to generate revenue or build a sustainable or profitable business.
Nonclinical studies may not be representative
of disease behavior in clinical trials. The outcomes of nonclinical testing and clinical trials are uncertain, and results of earlier
nonclinical studies and clinical trials may not be predictive of future clinical trial results.
The results of nonclinical studies may
not be representative of disease behavior in a clinical setting and thus may not be predictive of the outcomes of our clinical
trials. In addition, the results of nonclinical studies and early clinical trials of product candidates may not be predictive of
the results of later-stage clinical trials, and the results of any study or trial for any of our product candidates may not be
as positive as the results for any prior studies or trials, if at all.
Nonclinical studies and clinical testing
are expensive, can take many years to complete and their outcomes are highly uncertain. Failure can occur at any time during the
nonclinical study and clinical trial processes due to inadequate performance of a drug candidate or inadequate adherence by patients
or investigators to clinical trial protocols. Further, clinical trials might not provide statistically significant data supporting
a product candidate’s safety and effectiveness to obtain the requisite regulatory approvals. In addition, there is a high
failure rate for drugs and biologics proceeding through clinical trials. Our failure to replicate earlier positive results in later-stage
clinical trials or otherwise demonstrate the required characteristics to support marketing approval for any of our product candidates
would substantially harm our business, prospects, financial condition and results of operations.
Top-line or interim data may not
accurately reflect the complete results of a particular study or trial.
We may publicly disclose top-line or interim
data from time to time, which is based on a preliminary analysis of then-available efficacy, tolerability, PK and safety data,
and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related
to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of
data, and we may not have received or had the opportunity to evaluate fully and carefully all data. As a result, the top-line or
interim results that we report may differ from future results of the same studies, or different conclusions or considerations may
qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and
verification procedures that may result in the final data being materially different from the interim or preliminary data we previously
published. As a result, top-line and interim data should be viewed with caution until the final data are available.
Further, others, including regulatory agencies,
may not accept or agree with our assumptions, estimations, calculations, conclusions or analyses or may interpret or weigh the
importance of data differently, which could impact the value of the particular program, the approvability or commercialization
of the particular drug candidate or biotherapeutic and our company in general. In addition, the information we may publicly disclose
regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree
with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we
determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities
or otherwise regarding a particular drug, drug candidate or our business. If the top-line or interim data that we report differ
from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain
approval for, and commercialize, our product candidates may be harmed or delayed, which could harm our business, financial condition,
operating results or prospects.
Nonclinical and clinical testing
required for our product candidates is expensive and time-consuming and may result in delays or may fail to demonstrate safety
and efficacy for desired indications.
In order to obtain FDA approval to market
a new drug product, we must demonstrate safety and effectiveness in humans. To meet these requirements, we must conduct extensive
nonclinical testing and sufficient adequate and well-controlled clinical trials. Conducting clinical trials is a lengthy, time
consuming, and expensive process. The length of time might vary substantially according to the type, complexity, novelty, and intended
use of the product candidate, and often can be several years or more per trial. Delays associated with product candidates for which
we are directly conducting nonclinical studies or clinical trials might cause us to incur additional operating expenses. The commencement
and rate of completion of clinical trials might be delayed by many factors, including, for example:
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delays in reaching agreement with regulatory authorities on trial design;
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delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;
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failure to demonstrate efficiency during clinical trials;
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the emergence of unforeseen safety issues;
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inability to manufacture sufficient quantities of qualified materials under cGMP for use in clinical trials;
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slower than expected rates of patient recruitment;
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failure to recruit a sufficient number of patients;
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delays in having patients complete participation in a trial or return for post-treatment follow-up;
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delays caused by patients dropping out of a trial due to product side effects, disease progression or other reasons;
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clinical sites dropping out of a trial to the detriment of enrollment;
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modification of clinical trial protocols;
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delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials;
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occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
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changes in regulatory requirements for clinical trials;
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delays, suspension, or termination of clinical trials by the institutional review board or ethics committee responsible for overseeing the study at a particular study site; and
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government, institutional review board, ethics committee, or other regulatory delays or clinical holds requiring suspension or termination of the trials.
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We have used and intend to continue to
rely on one or more CROs to conduct our nonclinical studies and clinical trials. We are highly dependent on these CROs to conduct
our studies and trials in accordance with the requirements of the FDA, applicable local laws and good clinical and scientific practice.
In the event the CROs fail to perform their duties in such a fashion, we may not be able to complete our clinical trials and may
fail to obtain regulatory approval for any of our product candidates.
The failure of nonclinical studies and
clinical trials to demonstrate safety and effectiveness of a product candidate for the desired indications could harm the development
of that product candidate or other product candidates. This failure could cause us to abandon a product candidate and could delay
development of other product candidates. Any delay in, or termination of, our nonclinical studies or clinical trials would delay
the filing of our NDAs or BLAs with the FDA and, ultimately, our ability to commercialize our product candidates and generate product
revenues. Any change in, or termination of, our clinical trials could materially harm our business, financial condition, and results
of operation.
Any product candidates that we may
discover and develop may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval,
if any.
Many product candidates that initially
showed promise in early stage testing have later been found to cause side effects that prevented their further development. Undesirable
side effects caused by any product candidates that we may discover or develop, or safety, tolerability or toxicity issues that
may occur in our nonclinical studies, clinical trials or in the future, could cause us or regulatory authorities to interrupt,
restrict, delay, or halt clinical trials. Such results could also cause us to, or regulatory authorities to require us to, cease
further development of our product candidates for any or all targeted indications. The drug-related side effects could affect patient
recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims and could
result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved,
and could significantly harm our business, prospects, financial condition and results of operations. In the Phase 1a portion of
the trial recently completed in New Zealand and the Phase 1b interim data recently reported, the most common treatment-emergent
adverse events that we observed were headaches and rashes, which were among the only adverse events deemed by clinical investigators
to be probably or possibly related to the study drug, with the exception of a single isolated Grade 3 rash that resolved rapidly
without intervention other than treatment discontinuation, which is the only study discontinuation to date.
Additionally, if any of our product candidates
receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by these product candidates,
a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw approvals of such product and require us to take them off the market;
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;
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regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that we implement a Risk Evaluation Mitigation Strategies (REMS) plan to ensure that the benefits of the product outweigh its risks;
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we may be required to change the way a product is administered, conduct additional clinical trials or change the labeling of a product;
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we may be subject to limitations on how we may promote the product;
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sales of the product may decrease significantly;
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we may be subject to litigation or product liability claims; and
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our reputation may suffer.
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Any of these events could prevent us or
any collaborators from achieving or maintaining market acceptance of our product candidates or could substantially increase commercialization
costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our product candidates.
We have a limited operating history
and a history of operating losses and expect to incur significant additional operating losses.
We were established in October 2005, began
active operations in the spring of 2007, terminated programs related to three prior product candidates, then merged with Assembly
Pharmaceuticals, Inc. (Assembly Pharmaceuticals), a private company, in July 2014. We have only a limited operating history since
the merger. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our
prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies
in their early stages of operations. We, and Assembly Pharmaceuticals prior to our merger, have generated losses since we began
operations and as of June 30, 2018 and December 31, 2017, the combined company had an accumulated deficit of approximately $294.1
million and $251.0 million, respectively, and net losses of approximately $42.8 million, $44.3 million and $28.5 million for the
years ended December 31, 2017, 2016 and 2015, respectively. These net losses have had, and will continue to have, an adverse effect
on our stockholders’ equity and working capital. We expect to incur substantial additional losses over the next several years
as we continue to pursue our research, development, nonclinical studies and clinical trial activities. Further, since our initial
public offering, we have incurred and will continue to incur as a public company significant additional legal, accounting and other
expenses to which we were not subject to as a private company, including expenses related to our efforts in complying with the
requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 and other public company disclosure and corporate governance requirements and responding to requests of government
regulators. The amount of future losses and when, if ever, we will achieve profitability are uncertain and will depend, in part,
on the rate of increase in our expenses, our ability to generate revenues and our ability to raise additional capital. We have
no products that have generated any commercial revenue, do not expect to generate revenues from the commercial sale of products
unless and until our HBV or microbiome therapies or any other product candidate is approved by the FDA for sale, and we might never
generate revenues from the sale of products.
We are not currently profitable and
might never become profitable.
We have a history of losses and expect
to incur significant operating and capital expenditures and resultant substantial losses and negative operating cash flow for the
next several years and beyond if we do not successfully launch and commercialize any product candidates from our HBV or microbiome
programs. We might never achieve or maintain profitability. We anticipate that our expenses will continue to be substantial in
the foreseeable future as we:
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advance ABI-H0731, our first HBV-cure candidate, through clinical development and conduct nonclinical studies and clinical trials of ABI-H2158, our second HBV-cure product candidate;
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advance ABI-M201 and ABI-M301, the lead candidates from our Microbiome program, toward potential INDs;
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continue to undertake research and development to identify potential additional product candidates in both our HBV-cure and Microbiome programs;
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seek regulatory approvals for our product candidates; and
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pursue our intellectual property strategy.
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Because of the numerous risks and uncertainties
associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses
or when, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the FDA
or comparable foreign regulatory authorities to perform studies or trials in addition to those currently expected, or if there
are any delays in completing our clinical trials or the development of any of our product candidates.
As a result, we will need to generate significant
revenues in order to achieve and maintain profitability. Our ability to generate revenue and achieve profitability will depend
on, among other things:
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successful completion of research, nonclinical studies and clinical trials for our product candidates;
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obtaining necessary regulatory approvals from the FDA and comparable foreign regulatory authorities for our product candidates;
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maintaining patent protection for our products, methods, processes and technologies;
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establishing manufacturing, sales, and marketing arrangements internally and/or with third parties for any approved products; and
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raising sufficient funds to finance our activities, if and when needed.
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We might not succeed at any of these undertakings.
If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations might be materially
adversely affected.
We are an early stage company and
might not be able to commercialize any product candidates.
We are an early stage company and have
not demonstrated our ability to perform the functions necessary for the successful commercialization of any product candidates.
The successful commercialization of any product candidates will require us to perform a variety of functions, including:
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continuing to undertake research and development and nonclinical studies and clinical trials;
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participating in regulatory approval processes;
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formulating and manufacturing products; and
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conducting sales, marketing and distribution activities.
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Our failure to commercialize successfully
our product candidates would negatively impact the value of our company and could impair our ability to raise capital, expand our
business, diversify our research and development pipeline, market our product candidates, if approved, or continue our operations.
Our development of product candidates
is subject to risks and delays.
Our development of our product candidates
is subject to the risks of failure and delay inherent in the development of new pharmaceutical products and products based on new
technologies, including:
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delays in product development, nonclinical and clinical testing;
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unplanned expenditures in product development, nonclinical and clinical testing;
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failure of a product candidate to demonstrate acceptable safety and efficacy;
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failure to receive regulatory approvals;
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emergence of superior or equivalent products;
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inability to manufacture and sell on our own, or through any others, product candidates on a commercial scale or at a financially viable cost; and
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failure to achieve market acceptance.
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Because of these risks, our research and
development efforts might not result in any commercially viable products. If we do not successfully complete a significant portion
of these development efforts, obtain required regulatory approvals, and have commercial success with any approved products, our
business, financial condition and results of operations will be materially harmed.
There are substantial risks inherent
in attempting to commercialize new drugs and biologics, and, as a result, we may not be able to develop successfully products for
commercial use.
Scientific research and development requires
significant amounts of capital and takes a long time to reach commercial viability, if it can be achieved at all. To date, our
research and development projects have not produced commercially viable drugs or biologics and may never do so. During the research
and development process, we may experience technological barriers that we may be unable to overcome. Further, certain underlying
premises in our development programs are not fully proven.
Our HBV therapy research and development
efforts involve therapeutics based on modulating forms of HBV core proteins with Core protein Allosteric Modifiers (CpAMS or core
inhibitors). The development of our core inhibitor technology is in early stages, and the commercial feasibility and acceptance
of our core inhibitor technology is unknown. More specifically, the theory that treatment with core inhibitors may result in the
loss of covalently closed circular DNA (cccDNA) compared to conventional (standard of care) therapies is unproven. It is also unknown
if the biomarkers assumed to be indicators of active cccDNA (serum viral antigen levels in HBV patients) will be meaningfully altered
in patients on treatment with core inhibitors. Additionally, even if core inhibitor technology is successful at targeting the HBV
core protein and treatment is successful at reducing cccDNA levels in HBV patients, it may not result in a commercially viable
drug if there is not a corresponding medical benefit related to the underlying HBV infection.
Similarly, our Microbiome program is based
on a novel therapeutic approach designed to treat disorders associated with the microbiome. To our knowledge, no companies have
received regulatory approval for, or manufactured on a commercial scale, any microbiome-based therapeutics. The technology for
our microbiome therapy is in nonclinical development and our GEMICEL® dual-targeted release capsule formulation is novel and
has not yet shown to deliver successfully live bacteria in patients. The ability to deliver bacteria effectively and reliably to
the GI tract is unproven, and, even if it can be proven, it may be difficult or impossible to provide the treatment economically.
Because of these uncertainties, it is possible that no commercial products will be successfully developed. If we are unable to
develop successfully commercial products, we will be unable to generate revenue or build a sustainable or profitable business.
We will need additional financing
to complete the development of any product candidate and fund our activities in the future.
We anticipate that we will incur operating
losses for the next several years as we continue to develop our HBV product candidates and our microbiome platform as well as initiate
any development of any other product candidates and will require substantial funds during that time to support our operations.
We expect that our current resources will provide us with sufficient capital to fund our operations for at least the next twelve
months. However, we might consume our available capital before that time if, for example, we are not efficient in managing our
resources or if we encounter unforeseen costs, delays or other issues or if regulatory requirements change. If that happens, we
may need additional financing to continue the development of our HBV product candidates and our Microbiome program. There is no
assurance that we will be able to generate sufficient revenue from our Collaboration Agreement with Allergan when needed to or
that we will be successful in raising any necessary additional capital on terms that are acceptable to us, or at all. If such event
or other unforeseen circumstances occurred and we were unable to generate revenue or raise capital, we could be forced to delay,
scale back or discontinue product development, sacrifice attractive business opportunities, cease operations entirely and sell
or otherwise transfer all or substantially all of our remaining assets.
Our product candidates face significant
development and regulatory hurdles prior to marketing, which could delay or prevent our receipt of licensing, sales and/or milestone
revenue.
Before we or any commercial partners obtain
the approvals necessary to sell any of our product candidates, we must show through nonclinical studies and human testing in clinical
trials that each potential product is safe and effective. The rates at which we complete our scientific studies and clinical trials
depend on many factors, including, but not limited to, our ability to obtain adequate supplies of the products to be tested and
patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, and other potential drug
candidates being studied. Delays in patient enrollment for our trials may result in increased costs and longer development times.
In addition, we will need additional financing to develop our product candidates, which we might seek and receive from third-party
commercial partners. Further, we currently do not have the infrastructure to manufacture, market and sell our product candidates.
If we partner with one or more third-party entities, those commercial partners may demand and receive rights to control product
development and commercialization. As a result, these commercial partners may conduct these programs and activities more slowly
or in a different manner than expected. If any of these events were to occur, the development of any product candidate could be
significantly delayed, more expensive or less lucrative to us than anticipated, any of which would have a significant adverse effect
on our business.
We are substantially dependent on
our Collaboration Agreement with Allergan, which may be terminated or may not be successful due to a number of factors, which could
have a material adverse effect on our business and operating results.
In January 2017, we entered into the Collaboration
Agreement with Allergan for the development and commercialization of select microbiome gastrointestinal programs in ulcerative
colitis, Crohn’s disease and irritable bowel syndromes. Our collaboration with Allergan may be terminated, or may not be
successful, due to a number of factors. In particular, Allergan may terminate the Collaboration Agreement for convenience
at any time upon either 90 days’ (prior to the initiation of the first proof of concept (POC) trial of a licensed product)
or 120 days’ (after the initiation of the first POC trial of a licensed product), as applicable, advance written notice to
us. The Collaboration Agreement also contains customary provisions for termination by either party, including in the event of breach
of the Collaboration Agreement, subject to cure. In addition, if we are unable to identify product candidates for the licensed
indications or we are unable to protect our products by obtaining and defending patents, the collaboration could fail. If the collaboration
is unsuccessful for these or other reasons, or is otherwise terminated for any reason, we may not receive all or any of the research
program funding, milestone payments or royalties under the agreement. Any of the foregoing could result in a material adverse effect
on our business, results of operations and prospects and would likely cause our stock price to decline.
We are dependent on a license relationship
for each of our HBV-cure program and our Microbiome program.
Our license agreement with Indiana University
Research and Technology Corporation (IURTC) from whom we have licensed ABI-H0731 and certain other HBV therapies, requires us to
make milestone payments based upon the successful accomplishment of clinical and regulatory milestones related to ABI-H0731 and
certain other HBV therapies. The aggregate amount of all performance milestone payments under the IURTC License Agreement, should
all performance milestones through development be met, is $825,000, with a portion related to the first performance milestone having
been paid. We also are obligated to pay IURTC royalty payments based on net sales of the licensed technology. We are also obligated
to pay diligence maintenance fees ($25,000-$100,000) each year to the extent that the royalty, sublicensing, and milestone payments
to IURTC are less than the diligence maintenance fee for that year. Our license with Therabiome, LLC (Therabiome), from whom we
have licensed our delivery platform of our Microbiome program, also requires us to pay regulatory and clinical milestones as well
as royalty payments to Therabiome. If we breach any of these obligations, we could lose our rights to the targeted delivery mechanism
of our Microbiome program. If we fail to comply with similar obligations to any other licensor, then that licensor would have the
right to terminate the license, in which event we would not be able to commercialize drug candidates or technologies that were
covered by the license. In addition, the milestone and other payments associated with licenses will make it less profitable for
us to develop our drug candidates than if we owned the technology ourselves.
Corporate and academic collaborators
might take actions to delay, prevent, or undermine the success of our product candidates.
Our operating and financial strategy for
the development, nonclinical and clinical testing, manufacture, and commercialization of drug candidates heavily depends on collaborating
with corporations, academic institutions, licensors, licensees, and other parties. However, there can be no assurance that we will
successfully establish or maintain these collaborations. In addition, should a collaboration be terminated, replacement collaborators
might not be available on attractive terms, or at all. The activities of any collaborator will not be within our control and might
not be within our power to influence. There can be no assurance that any collaborator will perform its obligations to our satisfaction
or at all, that we will derive any revenue or profits from these collaborations, or that any collaborator will not compete with
us. If any collaboration is not successful, we might require substantially greater capital to undertake development and marketing
of our proposed products and might not be able to develop and market these products effectively, if at all. In addition, a lack
of development and marketing collaborations might lead to significant delays in introducing proposed products into certain markets
and/or reduced sales of proposed products in such markets.
We rely on data provided by our collaborators
and others that has not been independently verified and could prove to be false, misleading, or incomplete.
We rely on third-party vendors, scientists,
and collaborators to provide us with significant data and other information related to our projects, nonclinical studies and clinical
trials, and our business. If these third parties provide inaccurate, misleading, or incomplete data, our business, prospects, and
results of operations could be materially adversely affected.
Research, development and commercialization
goals may not be achieved in the timeframes that we publicly estimate, which could have an adverse impact on our business and could
cause our stock price to decline.
We set goals, and make public statements
regarding our expectations, regarding the timing of certain accomplishments, developments and milestones under our research and
development programs. The actual timing of these events can vary significantly due to a number of factors, including, without limitation,
the amount of time, effort and resources committed to our programs by us and any collaborators and the uncertainties inherent in
the clinical development and regulatory approval process. As a result, there can be no assurance that we or any collaborators will
initiate or complete clinical development activities, make regulatory submissions or receive regulatory approvals as planned or
that we or any collaborators will be able to adhere to our current schedule for the achievement of key milestones under any of
our programs. If we or any collaborators fail to achieve one or more of the milestones as planned, our business could be materially
adversely affected, and the price of our common stock could decline.
We lack suitable facilities for certain
nonclinical and clinical testing and expect to rely on third parties to conduct some of our research and nonclinical testing and
our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion
of such research, testing or trials.
We do not have sufficient facilities to
conduct all of our anticipated nonclinical and clinical testing. As a result, we expect to contract with third parties to conduct
a significant portion of our nonclinical and clinical testing required for regulatory approval for our product candidates. We will
be reliant on the services of third parties to conduct studies on our behalf. If we are unable to retain or continue with third
parties for these purposes on acceptable terms, we may be unable to develop successfully our product candidates. In addition, any
failures by third parties to perform adequately their responsibilities may delay the submission of our product candidates for regulatory
approval, which would impair our financial condition and business prospects.
Our reliance on these third parties for
research and development activities also reduces our control over these activities but will not relieve us of our responsibilities.
For example, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol,
legal and regulatory requirements and scientific standards, including, in the case of clinical trials, good clinical practices,
and our reliance on third parties does not relieve us of our regulatory responsibilities. Furthermore, these third parties may
also have relationships with other entities, some of which may be our competitors. In addition, these third parties are not our
employees, and except for remedies available to us under our agreements with such third parties, we cannot control whether or not
they devote sufficient time and resources to our clinical and nonclinical programs. If these third parties 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, regulatory requirements
or for other reasons, our research, nonclinical studies or clinical trials may be extended, delayed or terminated and we may not
be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates. As a result, our results of
operations and business prospects would be harmed, our costs could increase and our ability to generate revenues could be delayed.
We will need to either establish
our own clinical and commercial manufacturing capabilities or rely on third parties to formulate and manufacture our product candidates,
and we rely on third parties to manufacture products that we study in combination with our product candidates. Our use of third
parties to manufacture these materials may increase the risk that we will not have sufficient quantities of our product candidates
or other products, or necessary quantities of such materials on time or at an acceptable cost.
We currently do not have our own manufacturing
facilities and rely on third-party manufacturers to supply the quantities of ABI-H0731 used in our clinical trials, the quantities
of ABI-H2158 used in our nonclinical studies and drug substance and drug product for our Microbiome program. In the past, we have
relied exclusively on third-party manufacturers to supply drug substance and drug product materials for our Microbiome program.
We are currently transitioning some of the third-party manufacturing to a small scale internal manufacturing facility to supply
quantities of our microbiome drug substance and drug product for use in our planned nonclinical studies and early phase clinical
trials. In addition, if any product candidate we might develop or acquire in the future receives FDA or other regulatory approval,
we will need to either manufacture commercial quantities of the product on our own or rely on one or more third-party contractors
to manufacture our products. The establishment of internal manufacturing capabilities is difficult and costly, and we may not be
successful in doing so. If, for any reason, we are unable to establish our own manufacturing capabilities and we are unable to
rely on any third-party sources we have identified to manufacture our product candidates, either for clinical trials or, at some
future date, for commercial quantities, then we would need to identify and contract with additional or replacement third-party
manufacturers to manufacture compounds, drug substance and drug products for nonclinical, clinical and commercial purposes. We
might not be successful in identifying additional or replacement third-party manufacturers, or in negotiating acceptable terms
with any that we do identify. If we are unable to establish and maintain manufacturing capacity either on our own or through third
parties, the development and sales of our products and our financial performance will be materially and adversely affected.
In addition, before we or any of our collaborators
can begin to commercially manufacture our product candidates, each manufacturing facility and process is subject to regulatory
review. Manufacturing of drugs for clinical and commercial purposes must comply with the FDA’s cGMPs and applicable non-U.S.
regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures. Complying with
cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and
quality control to assure that the product meets applicable specifications and other requirements. Any manufacturing facility must
also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection might significantly delay
FDA approval of our product candidates. If we or any of our future collaborators fails to comply with these requirements with respect
to the manufacture of any of our product candidates, regulatory action could limit the jurisdictions in which we are permitted
to sell our products, if approved. As a result, our business, financial condition, and results of operations might be materially
harmed.
We are exposed to the following risks with
respect to the manufacture of our product candidates:
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If we are unable to establish our own manufacturing capabilities, we will need to identify manufacturers for commercial supply on acceptable terms, which we may not be able to do because the number of potential manufacturers is limited, and the FDA must approve any new or replacement contractor. This approval would generally require compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.
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We or any third-party manufacturers with whom we contract might be unable to formulate and manufacture our product candidates in the volume and of the quality required to meet our clinical and, if approved, commercial needs in a timely manner.
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Any third-party manufacturers with whom we contract might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply our clinical trials or to produce, store and distribute successfully our products.
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One or more of any third-party manufacturers with whom we contract could be foreign, which increases the risk of shipping delays and adds the risk of import restrictions.
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Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign requirements. Any internal manufacturing facilities we establish may fail to comply, and we would not have complete control over any third-party manufacturers’ compliance, with these regulations and requirements.
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We may be required to obtain additional intellectual property rights from third parties in order to manufacture our product candidates, and if any third-party manufacturer makes improvements in the manufacturing process for our product candidates, we might not own, or might have to share, the intellectual property rights to the innovation with our licensors.
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We may be required to share our trade secrets and know-how with third parties, thereby risking the misappropriation or disclosure of our intellectual property by or to third parties.
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If we contract with third-party manufacturers, we might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other clients higher priority than us.
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Each of these risks could delay our development
efforts, nonclinical studies and clinical trials or the approval, if any, of our product candidates by the FDA or applicable non-U.S.
regulatory authorities or the commercialization of our product candidates and could result in higher costs or deprive us of potential
product revenues. As a result, our business, financial condition, and results of operations might be materially harmed.
If we or our collaborators cannot
compete successfully for market share against other companies, we might not achieve sufficient product revenues and our business
will suffer.
If our product candidates receive approval
from the FDA or applicable non-U.S. regulatory authorities, they will compete with a number of existing and future drugs and biologics
developed, manufactured and marketed by others. Existing or future competing drugs might provide greater therapeutic convenience
or clinical or other benefits for a specific indication than our product candidates or might offer comparable performance at a
lower cost. If our product candidates fail to capture and maintain market share, we might not achieve sufficient product revenues
and our business will suffer.
We might compete against fully integrated
pharmaceutical or biotechnology companies and smaller companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research organizations. Many of these competitors, either alone
or together with their collaborative partners, operate larger research and development programs or have substantially greater financial
resources than we do, as well as significantly greater experience in:
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undertaking nonclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals of drugs;
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formulating and manufacturing drugs; and
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launching, marketing and selling drugs.
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We may not have or be able to obtain the
same resources and experience as our competitors. If we are unable to perform these tasks effectively and efficiently, our results
of operations might be materially adversely affected.
Developments by competitors might
render our product candidates or technologies obsolete or non-competitive.
The pharmaceutical and biotechnology industries
are intensely competitive. In addition, the clinical and commercial landscape for HBV, ulcerative colitis (UC), inflammatory bowel
disease (IBD), including Crohn’s disease, irritable bowel syndrome (IBS), nonalcoholic steatohepatitis disease (NASH) and
immuno-oncology is rapidly changing; we expect new data from commercial and clinical-stage products to continue to emerge. We will
compete with organizations that have existing treatments and that are or will be developing treatments for the indications that
our product candidates target. If our competitors develop effective treatments for HBV, UC, IBD, IBS, NASH and immuno-oncology
or any other indication or field we might pursue, and successfully commercialize those treatments, our business and prospects might
be materially harmed, due to intense competition in these markets.
Our product candidates under development
in our Microbiome program will be subject to regulation as biologics. These candidates, and any other future product candidates
for which we or our collaborators intend to seek approval as biologic products, may face competition sooner than anticipated.
The Patient Protection and Affordable Care
Act (ACA) signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009
(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 sponsor’s 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 the 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.
We believe that if product candidates from
our Microbiome program are approved as biological products under a BLA, they 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.
If we or our collaborators are not
able to develop collaborative marketing relationships with licensees or partners, or create effective internal sales, marketing,
and distribution capability, we might be unable to market our products successfully.
To market our product candidates, if approved,
we will have to establish our own marketing and sales force or out-license our product candidates to, or collaborate with, larger
firms with experience in marketing and selling pharmaceutical products. There can be no assurance that we will be able to successfully
establish our own marketing capabilities or establish marketing, sales, or distribution relationships with third parties; that
such relationships, if established, will be successful; or that we will be successful in gaining market acceptance for our product
candidates. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our product
revenues will be lower than if we marketed and sold our products directly, and any revenues we receive will depend upon the efforts
of such third parties. If we are unable to establish such third-party sales and marketing relationships, or choose not to do so,
we will have to establish our own in-house capabilities. We, as a company, have no experience in marketing or selling pharmaceutical
products and currently have no sales, marketing, or distribution infrastructure. To market any of our products directly, we would
need to develop a marketing, sales, and distribution force that both has technical expertise and the ability to support a distribution
capability. To establish our own marketing, sales, and distribution capacity would significantly increase our costs, and require
substantial additional capital. In addition, there is intense competition for proficient sales and marketing personnel, and we
might not be able to attract individuals who have the qualifications necessary to market, sell, and distribute our products. There
can be no assurance that we will be able to establish internal marketing, sales, or distribution capabilities.
The commercial success of our product
candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical
community.
The commercial success of our products,
if approved for marketing, will depend in part on the medical community, patients and third-party payors accepting our product
candidates as effective and safe. If these products do not achieve an adequate level of acceptance, we may not generate significant
product revenue and may not become profitable. The degree of market acceptance of our products, if approved for marketing, will
depend on a number of factors, including:
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the actual or perceived safety and efficacy of the products, and advantages over alternative treatments;
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the pricing and cost-effectiveness of our products relative to competing products or therapies, including generic drugs or biosimilars, if available;
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the labeling of any approved product;
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the prevalence and severity of any side effects, including any limitations or warnings contained in a product's approved labeling;
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the emergence, and timing of market introduction, of competitive products;
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the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and
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the availability of third-party insurance coverage or governmental reimbursement.
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Even if a potential product displays a
favorable efficacy and safety profile in nonclinical studies and clinical trials, market acceptance of the product will not be
known until after it is launched. Any failure to achieve market acceptance for our product candidates will harm our business, results
and financial condition.
If we lose key management or scientific
personnel, cannot recruit qualified employees, directors, officers, or other significant personnel or experience increases in our
compensation costs, our business might materially suffer.
We are highly dependent on the services
of our executive officers and senior management team. Our employment agreements with our executive officers and senior management
team members do not ensure their retention.
Furthermore, our future success also depends,
in part, on our ability to identify, hire, and retain additional management team members as our operations grow and our ability
to replace our management team members in the event any leave us for any reason. We expect to experience intense competition for
qualified personnel and might be unable to attract and retain the personnel necessary for the development of our business. Finally,
we do not currently maintain, nor do we intend to obtain in the future, “key man” life insurance that would compensate
us in the event of the death or disability of any of the members of our management team.
The failure by us to retain, attract and
motivate executives and other key employees could have a material adverse impact on our business, financial condition and results
of operations.
If we are unable to hire additional
qualified personnel, our ability to grow our business might be harmed.
As of June 30, 2018, we had 89 employees
and contracts with a number of temporary contractors, consultants and contract research organizations. We will need to hire or
contract with additional qualified personnel with expertise in clinical research and testing, formulation and manufacturing and
sales and marketing to commercialize our HBV drug candidates and our microbiome biotherapeutic candidates or any other product
candidate we may seek to develop. We compete for qualified individuals with numerous biopharmaceutical companies, universities
and other research institutions. Competition for these individuals is intense, and we cannot be certain that our search for such
personnel will be successful. Attracting and retaining qualified personnel will be critical to our success.
We might not successfully manage
our growth.
Our success will depend upon the expansion
of our operations and the effective management of our growth, which will place a significant strain on our current and future management
and other administrative and operational resources. To manage this growth, we may need to expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified personnel. If we are unable to manage our growth effectively,
our business would be harmed.
We might seek to develop our business
through acquisitions of or investment in new or complementary businesses, products or technologies, and the failure to manage these
acquisitions or investments, or the failure to integrate them with our existing business, could have a material adverse effect
on us.
We might consider opportunities to acquire
or invest in other technologies, products and businesses that might enhance our capabilities or complement our current product
candidates. Potential and completed acquisitions and strategic investments involve numerous risks, including potential problems
or issues associated with the following:
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assimilating the purchased technologies, products or business operations;
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maintaining uniform standards, procedures, controls and policies;
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unanticipated costs associated with the acquisition or investment;
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diversion of our management’s attention from our preexisting business;
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maintaining or obtaining the necessary regulatory approvals or complying with regulatory requirements; and
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adverse effects on existing business operations.
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We have no current commitments with respect
to any acquisition or investment in other technologies or businesses. We do not know if we will identify suitable acquisitions,
whether we will be able to successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired
product, technology or business into our business or retain key personnel, suppliers or collaborators.
Our ability to develop successfully our
business through acquisitions would depend on our ability to identify, negotiate, complete and integrate suitable target businesses
or technologies and obtain any necessary financing. These efforts could be expensive and time consuming and might disrupt our ongoing
operations. If we are unable to integrate efficiently any acquired business, technology or product into our business, our business
and financial condition might be adversely affected.
Risks Related to Our Regulatory and
Legal Environment
We are and will be subject to extensive
and costly government regulation and the failure to comply with these regulations may have a material adverse effect on our operations
and business.
Product candidates employing our technology
are subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare
and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice, state
and local governments, and their respective foreign equivalents. Both before and after approval of any product, we and our collaborators,
suppliers, contract manufacturers and clinical investigators are subject to extensive regulation by governmental authorities in
the United States and other countries, covering, among other things, testing, manufacturing, quality control, clinical trials,
post-marketing studies, labeling, advertising, promotion, distribution, import and export, governmental pricing, price reporting
and rebate requirements. Failure to comply with applicable requirements could result in one or more of the following actions: warning
or untitled letters; unanticipated expenditures; delays in approval or refusal to approve a product candidate; voluntary product
recall; product seizure; interruption of manufacturing or clinical trials; operating or marketing restrictions; injunctions; criminal
prosecution and civil or criminal penalties including fines and other monetary penalties; exclusion from federal health care programs
such as Medicare and Medicaid; adverse publicity; and disruptions to our business. Further, government investigations into potential
violations of these laws would require us to expend considerable resources and face adverse publicity and the potential disruption
of our business even if we are ultimately found not to have committed a violation. If products employing our technologies are marketed
abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained FDA approval
for a given product and its uses. Such foreign regulation might be equally or more demanding than corresponding U.S. regulation.
Government regulation substantially increases
the cost and risk of researching, developing, manufacturing, and selling our product candidates. The regulatory review and approval
process, which includes nonclinical testing and clinical trials of each product candidate, is lengthy, expensive, and uncertain.
We or our collaborators must obtain and maintain regulatory authorization to conduct clinical trials and approval for each product
we intend to market, and the manufacturing facilities used for the products must be inspected and meet legal requirements. Securing
regulatory approval requires submitting extensive nonclinical and clinical data and other supporting information for each proposed
therapeutic indication in order to establish the product’s safety and efficacy for each intended use. The development and
approval process might take many years, requires substantial resources, and might never lead to the approval of a product.
Even if we or our collaborators are able
to obtain regulatory approval for a particular product, the approval might limit the intended medical uses for the product, limit
our ability to promote, sell, and distribute the product, require that we conduct costly post-marketing surveillance, and/or require
that we conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes
or revised labeling, might require further regulatory review and approval. Once obtained, any approvals might be withdrawn, including,
for example, if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety
issue.
If we, our collaborators, or our contract
manufacturers fail to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance
could result in, among other things, delays in the approval of applications or supplements to approved applications; refusal by
a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved applications;
untitled letters or warning letters; fines; import and export restrictions; product recalls or seizures; injunctions; total or
partial suspension of production; civil penalties; withdrawals of previously approved marketing applications; recommendations by
the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
The regulatory approval processes
of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we or our collaborators
are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
We, or any current or future collaborators,
cannot assure you that we will receive the approvals necessary to commercialize for sale any of our product candidates, or any
product candidate we acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the
United States and approvals from the applicable regulatory authorities in foreign jurisdictions to commercialize our product candidates
in those jurisdictions. In order to obtain FDA approval of any product candidate, we must submit to the FDA an NDA, in the case
of our HBV-cure program, or a BLA, in the case of our product candidates in our Microbiome program, demonstrating that the product
candidate is safe for humans and effective for its intended use (for biological products, this standard is referred to as safe,
pure and potent). This demonstration requires significant research, nonclinical studies, and clinical trials. Satisfaction of the
FDA’s regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We cannot predict whether our research and clinical approaches
will result in drugs or biological products that the FDA considers safe for humans and effective for their indicated uses. The
FDA has substantial discretion in the approval process and might require us to conduct additional nonclinical and clinical testing,
perform post-marketing studies or otherwise limit or impose conditions on any approval we obtain.
The approval process might also be delayed
by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or
during our regulatory review. Delays in obtaining regulatory approvals might:
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delay commercialization of, and our ability to derive product revenues from, our product candidates;
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impose costly procedures on us; and
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diminish any competitive advantages that we might otherwise enjoy.
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Even if we comply with all FDA requests,
the FDA might ultimately reject one or more of our NDAs or BLAs. We cannot be sure that we will ever obtain regulatory approval
for our product candidates. Failure to obtain FDA approval of our product candidates will severely undermine our business by leaving
us without a saleable product, and therefore without any source of revenues, until another product candidate could be developed
or obtained. There is no guarantee that we will ever be able to develop an existing, or acquire another, product candidate.
In foreign jurisdictions, we must receive
approval from the appropriate regulatory authorities before we can commercialize any product candidates. The risks associated with
foreign regulatory approval processes are similar to the risks associated with the FDA approval procedures described above. We
cannot assure you that we will receive the approvals necessary to commercialize our product candidates for sale outside the United
States.
Even if our product candidates are
approved, we and our collaborators will be subject to extensive post-approval regulation, including ongoing obligations and continued
regulatory review, which may result in significant additional expense. If approved, our product candidates could be subject to
post-marketing restrictions or withdrawal from the market and we, or any collaborators, may be subject to substantial penalties
if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products
following approval.
Once a product candidate is approved, numerous
post-approval requirements apply. Among other things, we and our collaborators will be subject to requirements regarding testing,
manufacturing, quality control, clinical trials, post-marketing studies, labeling, advertising, promotion, distribution, import
and export, governmental pricing, price reporting and rebate requirements. The holder of an approved NDA or BLA is subject to ongoing
FDA oversight, monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of
the failure of a product to meet the specifications in the NDA or BLA. Application holders must submit new or supplemental applications
and obtain FDA approval for changes to the approved product, product labeling, or manufacturing process, depending on the nature
of the change. Application holders also must submit advertising and other promotional material to the FDA and report on ongoing
clinical trials. The FDA also has the authority to require changes in the labeling of approved drug products and to require post-marketing
studies. The FDA can also impose distribution and use restrictions under a REMS.
Advertising and promotional materials must
comply with FDA rules in addition to other applicable federal and state laws. The distribution of product samples to physicians
must comply with the requirements of the Prescription Drug Marketing Act. Manufacturing facilities remain subject to FDA inspection
and must continue to adhere to the FDA’s cGMP requirements. Sales, marketing, and scientific/educational grant programs,
among other activities, must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act,
and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus
Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to
authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.
All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.
Depending on the circumstances, failure
to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products,
total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter
into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information
regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
The policies of the FDA and of other regulatory
authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of our product candidates. 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 administration may impact our business and industry. Namely, the current 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,
FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance,
and review and approval of marketing applications. Notably, on January 30, 2017, an Executive Order was issued directing all
executive agencies, including the FDA, that, for each notice of proposed rulemaking or final regulation to be issued in fiscal
years 2018 and beyond, the agencies must identify regulations to offset any incremental cost of a new regulation. On September
8, 2017, the FDA published notices in the Federal Register soliciting broad public comment to identify regulations that could be
modified in compliance with these Executive Orders. It is difficult to predict how these requirements will be implemented, and
the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose
restrictions on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may
be negatively impacted. In addition, if we are slow or unable to adapt to changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may
have obtained and we may not achieve or sustain profitability.
Even if we or our collaborators are
able to commercialize any product candidates, those products may become subject to unfavorable pricing regulations, third-party
coverage and reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals,
pricing and reimbursement for new medicines vary widely from country to country. In the United States, recently enacted legislation
may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals.
Some countries require approval of the sale price of a medicine before it can be marketed. In many countries, the pricing review
period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing
remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing
approval for a medicine in a particular country, but then be subject to price regulations that delay our commercial launch of the
medicine, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the medicine
in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates,
even if our product candidates obtain marketing approval.
Our ability to commercialize any medicines
successfully also will depend in part on the extent to which reimbursement for these medicines and related treatments will be available
from government health administration authorities, private health insurers and other organizations. Government authorities and
third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay
for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government
authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from
list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available
for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may
impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available
or is available only to limited levels, we may not be able to commercialize successfully any product candidate for which we obtain
marketing approval.
There may be significant delays in obtaining
reimbursement for newly approved medicines, and coverage may be more limited than the purposes for which the medicine is approved
by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply
that any medicine will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture,
sale and distribution. Interim reimbursement levels for new medicines, if applicable, may also not be sufficient to cover our costs
and may not be made permanent. Reimbursement rates may vary according to the use of the medicine and the clinical setting in which
it is used, may be based on reimbursement levels already set for lower cost medicines and may be incorporated into existing payments
for other services. Net prices for medicines may be reduced by mandatory discounts or rebates required by government healthcare
programs or private payors and by any future relaxation of laws that presently restrict imports of medicines from countries where
they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment
limitations in setting their own reimbursement policies. Our inability to obtain promptly coverage and profitable payment rates
from both government-funded and private payors for any approved product candidates that we develop could have a material adverse
effect on our operating results, our ability to raise capital needed to commercialize product candidates and our overall financial
condition.
In the United States and in other countries,
there have been, and we expect there will continue to be, a number of legislative and regulatory proposals to change the healthcare
system in ways that could significantly affect our business. International, federal and state lawmakers regularly propose and,
at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain
or reduce the costs of medical products and services. The U.S. government and other governments have shown significant interest
in pursuing healthcare reform, as evidenced by the Patient Protection and Affordable Care Act and its amendment, the Health Care
and Education Reconciliation Act (the ACA).
Among the provisions of the ACA of importance
to our potential drug candidates are the following:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologics;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
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expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices;
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extension of manufacturers’ Medicaid rebate liability;
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expansion of eligibility criteria for Medicaid programs;
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expansion of the entities eligible for discounts under the Public Health Service Act pharmaceutical pricing program;
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new requirements to report financial arrangements with physicians and teaching hospitals;
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a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
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Since its enactment, there have been many
judicial, Presidential, and Congressional challenges to numerous aspects of the ACA. In 2012, the U.S. Supreme Court heard challenges
to the constitutionality of the individual mandate and the viability of certain provisions of the Healthcare Reform Act. The Supreme
Court’s decision upheld most of the Healthcare Reform Act and determined that requiring individuals to maintain “minimum
essential” health insurance coverage or pay a penalty to the Internal Revenue Service was within Congress’s constitutional
taxing authority. However, as a result of tax reform legislation passed in late December 2017, the individual mandate has been
eliminated. The long ranging effects of the elimination of the individual mandate on the viability of the ACA are unknown at this
time.
On January 20, 2017, President Trump
signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant
exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost,
fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals
or medical devices. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that
reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies,
but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, Centers
for Medicare & Medicaid Services has recently proposed regulations that would give states greater flexibility in setting
benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health
benefits required under the ACA for plans sold through such marketplaces. The full impact of the ACA, any law repealing and/or
replacing elements of it, and the political uncertainty surrounding any repeal or replacement legislation on our business remains
unclear.
In addition, other legislative changes
have been proposed and adopted since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers
of up to 2% per fiscal year, starting in 2013. In January 2013, then President Obama signed into law the American Taxpayer Relief
Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions
in Medicare and other healthcare funding. Further, in some foreign jurisdictions, there have been a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. The continuing
efforts of U.S. and other governments, insurance companies, managed care organizations and other payors of healthcare services
to contain or reduce healthcare costs may adversely affect our ability to set satisfactory prices for our products, to generate
revenues, and to achieve and maintain profitability.
We and our collaborators may be
subject, directly or indirectly, to applicable U.S. federal and state anti-kickback, false claims laws, physician payment
transparency laws, fraud and abuse laws or similar healthcare and security laws and regulations, and health information
privacy and security laws, which could expose us or them to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and others
play a primary role in the recommendation and prescription of any products for which we obtain regulatory approval. If we obtain
FDA approval for any of our drug candidates and begin commercializing those drugs in the United States, our operations may be subject
to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal
False Claims Act, and physician payment sunshine laws and regulations. These laws may impact, among other things, our proposed
sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government
and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False Claims Act, which impose criminal and civil penalties and authorize civil whistleblower or qui tam actions, against individuals or entities for, among other things: knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent; making a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and 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 Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to 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;
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the U.S. federal Food, Drug and Cosmetic Act (FDCA), which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices, and the Public Health Service Act (PHSA), which prohibits, among other things, the introduction into interstate commerce of a biological product unless a biologics license is in effect for that product;
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the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.
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Additionally, we are subject to state and
non-U.S. equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may
apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply
to the referral of patients for healthcare services reimbursed by any source, not just governmental payors, including private insurers.
In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector
General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s
Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical
companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these
state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties.
In addition, regulators globally are also
imposing greater monetary fines for privacy violations. For example, in 2016, the European Union adopted a new regulation governing
data practices and privacy called the General Data Protection Regulation (GDPR), which became effective on May 25, 2018. The GDPR
applies to any company established in the European Union as well as to those outside the European Union if they collect and use
personal data in connection with the offering goods or services to individuals in the European Union or the monitoring of their
behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for
example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory
data breach notification requirements and onerous new obligations on services providers. Non-compliance with the GDPR may result
in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is higher. The GDPR and other changes in
laws or regulations associated with the enhanced protection of certain types of personal data, such as healthcare data or other
sensitive information, could greatly increase our cost of providing our products and services or even prevent us from offering
certain services in jurisdictions that we may operate in.
Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could
be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these
laws. For example, the ACA, among other things, amends the intent requirement of the federal Anti-Kickback and criminal healthcare
fraud statutes. As a result of such amendment, a person or entity no longer needs to have actual knowledge of these statutes or
specific intent to violate them in order to have committed a violation. Moreover, the ACA provides that 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.
Violations of fraud and abuse laws may
be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension from federal and state
healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private
individuals have the ability to bring actions on behalf of the U.S. government under the federal False Claims Act as well as under
the false claims laws of several states.
Law enforcement authorities are increasingly
focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. 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 any
such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages,
disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,
contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which
could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization
of any of our drug candidates outside the United States will also likely subject us to non-U.S. equivalents of the healthcare laws
mentioned above, among other non-U.S. laws.
If any of the physicians or other providers
or entities with whom we expect to do business with 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, which may also
adversely affect our business.
If we fail to maintain an effective
system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial
statements or comply with applicable regulations could be impaired.
As a public company, we are subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act and the
listing standards of NASDAQ, the exchange on which our common stock is listed. We expect that the requirements of these rules and
regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult,
time consuming and costly and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among
other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are
continuing to refine our disclosure controls and other procedures that are designed to ensure that the information that we are
required to disclose in the reports that we will file with the SEC is properly recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. We are also continuing to improve our internal control over financial reporting.
We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness
of our disclosure controls and procedures and internal control over financial reporting.
Our current controls and any new controls
that we develop in the future may become inadequate because of changes in conditions in our business. Further, weaknesses in our
disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or
maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results
or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results
of management reports and independent registered public accounting firm audits of our internal control over financial reporting
that we will be required to include in our periodic reports that will be filed with the SEC. If we were to have ineffective disclosure
controls and procedures or internal control over financial reporting, our investors could lose confidence in our reported financial
and other information, which would likely have a negative effect on the market price of our common stock.
We face the risk of product liability
claims and might not be able to obtain insurance.
Our business exposes us to the risk of
product liability claims that are inherent in the development of drugs and biotherapeutics. If the use of one or more of our product
candidates or approved drugs, if any, harms people, we might be subject to costly and damaging product liability claims brought
against us by clinical trial participants, consumers, health care providers, pharmaceutical companies or others selling our products.
Our inability to obtain sufficient product liability/clinical trial insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop. We cannot predict
all of the possible harms or side effects that might result and, therefore, the amount of insurance coverage we maintain might
not be adequate to cover all liabilities we might incur. We intend to expand our insurance coverage to include product liability
insurance covering the sale of commercial products if we obtain marketing approval for our drug candidates in development, but
we might be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. If we
are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we will be
exposed to significant liabilities, which might materially and adversely affect our business and financial position. If we are
sued for any injury allegedly caused by our products, our liability could exceed our total assets and our ability to pay the liability.
Any successful product liability claims or series of claims brought against us would decrease our cash and could cause the value
of our common stock to decrease.
We might be exposed to liability
claims associated with the use of hazardous materials and chemicals.
Our research, development and manufacturing
activities and/or those of our third-party contractors might involve the controlled use of hazardous materials and chemicals. Although
we will strive to have our safety procedures, and those of our contractors, for using, storing, handling and disposing of these
materials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury
or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages, and
any liability could materially adversely affect our business, financial condition and results of operations. In addition, the federal,
state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive
materials and waste products might require us to incur substantial compliance costs that could materially adversely affect our
business, financial condition and results of operations. We currently do not carry hazardous materials liability insurance. We
intend to obtain such insurance in the future, if necessary, but cannot give assurance that we could obtain such coverage.
Our employees, independent contractors,
consultants, collaborators and contract research organizations may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements, which could result in significant liability for us and harm our reputation.
We are exposed to the risk of fraud or
other misconduct, including intentional failure to:
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comply with FDA regulations or similar regulations of comparable foreign regulatory authorities;
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provide accurate information to the FDA or comparable foreign regulatory authorities;
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comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities;
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comply with the United States Foreign Corrupt Practices Act (the FCPA), the U.K. anti-bribery laws, the China anti-bribery laws and other anti-bribery laws;
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report financial information or data accurately; or
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disclose unauthorized activities to us.
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Misconduct could also involve the improper
use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our nonclinical
studies or clinical trials or illegal misappropriation of product materials, which could result in regulatory sanctions, delays
in clinical trials, or serious harm to our reputation. We have adopted a code of conduct for our directors, officers and employees
(the Code of Conduct), but it is not always possible to identify and deter employee misconduct. The precautions we take to detect
and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally,
we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any
such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions
could harm our business, results of operations, financial condition and cash flows, including through the imposition of significant
fines or other sanctions.
We are subject to certain U.S. and
foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations (collectively,
Trade Laws). We can face serious consequences for violations.
Among other matters, Trade Laws prohibit
companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and
other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper
payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in
substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach
of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials
and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect
our non-U.S. activities, particularly in China, to increase in time. We engage third parties for clinical trials and/or to obtain
necessary permits, licenses, patent registrations, and other regulatory approvals. We can be held liable for the corrupt or other
illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such
activities.
We are establishing international
operations and conducting clinical trials outside of the United States, including in China, and a number of risks associated with
international operations could materially and adversely affect our business.
We expect to be subject to a number of
risks related with our international operations, many of which may be beyond our control. These risks include:
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different regulatory requirements for drug approvals in foreign countries;
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different standards of care in various countries that could complicate the evaluation of our product candidates;
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different U.S. and foreign drug import and export rules;
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different reimbursement systems and different competitive drugs indicated to treat the indication for which our product candidates are being developed;
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reduced protection for intellectual property rights in certain countries;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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compliance with the FCPA and other anti-corruption and anti-bribery laws;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations and compliance with foreign currency exchange rules, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.
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Risks Related to Our Intellectual
Property
Our business depends on protecting
our intellectual property.
If we and our licensors, IURTC and Therabiome,
do not obtain protection for our respective intellectual property rights, our competitors might be able to take advantage of our
research and development efforts to develop competing drugs. Our success, competitive position and future revenues, if any, depend
in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes
and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to
operate without infringing the proprietary rights of third parties.
We seek to protect our proprietary position
by filing patent applications in the United States and abroad related to our novel technologies and chemical and biological compositions
that are important to our business. To date, although our licensors and the Company have filed patent applications and we have
an issued patent in the U.S. related to our licensed delivery technology, we do not own or have any rights to any issued patents
that cover any of our product candidates, and we cannot be certain that we will secure any rights to any issued patents with claims
that cover any of our proprietary product candidates and technologies. The patent prosecution process is expensive and time-consuming,
and we 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 will fail to identify patentable aspects of our research and development output before it is
too late to obtain patent protection.
The patent process also is subject to numerous
risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending
patents. These risks and uncertainties include the following:
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Any patent rights, if obtained, might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;
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Our competitors, many of which have substantially greater resources than we do and many of which might make significant investments in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products either in the United States or in international markets;
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As a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful; and
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Countries other than the United States might have patent laws that provide less protection than those governing U.S. courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products.
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In addition, the U.S. Patent and Trademark
Office (the USPTO) and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical
and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified
in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents might be substantially narrower than anticipated.
Patent and other intellectual property
protection is crucial to the success of our business and prospects, and there is a substantial risk that such protections, if obtained,
will prove inadequate. Our business and prospects will be harmed if we fail to obtain these protections or they prove insufficient.
If we fail to comply with our obligations
under our license agreements, we could lose rights to our product candidates or key technologies.
We have obtained rights to develop, market
and sell some of our product candidates and technologies through intellectual property license agreements with third parties, including
IURTC and Therabiome. These license agreements impose various diligence, milestone payment, royalty and other obligations on us.
If we fail to comply with our obligations under our license agreements, we could lose some or all of our rights to develop, market
and sell products covered by these licenses, and our ability to form collaborations or partnerships may be impaired. In addition,
disputes may arise under our license agreements with third parties, which could prevent or impair our ability to maintain our current
licensing arrangements on acceptable terms and to develop and commercialize the affected product candidates.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights.
If we choose to go to court to stop another
party from using the inventions claimed in any patents we obtain, that individual or company has the right to ask the court to
rule that such patents are invalid or should not be enforced against that third party. These lawsuits are expensive and would consume
time and resources and divert the attention of managerial and scientific personnel even if we were successful in stopping the infringement
of such patents. There is a risk that the court will decide that such patents are not valid and that we do not have the right to
stop the other party from using the inventions. There is also the risk that, even if the validity of such patents is upheld, the
court will refuse to stop the other party on the ground that such other party's activities do not infringe our rights to such patents.
If we were not successful in defending our intellectual property, our competitors could develop and market products based on our
discoveries, which may reduce demand for our products.
We rely on trade secret protections
through confidentiality agreements with our employees, customers and other parties, and the breach of these agreements could adversely
affect our business and prospects.
We rely on trade secrets and proprietary
know-how, which we seek to protect, in part, through confidentiality, invention, and non-disclosure agreements with our employees,
scientific advisors, consultants, collaborators, suppliers, and other parties. There can be no assurance that these agreements
will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become
known to or independently developed by our competitors. If any of these events occurs, or we otherwise lose protection for our
trade secrets or proprietary know-how, the value of this information may be greatly reduced.
If our employees or consultants breach
their confidentiality obligations, to be able to enforce these confidentiality provisions, we would need to know of the breach
and have sufficient funds to enforce the provisions. We cannot assure you that we would know of or be able to afford enforcement
of any breach. In addition, such provisions are subject to state law and interpretation by courts, which could limit the scope
and duration of these provisions. Any limitation on or non-enforcement of these confidentiality provisions could have an adverse
effect on our business.
We may infringe the intellectual
property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase
the costs of commercializing our product candidates.
Our success will depend in part on our
ability to operate without infringing the proprietary rights of third parties. Our competitors may have filed, and may in the future
file, patent applications covering products and technologies similar to ours. Any such patent application may have priority over
our patent applications, which could further require us to obtain rights from third parties to issued patents covering such products
and technologies. We cannot guarantee that the manufacture, use or marketing of any product candidates that we develop will not
infringe third-party patents.
A third party may claim that we are using
inventions covered by the third party's patent rights and may go to court to stop us from engaging in our normal operations and
activities, including making or selling our product candidates. Patent litigation is costly and time consuming. We may not have
sufficient resources to address these actions, and such actions could affect our results of operations and divert the attention
of managerial and scientific personnel.
If a patent infringement suit were brought
against us, we may be forced to stop or delay developing, manufacturing, or selling potential products that are claimed to infringe
a third party's intellectual property, unless that third party grants us rights to use its intellectual property. In such cases,
we may be required to obtain licenses to patents or proprietary rights of others in order to continue development, manufacture
or sale of our products. If we are unable to obtain a license or develop or obtain non-infringing technology, or if we fail to
defend an infringement action successfully, or if we are found to have infringed a valid patent, we may incur substantial monetary
damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling
our product candidates, any of which could harm our business significantly.
If our efforts to protect our proprietary
technologies are not adequate, we may not be able to compete effectively in our market.
We rely upon a combination of patents,
trade secret protection and contractual arrangements to protect the intellectual property related to our technologies. We will
only be able to protect our products and proprietary information and technology by preventing unauthorized use by third parties
to the extent that our patents, trade secrets, and contractual position allow us to do so. Any disclosure to or misappropriation
by third parties of our trade secrets or confidential information could compromise our competitive position. Moreover, we may in
the future be involved in legal or administrative proceedings involving our intellectual property initiated by third parties, and
which proceedings can result in significant costs and commitment of management time and attention. As our product candidates continue
in development, third parties may attempt to challenge the validity and enforceability of our patents and proprietary information
and technologies.
We may in the future be involved in initiating
legal or administrative proceedings involving the product candidates and intellectual property of our competitors. These proceedings
can result in significant costs and commitment of management time and attention, and there can be no assurance that our efforts
would be successful in preventing or limiting the ability of our competitors to market competing products.
Composition-of-matter patents relating
to the active pharmaceutical ingredient (API) are generally considered to be the strongest form of intellectual property protection
for pharmaceutical products. Such patents provide protection not limited to any one method of use. Method-of-use patents protect
the use of a product for the specified method(s), and do not prevent a competitor from making and marketing a product that is identical
to our product for an indication that is outside the scope of the patented method. We rely on a combination of these and other
types of patents to protect our product candidates, and there can be no assurance that our intellectual property will create and
sustain the competitive position of our product candidates.
Biotechnology and pharmaceutical product
patents involve highly complex legal and scientific questions and can be uncertain. Any patent applications that we own or license
may fail to result in issued patents. Even if patents do successfully issue from our applications, third parties may challenge
their validity or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable. Even if
our patents and patent applications are not challenged by third parties, those patents and patent applications may not prevent
others from designing around our claims and may not otherwise adequately protect our product candidates. If the breadth or strength
of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened, competitors
with significantly greater resources could threaten our ability to commercialize our product candidates. Discoveries are generally
published in the scientific literature well after their actual development, and patent applications in the United States and other
countries are typically not published until 18 months after filing, and in some cases are never published. Therefore, we cannot
be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or patent applications,
or that we or our licensors were the first to file for patent protection covering such inventions. Subject to meeting other requirements
for patentability, for U.S. patent applications filed prior to March 16, 2013, the first to invent the claimed invention is entitled
to receive patent protection for that invention while, outside the United States, the first to file a patent application encompassing
the invention is entitled to patent protection for the invention. The United States moved to a “first to file” system
under the Leahy-Smith America Invents Act (AIA), effective March 16, 2013. The effects of this change and other elements of the
AIA are currently unclear, as the USPTO is still implementing associated regulations, and the applicability of the AIA and associated
regulations to our patents and patent applications have not been fully determined. This new system also includes new procedures
for challenging issued patents and pending patent applications, which creates additional uncertainty. We may become involved in
any variety of proceedings challenging our patents and patent applications or the patents and patent applications of others, and
the outcome of any such proceedings are highly uncertain. An unfavorable outcome in any such proceedings could reduce the scope
of, invalidate, and/or find our patent rights unenforceable, allowing third parties to commercialize our technology and compete
directly with us, or result in our inability to manufacture, develop or commercialize our product candidates without infringing
the patent rights of others. In addition to ongoing changes with the AIA and USPTO regulations, recent decisions of the Supreme
Court of the United States, and the possibility of statutory change to patent subject matter eligibility law advocated by such
groups as the Intellectual Property Owners Association and the American Intellectual Property Law Association, provide additional
uncertainty.
In addition to the protection afforded
by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how, information,
or technology that is not covered by our patents. Although our agreements require all of our employees to assign their inventions
to us, and we require all of our employees, consultants, advisors and any third parties who have access to our trade secrets, proprietary
know-how and other confidential information and technology to enter into appropriate confidentiality agreements, we cannot be certain
that our trade secrets, proprietary know-how and other confidential information and technology will not be subject to unauthorized
disclosure or that our competitors will not otherwise gain access to or independently develop substantially equivalent trade secrets,
proprietary know-how and other information and technology. Furthermore, the laws of some foreign countries, in particular China,
where we anticipate increasing our activity and commercializing our product candidates, do not protect proprietary rights to the
same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting
and defending our intellectual property globally. If we are unable to prevent unauthorized disclosure of our intellectual property
related to our product candidates and technology to third parties, we may not be able to establish or maintain a competitive advantage
in our market, which could materially adversely affect our business and operations.
Our reliance on third parties and
agreements with collaboration partners requires us to share our trade secrets, which increases the possibility that a competitor
may discover them or that our trade secrets will be misappropriated or disclosed.
Our reliance on third-party contractors
to develop and manufacture our product candidates is based upon agreements that limit the rights of the third parties to use or
disclose our confidential information, including our trade secrets and know-how. Despite the contractual provisions, the need to
share trade secrets and other confidential information increases the risk that such trade secrets and information are disclosed
or used, even if unintentionally, in violation of these agreements. In the highly competitive markets in which our product candidates
are expected to compete, protecting our trade secrets, including our strategies for addressing competing products, is imperative,
and any unauthorized use or disclosure could impair our competitive position and may have a material adverse effect on our business
and operations.
In addition, some of our collaboration
partners are larger, more complex organizations than ours, and the risk of inadvertent disclosure of our proprietary information
may be increased despite their internal procedures and contractual obligations in place with our collaboration partners. Despite
our efforts to protect our trade secrets and other confidential information, a competitor’s discovery of such trade secrets
and information could impair our competitive position and have an adverse impact on our business.
We are developing an extensive worldwide
patent portfolio. The cost of maintaining our patent protection is high and maintaining our patent protection requires continuous
review and compliance in order to maintain worldwide patent protection. We may not be able to maintain effectively our intellectual
property position throughout the major markets of the world.
The USPTO and foreign patent authorities
require maintenance fees and payments as well as continued compliance with a number of procedural and documentary requirements.
Noncompliance may result in abandonment or lapse of the subject patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. Non-compliance may result in reduced royalty payments for lack of patent coverage
in a particular jurisdiction from our collaboration partners or may result in competition, either of which could have a material
adverse effect on our business.
We have made, and will continue to make,
certain strategic decisions in balancing costs and the potential protection afforded by the patent laws of certain countries. As
a result, we may not be able to prevent third parties from practicing our inventions in all countries throughout the world, or
from selling or importing products made using our inventions in and into the United States or other countries. Third parties may
use our technologies in territories in which we have not obtained patent protection to develop their own products and, further,
may infringe our patents in territories which provide inadequate enforcement mechanisms, even if we have patent protection. Such
third-party products may compete with our product candidates, and our patents or other intellectual property rights may not be
effective or sufficient to prevent them from competing.
The laws of some foreign countries
do not protect proprietary rights to the same extent as do the laws of the United States, and we may encounter significant problems
in securing and defending our intellectual property rights outside the United States
Many companies have encountered significant
problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries,
particularly countries such as China, do not always favor the enforcement of patents, trade secrets, and other intellectual property
rights, particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for us to stop
infringement of our patents, misappropriation of our trade secrets, or marketing of competing products in violation of our proprietary
rights. In China, our intended establishment of significant operations will depend in substantial part on our ability to enforce
effectively our intellectual property rights in that country. Proceedings to enforce our intellectual property rights in foreign
countries could result in substantial costs and divert our efforts and attention from other aspects of our business and could put
our patents in these territories at risk of being invalidated or interpreted narrowly, or our patent applications at risk of not
being granted and could provoke third parties to assert claims against us. We may not prevail in all legal or other proceedings
that we may initiate and, if we were to prevail, the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license.
Intellectual property rights do not
address all potential threats to any competitive advantage we may have.
The degree of future protection afforded
by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property
rights may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are the same as or similar to our current or future product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
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We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or have exclusively licensed.
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We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
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The prosecution of our pending patent applications may not result in granted patents.
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Granted patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
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Patent protection on our product candidates may expire before we are able to develop and commercialize the product, or before we are able to recover our investment in the product.
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Our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for such activities, as well as in countries in which we do not have patent rights and may then use the information learned from such activities to develop competitive products for sale in markets where we intend to market our product candidates.
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The existence of counterfeit pharmaceutical
products in pharmaceutical markets may damage our brand and reputation and have a material adverse effect on our business, operations
and prospects.
Counterfeit products, including counterfeit
pharmaceutical products, are a significant problem, particularly in China. Counterfeit pharmaceuticals are products sold or used
for research under the same or similar names, or similar mechanism of action or product class, but which are sold without proper
licenses or approvals. The proliferation of counterfeit pharmaceuticals has grown in recent years and may continue to grow in the
future. Such products may be used for indications or purposes that are not recommended or approved or for which there is no data
or inadequate data with regard to safety or efficacy. Such products divert sales from genuine products, often are of lower cost,
often are of lower quality (having different ingredients or formulations, for example), and have the potential to damage the reputation
for quality and effectiveness of the genuine product. If counterfeit pharmaceuticals illegally sold or used for research result
in adverse events or side effects to consumers, we may be associated with any negative publicity resulting from such incidents.
Consumers may buy counterfeit pharmaceuticals that are in direct competition with our pharmaceuticals, which could have an adverse
impact on our revenues, business and results of operations. In addition, counterfeit products could be used in nonclinical
studies or clinical trials or could otherwise produce undesirable side effects or adverse events that may be attributed to our
products as well, which could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in
the delay or denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. With
respect to China, although the government has recently been increasingly active in policing counterfeit pharmaceuticals, there
is not yet an effective counterfeit pharmaceutical regulation control and enforcement system in China. As a result, we may not
be able to prevent third parties from selling or purporting to sell our products in China. The existence of and any increase in
the sales and production of counterfeit pharmaceuticals, or the technological capabilities of counterfeiters, could negatively
impact our revenues, brand reputation, business and results of operations.
Risks Related to Our Common Stock
We might not be able to maintain
the listing of our common stock on The NASDAQ Capital Market.
Our common stock is listed on The NASDAQ
Capital Market under the symbol “ASMB.” We might not be able to maintain the listing standards of that exchange. If
we fail to maintain the listing requirements, our common stock might trade on the OTC Bulletin Board or in the “pink sheets”
maintained by OTC Markets Group Inc. These alternative markets are generally considered to be markets that are less efficient and
less broad than The NASDAQ Capital Market. A delisting of our common stock from The NASDAQ Capital Market and our inability to
list the stock on another national securities exchange could negatively impact us by: (i) reducing the liquidity and market price
of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively
impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely
tradable securities, thereby preventing us from accessing the public capital markets and (iv) impairing our ability to provide
equity incentives to our employees.
The price of our common stock might
fluctuate significantly, and you could lose all or part of your investment.
Since our merger with Assembly Pharmaceuticals
on July 11, 2014 through June 30, 2018, the closing price of our common stock has fluctuated between $4.54 and $64.16. Continued
volatility in the market price of our common stock might prevent a stockholder from being able to sell shares of our common stock
at or above the price paid for such shares. The trading price of our common stock might be volatile and subject to wide price fluctuations
in response to various factors, including:
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the progress, results and timing of our clinical trials and nonclinical studies and other studies involving our product candidates;
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success or failure of our product candidates;
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the receipt or loss of required regulatory approvals for our product candidates;
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availability of capital;
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future issuances by us of our common stock or securities exercisable for or convertible into common stock;
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sale of shares of our common stock by our significant stockholders or members of our management;
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additions or departures of key personnel;
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investor perceptions of us and the pharmaceutical industry;
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issuance of new or changed securities analysts’ reports or recommendations, or the announcement of any changes to our credit rating;
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introduction of new products or announcements of significant contracts, acquisitions or capital commitments by us or our competitors;
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threatened or actual litigation and government investigations;
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legislative, political or regulatory developments;
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the overall performance of the equity markets;
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actual or anticipated fluctuations in our quarterly financial and operating results;
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general economic conditions;
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changes in interest rates; and
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changes in accounting standards, policies, guidance, interpretations or principles.
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These and other factors might cause the
market price of our common stock to fluctuate substantially, which might limit or prevent investors from readily selling their
shares of our common stock and might otherwise negatively affect the liquidity of our common stock. In addition, in recent years,
the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the
market price of securities issued by many companies across many industries. The changes frequently appear to occur without regard
to the operating performance of the affected companies. Accordingly, the price of our common stock could fluctuate based upon factors
that have little or nothing to do with our company, and these fluctuations could materially reduce our share price.
We may be subject to securities litigation,
which is expensive and could divert management attention.
The market price of our common stock may
be volatile, and in the past, companies that have experienced volatility in the market price of their stock have been subject to
securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against
us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously
harm our business.
Our
principal stockholders and management own a significant percentage of our stock and will be able to exert significant control
over matters subject to stockholder approval.
At
June 30, 2018, our executive officers and directors owned approximately 7.8% of our outstanding voting common stock, and this
group together with other stockholders holding beneficially 5% of more of our outstanding voting common stock, owned approximately
51.3% of our outstanding voting common stock. Therefore, these stockholders, if acting together, have the ability to influence
us through their ownership position. These stockholders may be able to determine the outcome of certain significant matters requiring
stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational
documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited
acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
Our
ability to use our net operating loss and credit carryforwards to offset future taxable income may be subject to certain limitations.
At
December 31, 2017, we had potentially utilizable gross Federal net operating loss carryforwards of approximately $153.2 million,
State net operating loss carry-forwards of approximately $165.0 million and research and development credit carry forward of approximately
$5.6 million, all of which expire between 2027 and 2037. Our ability to utilize our net operating loss and credit carryforwards
is dependent upon our ability to generate taxable income in future periods and may be limited due to restrictions imposed on utilization
of net operating loss and credit carryforwards under federal and state laws upon a change in ownership.
Under Sections 382 and 383 of the Internal
Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change,” is subject to annual limitations
on its ability to use its pre-change net operating loss carryforwards (NOLs) and other pre-change tax attributes (such as research
tax credits) to offset its post-change income or taxes. For these purposes, an ownership change generally occurs where the equity
ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its
ownership by more than 50 percentage points over its lowest ownership percentage within a three-year period (calculated on a rolling
basis). We have determined that an ownership change occurred in each of December 2010, January 2013 and October 2014. The result
of these ownership changes is that approximately $40.0 million of our approximately $153.2 million of net operating losses will
not be available to us to offset future taxable income. In addition, we may experience ownership changes in the future, some of
which are outside our control. Accordingly, we may not be able to utilize a material portion of our net operating losses or credits.
Limitations on our ability to utilize our net operating losses to offset U.S. federal taxable income could potentially result in
increased future tax liability to us. In addition, at the state level, there may be periods during which the use of net operating
losses is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Because U.S. federal net operating losses
incurred in taxable periods beginning before January 1, 2018 generally may be carried forward for up to 20 years, the annual limitation
may effectively provide a cap on the cumulative amount of pre-ownership change losses, including certain recognized built-in losses
that may be utilized. Such pre-ownership change losses in excess of the cap may be lost. In addition, if an ownership change were
to occur, it is possible that the limitations imposed on our ability to use pre-ownership change losses and certain recognized
built-in losses could cause a net increase in our U.S. federal income tax liability and require U.S. federal income taxes to be
paid earlier than otherwise would be paid if such limitations were not in effect. Further, if for financial reporting purposes
the amount or value of these deferred tax assets is reduced, such reduction would have a negative impact on the book value of our
common stock.
In addition, under the Tax Cuts and Jobs
Act (the Tax Act), the amount of U.S. federal net operating losses generated in taxable periods beginning after December 31, 2017
that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income
is determined without regard to the NOL deduction itself. The Tax Act generally eliminates the ability to carry back any post-2017
NOL to prior taxable years, while allowing unused post-2017 NOLs to be carried forward indefinitely. There is a risk that due to
ownership changes, changes in law or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset
future income tax liabilities.
We do not intend to pay dividends
for the foreseeable future and our stock may not appreciate in value.
We currently intend to retain our future
earnings, if any, to finance the operation and growth of our business and do not expect to pay any cash dividends in the foreseeable
future. As a result, the success of an investment in shares of our common stock will depend upon any future appreciation in its
value. There is no guarantee that shares of our common stock will appreciate in value or that the price at which our stockholders
have purchased their shares will be able to be maintained.
The requirements of being a public
company add to our operating costs and might strain our resources and distract our management.
As a public company, we face increased
legal, accounting, administrative and other costs and expenses not faced by private companies. We are subject to the reporting
requirements of the Exchange Act, which requires that we file annual, quarterly and current reports with respect to our business
and financial condition, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, and The NASDAQ Capital Market,
each of which imposes additional reporting and other obligations on public companies. These rules and regulations increase our
legal and financial compliance costs and make some activities more time-consuming and costly, although we are currently unable
to estimate these costs with any degree of certainty. Complying with these requirements might divert management’s attention
from other business concerns, which could have a material adverse effect on our prospects, business, and financial condition.
Additionally, the expenses incurred by
public companies generally for reporting and corporate governance purposes have been increasing. These increased costs will require
us to divert a significant amount of money that we could otherwise use to develop our product candidates or otherwise expand our
business. If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock,
fines, sanctions and other regulatory action and potentially civil litigation.
Several provisions of the Delaware
General Corporation Law and our charter documents could discourage, delay or prevent a merger or acquisition, which could adversely
affect the market price of our securities.
Several provisions of the Delaware General
Corporation Law and our charter documents could discourage, delay or prevent a merger or acquisition that stockholders may consider
favorable, and the market price of our securities could be reduced as a result. These provisions may include:
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authorizing the issuance of “blank check” preferred stock, the terms of which we may establish and shares of which we may issue without stockholders’ approval;
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prohibiting us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless certain provisions are met;
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prohibiting cumulative voting in the election of directors;
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prohibiting shareholder action by written consent;
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limiting the persons who may call special meetings of stockholders; and
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establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
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If securities analysts downgrade
our stock or cease coverage of us, the price of our stock could decline.
The trading market for our common stock
relies in part on the research and reports that industry or financial analysts publish about us or our business. Currently, a limited
number of financial analysts publish reports about us and our business. We do not control these analysts or any other analysts.
Furthermore, there are many large, well-established, publicly traded companies active in our industry and market, which may mean
that it is less likely that we will receive widespread analyst coverage. If any analyst who covers us downgrades our stock, our
stock price would likely decline rapidly. If one or more analysts cease coverage of our company, we could lose visibility in the
market, which in turn could cause our stock price to decline.