(Address, including zip code and telephone
number, including area code, of registrant’s principal executive offices)
(Name, address, including zip code and
telephone number, including area code, of agent for service)
Approximate date
of commencement of proposed sale to the public: As soon as practicable after the effective date of the registration statement.
If any of the securities
being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended (the “Securities Act”), check the following box.
☒
If this form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If this form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
☐
RISK FACTORS
Investing in our securities includes
a high degree of risk. Prior to making a decision about investing in our securities, you should consider carefully the specific
factors discussed below, together with all of the other information contained in this prospectus and the documents incorporated
by reference, including the risks identified under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2018. Our business, financial condition, results of operations and prospects could be materially and
adversely affected by these risks.
Risks Related to Our Financial Condition
and Capital Requirements
We have a limited operating history, have incurred losses,
and can give no assurance of profitability.
We are a commercial-stage healthcare company
with a limited operating history. Prior to implementing our commercial strategy in the fourth calendar quarter of 2015, we did
not have a focus on profitability. As a result, we have not generated substantial revenue to date and are not profitable and have
incurred losses in each year since our inception. Our net loss for the years ended June 30, 2018 and 2017 was $10.2 million and
$22.5million, respectively. We have not demonstrated the ability to be a profit-generating enterprise to date. Even though we
expect to have revenue growth in the next several fiscal years, it is uncertain that the revenue growth will be significant enough
to offset our expenses and generate a profit in the future. Our ability to generate significant revenue is uncertain, and we may
never achieve profitability. We have a very limited operating history on which investors can evaluate our potential for future
success. Potential investors should evaluate us in light of the expenses, delays, uncertainties, and complications typically encountered
by early-stage healthcare businesses, many of which will be beyond our control. These risks include the following:
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uncertain market acceptance
of our products and product candidates;
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lack of sufficient
capital;
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U.S. regulatory approval
of our products and product candidates;
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foreign regulatory
approval of our products and product candidates;
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unanticipated problems,
delays, and expense relating to product development and implementation;
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lack of sufficient
intellectual property;
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the ability to attract
and retain qualified employees;
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As a result of our limited operating history,
and the increasingly competitive nature of the markets in which we compete, our historical financial data, is of limited value
in anticipating future operating expenses. Our planned expense levels will be based in part on our expectations concerning future
operations, which is difficult to forecast accurately based on our limited operating history and the recentness of the acquisition
of our products Natesto, ZolpiMist, and MiOXSYS. We may be unable to adjust spending in a timely manner to compensate for any
unexpected budgetary shortfall.
We have not received any substantial revenues
from the commercialization of our current products to date and might not receive significant revenues from the commercialization
of our current products or our product candidates in the near term. Even though Natesto and ZolpiMist are each an approved drug
that we are marketing, we only acquired Natesto in April 2016 and ZolpiMist in June 2018. In addition, we only launched our MiOXSYS
device in early fiscal 2017. As a result, we have limited experience on which to base the revenue we could expect to receive from
sales of these products. To obtain revenues from our products and product candidates, we must succeed, either alone or with others,
in a range of challenging activities, including expanding markets for our existing products and completing clinical trials of
our product candidates, obtaining positive results from those clinical trials, achieving marketing approval for those product
candidates, manufacturing, marketing and selling our existing products and those products for which we, or our collaborators,
may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private
insurance or government payors. We, and our collaborators, if any, may never succeed in these activities and, even if we do, or
one of our collaborators does, we may never generate revenues that are sufficient enough for us to achieve profitability.
We may need to raise additional
funding, which may not be available on acceptable terms, or at all. Failure to obtain necessary capital when needed may force
us to delay, limit or terminate our product expansion and development efforts or other operations.
We are expending resources to expand the
market for Natesto, ZolpiMist, and MiOXSYS, none of which might be as successful as we anticipate or at all and all of which might
take longer and be more expensive to market than we anticipate. We also are currently advancing our MiOXSYS device through clinical
development. Developing product candidates is expensive, lengthy and risky, and we expect to incur research and development expenses
in connection with our ongoing clinical development activities with the MiOXSYS System. As of June 30, 2018, our cash, cash equivalents
and restricted cash totaling $7.1 million, available to fund our operations offset by an aggregate $2.3 million in accounts payable
and other and accrued liabilities. In November 2016, we conducted a public offering of our common stock and warrants from which
we received gross proceeds of approximately $8.6 million. We closed on a private placement of common stock, Series A preferred
stock and warrants in August 2017 from which we received gross proceeds of approximately $11.8 million. We also closed on an underwritten
public offering of our common stock, warrants, and Series B preferred stock in March 2018 from which we received gross proceeds
of approximately $12.9 million. Our operating plan may change as a result of many factors currently unknown to us, and we may
need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party
funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a
combination of these approaches. In any event, we will require additional capital to continue the expansion of marketing efforts
for Natesto and ZolpiMist and to obtain regulatory approval for, and to commercialize, our current product candidate, the MiOXSYS
System. Raising funds in the current economic environment, as well our lack of operating history, may present additional challenges.
Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market
conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may
divert our management from their day-to-day activities, which may adversely affect our ability to expand any existing product
or develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available
in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings
or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility
of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities
would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we
may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations
on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely
impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners
or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our
technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect
on our business, operating results and prospects.
If we are unable to obtain funding on
a timely basis, we may be unable to expand the market for Natesto, ZolpiMist, or MiOXSYS and/or be required to significantly curtail,
delay or discontinue one or more of our research or development programs for the MiOXSYS system, or any future product candidate
or expand our operations generally or otherwise capitalize on our business opportunities, as desired, which could materially affect
our business, financial condition and results of operations.
If we do not obtain the capital
necessary to fund our operations, we will be unable to successfully expand the commercialization of Natesto and ZolpiMist and
to develop, obtain regulatory approval of, and commercialize, our current product candidate, the MiOXSYS System.
The expansion of marketing and commercialization
activities for our existing products and the development of pharmaceutical products, medical diagnostics and medical devices is
capital-intensive. We anticipate we may require additional financing to continue to fund our operations. Our future capital requirements
will depend on, and could increase significantly as a result of, many factors including:
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the costs, progress
and timing of our efforts to expand the marketing of Natesto and ZolpiMist;
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progress
in, and the costs of, our pre-clinical studies and clinical trials and other research
and development programs;
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the costs of securing
manufacturing arrangements for commercial production;
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the scope, prioritization
and number of our research and development programs;
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the achievement of
milestones or occurrence of other developments that trigger payments under any collaboration
agreements we obtain;
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the costs of establishing,
expanding or contracting for sales and marketing capabilities for any existing products
and if we obtain regulatory clearances to market our current product candidate, the MiOXSYS
system;
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the extent to which
we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs
under future collaboration agreements, if any; and
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the costs involved
in filing, prosecuting, enforcing and defending patent claims and other intellectual
property rights.
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If funds are not available, we may be
required to delay, reduce the scope of, or eliminate one or more of our commercialization efforts or our technologies, research
or development programs.
We will incur increased costs associated
with, and our management will need to devote substantial time and effort to, compliance with public company reporting and other
requirements.
As a public company, we incur significant
legal, accounting and other expenses. In addition, the rules and regulations of the SEC and any national securities exchange to
which we may be subject in the future impose numerous requirements on public companies, including requirements relating to our
corporate governance practices, with which we will need to comply. Further, we will continue to be required to, among other things,
file annual, quarterly and current reports with respect to our business and operating results. Based on currently available information
and assumptions, we estimate that we will incur up to approximately $500,000 in expenses on an annual basis as a direct result
of the requirements of being a publicly traded company. Our management and other personnel will need to devote substantial time
to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations, and our efforts
and initiatives to comply with those requirements could be expensive.
If we fail to establish and maintain
proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be
impaired.
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Pursuant to Section 404 of the Sarbanes-Oxley Act, our management
conducted an assessment of the effectiveness of our internal controls over financial reporting for the year ended June 30, 2018
and concluded that such control was effective.
However, if in the future we were to conclude
that our internal control over financial reporting were not effective, we cannot be certain as to the timing of completion of
our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available
by which to measure compliance adequacy. As a consequence, we may not be able to complete any necessary remediation process in
time to meet our deadline for compliance with Section 404 of the Sarbanes-Oxley Act. Also, there can be no assurance that we will
not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section
404 of the Sarbanes-Oxley Act. The presence of material weaknesses could result in financial statement errors which, in turn,
could require us to restate our operating results.
If we are unable to conclude that we have
effective internal control over financial reporting or if our independent auditors are unwilling or unable to provide us, when
required, with an attestation report on the effectiveness of internal control over financial reporting as required by Section
404 of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, our stock price could decline and we may
be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section
404 of the Sarbanes-Oxley Act, we may not be able to maintain listing on the NASDAQ Capital Market.
Risks Related to Product Development,
Regulatory Approval and Commercialization
Natesto, ZolpiMist, and MiOXSYS
may prove to be difficult to effectively commercialize as planned.
Various commercial, regulatory, and manufacturing
factors may impact our ability to maintain or grow revenues from sales of Natesto, MiOXSYS, ProstaScint and Fiera. Specifically,
we may encounter difficulty by virtue of:
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our inability to adequately
market and increase sales of any of these products;
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our inability to secure continuing
prescribing of any of these products by current or previous users of the product;
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our
inability to effectively transfer and scale manufacturing as needed to maintain an adequate
commercial supply of these products;
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reimbursement
and medical policy changes that may adversely affect the pricing, profitability or commercial
appeal of Natesto, ZolpiMist, or MiOXSYS; and
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our
inability to effectively identify and align with commercial partners outside the U.S.,
or the inability of those selected partners to gain the required regulatory, reimbursement,
and other approvals needed to enable commercial success of MiOXSYS.
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We have limited experience selling
our current products as they were acquired from other companies or were recently approved for sale. As a result, we may be unable
to successfully commercialize our products and product candidates.
Despite our management’s extensive
experience in launching and managing commercial-stage healthcare companies, we have limited marketing, sales and distribution
experience with our current products. Our ability to achieve profitability depends on attracting and retaining customers for our
current products, and building brand loyalty for Natesto, ZolpiMist, and MiOXSYS. To successfully perform sales, marketing, distribution
and customer support functions, we will face a number of risks, including:
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our
ability to attract and retain skilled support team, marketing staff and sales force necessary
to increase the market for our approved products and to maintain market acceptance for
our product candidates;
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the
ability of our sales and marketing team to identify and penetrate the potential customer
base; and
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the difficulty of establishing
brand recognition and loyalty for our products.
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In addition, we may seek to enlist one
or more third parties to assist with sales, distribution and customer support globally or in certain regions of the world. If
we do seek to enter into these arrangements, we may not be successful in attracting desirable sales and distribution partners,
or we may not be able to enter into these arrangements on favorable terms, or at all. If our sales and marketing efforts, or those
of any third-party sales and distribution partners, are not successful, our currently approved products may not achieve increased
market acceptance and our product candidates may not gain market acceptance, which would materially impact our business and operations.
We cannot be certain that we will
be able to obtain regulatory approval for, or successfully commercialize, any of our current or future product candidates.
We may not be able to develop our current
or any future product candidates. Our product candidates will require substantial additional clinical development, testing, and
regulatory approval before we are permitted to commence commercialization. The clinical trials of our product candidates are,
and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation
by numerous government authorities in the U.S. and in other countries where we intend to test and, if approved, market any product
candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through
pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each target indication. This
process can take many years and may include post-marketing studies and surveillance, which will require the expenditure of substantial
resources. Of the large number of drugs in development in the U.S., only a small percentage successfully completes the FDA regulatory
approval process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund
our development and clinical programs, we cannot assure you that any of our product candidates will be successfully developed
or commercialized.
We are not permitted to market a product
in the U.S. until we receive approval of a New Drug Application, or an NDA, for that product from the FDA, or in any foreign countries
until we receive the requisite approval from such countries. Obtaining approval of an NDA is a complex, lengthy, expensive and
uncertain process, and the FDA may delay, limit or deny approval of any product candidate for many reasons, including, among others:
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we may not be able
to demonstrate that a product candidate is safe and effective to the satisfaction of
the FDA;
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the results of our
clinical trials may not meet the level of statistical or clinical significance required
by the FDA for marketing approval;
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the FDA may disagree
with the number, design, size, conduct or implementation of our clinical trials;
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the FDA may require
that we conduct additional clinical trials;
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the FDA may not approve
the formulation, labeling or specifications of any product candidate;
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the clinical research
organizations, or CROs, that we retain to conduct our clinical trials may take actions
outside of our control that materially adversely impact our clinical trials;
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the FDA may find the
data from pre-clinical studies and clinical trials insufficient to demonstrate that a
product candidate’s clinical and other benefits outweigh its safety risks, such
as the risk of drug abuse by patients or the public in general;
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the FDA may disagree
with our interpretation of data from our pre-clinical studies and clinical trials;
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the FDA may not accept
data generated at our clinical trial sites;
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if an NDA, if and
when submitted, is reviewed by an advisory committee, the FDA may have difficulties scheduling
an advisory committee meeting in a timely manner or the advisory committee may recommend
against approval of our application or may recommend that the FDA require, as a condition
of approval, additional pre-clinical studies or clinical trials, limitations on approved
labeling or distribution and use restrictions;
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the FDA may require
development of a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of
approval or post-approval;
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the FDA may not approve
the manufacturing processes or facilities of third-party manufacturers with which we
contract; or
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the FDA may change
its approval policies or adopt new regulations.
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These same risks apply to applicable foreign
regulatory agencies from which we may seek approval for any of our product candidates.
Any of these factors, many of which are
beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market any product candidate.
Moreover, because a substantial portion of our business is or may be dependent upon our product candidates, any such setback in
our pursuit of initial or additional regulatory approval would have a material adverse effect on our business and prospects.
If we fail to successfully acquire
new products, we may lose market position.
Acquiring new products is an important
factor in our planned sales growth, including products that already have been developed and found market acceptance. If we fail
to identify existing or emerging consumer markets and trends and to acquire new products, we will not develop a strong revenue
source to help pay for our development activities as well as possible acquisitions. This failure would delay implementation of
our business plan, which could have a negative adverse effect on our business and prospects.
If we do not secure collaborations
with strategic partners to test, commercialize and manufacture product candidates, we may not be able to successfully develop
products and generate meaningful revenues.
We may enter into collaborations with
third parties to conduct clinical testing, as well as to commercialize and manufacture our products and product candidates. If
we are able to identify and reach an agreement with one or more collaborators, our ability to generate revenues from these arrangements
will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaboration agreements typically call for milestone payments that depend on successful demonstration of efficacy and safety,
obtaining regulatory approvals, and clinical trial results. Collaboration revenues are not guaranteed, even when efficacy and
safety are demonstrated. Further, the economic environment at any given time may result in potential collaborators electing to
reduce their external spending, which may prevent us from developing our product candidates.
Even if we succeed in securing collaborators,
the collaborators may fail to develop or effectively commercialize our products or product candidates. Collaborations involving
our product candidates pose a number of risks, including the following:
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collaborators may
not have sufficient resources or may decide not to devote the necessary resources due
to internal constraints such as budget limitations, lack of human resources, or a change
in strategic focus;
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collaborators may
believe our intellectual property is not valid or is unenforceable or the product candidate
infringes on the intellectual property rights of others;
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collaborators may
dispute their responsibility to conduct development and commercialization activities
pursuant to the applicable collaboration, including the payment of related costs or the
division of any revenues;
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collaborators may
decide to pursue a competitive product developed outside of the collaboration arrangement;
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collaborators may
not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals;
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collaborators may
delay the development or commercialization of our product candidates in favor of developing
or commercializing their own or another party’s product candidate; or
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collaborators may
decide to terminate or not to renew the collaboration for these or other reasons.
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As a result, collaboration agreements
may not lead to development or commercialization of our product candidates in the most efficient manner or at all. For example,
our former collaborator that licensed our former product candidate, Zertane conducted clinical trials which we believe demonstrated
efficacy in treating PE, but the collaborator undertook a merger that we believe altered its strategic focus and thereafter terminated
the collaboration agreement. The Merger also created a potential conflict with a principal customer of the acquired company, which
sells a product to treat premature ejaculation in certain European markets.
Collaboration agreements are generally
terminable without cause on short notice. Once a collaboration agreement is signed, it may not lead to commercialization of a
product candidate. We also face competition in seeking out collaborators. If we are unable to secure collaborations that achieve
the collaborator’s objectives and meet our expectations, we may be unable to advance our products or product candidates
and may not generate meaningful revenues.
We or our strategic partners may
choose not to continue an existing product or choose not to develop a product candidate at any time during development, which
would reduce or eliminate our potential return on investment for that product.
At any time and for any reason, we or
our strategic partners may decide to discontinue the development or commercialization of a product or product candidate. If we
terminate a program in which we have invested significant resources, we will reduce the return, or not receive any return, on
our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses.
If one of our strategic partners terminates a program, we will not receive any future milestone payments or royalties relating
to that program under our agreement with that party. As an example, we discontinued the development of Zertane in June 2016, sold
Primsol in March 2017, and abandoned Fiera and ProstaScint in June 2018.
Our pre-commercial product candidates
are expected to undergo clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for
which there is a high risk of failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety
and efficacy to the FDA and other regulators, we or our collaborators may incur additional costs or experience delays in completing,
or ultimately be unable to complete, the development and commercialization of these product candidates.
Pre-clinical testing and clinical trials
are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical
studies will be conducted as planned or completed on schedule, if at all. It may take several years to complete the pre-clinical
testing and clinical development necessary to commercialize a drug, and delays or failure can occur at any stage. Interim results
of clinical trials do not necessarily predict final results, and success in pre-clinical testing and early clinical trials does
not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in advanced clinical trials even after promising results in earlier trials and we cannot be
certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will support
approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced.
An unfavorable outcome in one or more trials would be a major set-back for that product candidate and for us. Due to our limited
financial resources, an unfavorable outcome in one or more trials may require us to delay, reduce the scope of, or eliminate one
or more product development programs, which could have a material adverse effect on our business, prospects and financial condition
and on the value of our common stock.
In connection with clinical testing and
trials, we face a number of risks, including:
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a product candidate
is ineffective, inferior to existing approved medicines, unacceptably toxic, or has unacceptable
side effects;
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patients may die or
suffer other adverse effects for reasons that may or may not be related to the product
candidate being tested;
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the results may not
confirm the positive results of earlier testing or trials; and
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the results may not
meet the level of statistical significance required by the FDA or other regulatory agencies
to establish the safety and efficacy of the product candidate.
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If we do not successfully complete pre-clinical
and clinical development, we will be unable to market and sell products derived from our product candidates and generate revenues.
Even if we do successfully complete clinical trials, those results are not necessarily predictive of results of additional trials
that may be needed before an NDA may be submitted to the FDA. Although there are a large number of drugs in development in the
U.S. and other countries, only a small percentage result in the submission of an NDA to the FDA, even fewer are approved for commercialization,
and only a small number achieve widespread physician and consumer acceptance following regulatory approval. If our clinical trials
are substantially delayed or fail to prove the safety and effectiveness of our product candidates in development, we may not receive
regulatory approval of any of these product candidates and our business, prospects and financial condition will be materially
harmed.
Delays, suspensions and terminations
in any clinical trial we undertake could result in increased costs to us and delay or prevent our ability to generate revenues.
Human clinical trials are very expensive,
time-consuming, and difficult to design, implement and complete. Should we undertake the development of a pharmaceutical product
candidate, we would expect the necessary clinical trials to take up to 24 months to complete, but the completion of trials for
any product candidates may be delayed for a variety of reasons, including delays in:
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demonstrating sufficient
safety and efficacy to obtain regulatory approval to commence a clinical trial;
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reaching agreement
on acceptable terms with prospective CROs and clinical trial sites;
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validating test methods
to support quality testing of the drug substance and drug product;
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obtaining sufficient
quantities of the drug substance or device parts;
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manufacturing sufficient
quantities of a product candidate;
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obtaining approval
of an IND from the FDA;
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obtaining institutional
review board approval to conduct a clinical trial at a prospective clinical trial site;
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determining dosing
and clinical design and making related adjustments; and
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patient enrollment,
which is a function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical trial sites, the availability
of effective treatments for the relevant disease and the eligibility criteria for the
clinical trial.
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The commencement and completion of clinical
trials for our product candidates may be delayed, suspended or terminated due to a number of factors, including:
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lack of effectiveness
of product candidates during clinical trials;
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adverse events, safety issues
or side effects relating to the product candidates or their formulation or design;
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inability to raise
additional capital in sufficient amounts to continue clinical trials or development programs,
which are very expensive;
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the need to sequence
clinical trials as opposed to conducting them concomitantly in order to conserve resources;
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our inability to enter
into collaborations relating to the development and commercialization of our product
candidates;
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failure by us or our
collaborators to conduct clinical trials in accordance with regulatory requirements;
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our inability or the
inability of our collaborators to manufacture or obtain from third parties materials
sufficient for use in pre-clinical studies and clinical trials;
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governmental or regulatory
delays and changes in regulatory requirements, policy and guidelines, including mandated
changes in the scope or design of clinical trials or requests for supplemental information
with respect to clinical trial results;
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failure of our collaborators
to advance our product candidates through clinical development;
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delays in patient
enrollment, variability in the number and types of patients available for clinical trials,
and lower-than anticipated retention rates for patients in clinical trials;
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difficulty in patient
monitoring and data collection due to failure of patients to maintain contact after treatment;
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a regional disturbance
where we or our collaborative partners are enrolling patients in our clinical trials,
such as a pandemic, terrorist activities or war, or a natural disaster; and
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varying interpretations
of our data, and regulatory commitments and requirements by the FDA and similar foreign
regulatory agencies.
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Many of these factors may also ultimately
lead to denial of an NDA for a product candidate. If we experience delay, suspensions or terminations in a clinical trial, the
commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed.
In addition, we may encounter delays or
product candidate rejections based on new governmental regulations, future legislative or administrative actions, or changes in
FDA policy or interpretation during the period of product development. If we obtain required regulatory approvals, such approvals
may later be withdrawn. Delays or failures in obtaining regulatory approvals may result in:
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varying interpretations
of data and commitments by the FDA and similar foreign regulatory agencies; and
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diminishment of any
competitive advantages that such product candidates may have or attain.
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Furthermore, if we fail to comply with
applicable FDA and other regulatory requirements at any stage during this regulatory process, we may encounter or be subject to:
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diminishment of any
competitive advantages that such product candidates may have or attain;
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delays or termination
in clinical trials or commercialization;
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refusal by the FDA
or similar foreign regulatory agencies to review pending applications or supplements
to approved applications;
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product recalls or
seizures;
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suspension of manufacturing;
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withdrawals of previously
approved marketing applications; and
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fines, civil penalties,
and criminal prosecutions.
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The medical device regulatory clearance
or approval process is expensive, time consuming and uncertain, and the failure to obtain and maintain required clearances or
approvals could prevent us from broadly commercializing the MiOXSYS System for clinical use.
The MiOXSYS System is subject to 510k
de novo clearance by the FDA prior to its marketing for commercial use in the U.S., and to regulatory approvals beyond CE marking
required by certain foreign governmental entities prior to its marketing outside the U.S. In addition, any changes or modifications
to a device that has received regulatory clearance or approval that could significantly affect its safety or effectiveness or
would constitute a major change in its intended use, may require the submission of a new application for 510k de novo clearance,
pre-market approval, or foreign regulatory approvals. The 510k de novo clearance and pre-market approval processes, as well as
the process of obtaining foreign approvals, can be expensive, time consuming and uncertain. It generally takes from four to twelve
months from submission to obtain 510k de novo clearance, and from one to three years from submission to obtain pre-market approval;
however, it may take longer, and 510k de novo clearance or pre-market approval may never be obtained. We have limited experience
in filing FDA applications for 510k de novo clearance and pre-market approval. In addition, we are required to continue to comply
with applicable FDA and other regulatory requirements even after obtaining clearance or approval. There can be no assurance that
we will obtain or maintain any required clearance or approval on a timely basis, or at all. Any failure to obtain or any material
delay in obtaining FDA clearance or any failure to maintain compliance with FDA regulatory requirements could harm our business,
financial condition and results of operations.
The approval process for pharmaceutical
and medical device products outside the U.S. varies among countries and may limit our ability to develop, manufacture and sell
our products internationally. Failure to obtain marketing approval in international jurisdictions would prevent our product candidates
from being marketed abroad.
In order to market and sell our products
in the European Union and many other jurisdictions, we, and our collaborators, must obtain separate marketing approvals and comply
with numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional testing.
We may conduct clinical trials for, and seek regulatory approval to market, our product candidates in countries other than the
U.S. Depending on the results of clinical trials and the process for obtaining regulatory approvals in other countries, we may
decide to first seek regulatory approvals of a product candidate in countries other than the U.S., or we may simultaneously seek
regulatory approvals in the U.S. and other countries. If we or our collaborators seek marketing approval for a product candidate
outside the U.S., we will be subject to the regulatory requirements of health authorities in each country in which we seek approval.
With respect to marketing authorizations in Europe, we will be required to submit a European Marketing Authorisation Application,
or MAA, to the European Medicines Agency, or EMA, which conducts a validation and scientific approval process in evaluating a
product for safety and efficacy. The approval procedure varies among regions and countries and may involve additional testing,
and the time required to obtain approval may differ from that required to obtain FDA approval.
Obtaining regulatory approvals from health
authorities in countries outside the U.S. is likely to subject us to all of the risks associated with obtaining FDA approval described
above. In addition, marketing approval by the FDA does not ensure approval by the health authorities of any other country, and
approval by foreign health authorities does not ensure marketing approval by the FDA.
Even if we, or our collaborators,
obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit
how we or they market our products, which could materially impair our ability to generate revenue.
Even if we receive regulatory approval
for a product candidate, this approval may carry conditions that limit the market for the product or put the product at a competitive
disadvantage relative to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we
can market a product or the patient population that may utilize the product, or may be required to carry a warning in its labeling
and on its packaging. Products with black box warnings are subject to more restrictive advertising regulations than products without
such warnings. These restrictions could make it more difficult to market any product candidate effectively. Accordingly, assuming
we, or our collaborators, receive marketing approval for one or more of our product candidates, we, and our collaborators expect
to continue to expend time, money and effort in all areas of regulatory compliance.
Any of our products and product
candidates for which we, or our collaborators, obtain marketing approval in the future could be subject to post-marketing restrictions
or withdrawal from the market and we, and our collaborators, may be subject to substantial penalties if we, or they, fail to comply
with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our approved products and product
candidates for which we, or our collaborators, obtain marketing approval, as well as the manufacturing processes, post approval
studies and measures, labeling, advertising and promotional activities for such products, among other things, are or will be subject
to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of
safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing,
quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution
of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be
subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including
the FDA requirement to implement a REMS to ensure that the benefits of a drug outweigh its risks.
The FDA may also impose requirements for
costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and
other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of
products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with
the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding
off-label use and if we, or our collaborators, do not market any of our product candidates for which we, or they, receive marketing
approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing.
Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription
drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state
consumer protection laws.
If we do not achieve our projected
development and commercialization goals in the timeframes we announce and expect, the commercialization of our product candidates
may be delayed, and our business will be harmed.
We sometimes estimate for planning purposes
the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones
may include our expectations regarding the commencement or completion of scientific studies and clinical trials, the submission
of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some
of these milestones, such as the initiation or completion of an ongoing clinical trial, the initiation of other clinical programs,
receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside
of our control. All of such milestones are based on a variety of assumptions which may cause the timing of achievement of the
milestones to vary considerably from our estimates, including:
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our available capital
resources or capital constraints we experience;
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the rate of progress,
costs and results of our clinical trials and research and development activities, including
the extent of scheduling conflicts with participating clinicians and collaborators, and
our ability to identify and enroll patients who meet clinical trial eligibility criteria;
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our receipt of approvals
from the FDA and other regulatory agencies and the timing thereof;
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other actions, decisions
or rules issued by regulators;
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our ability to access
sufficient, reliable and affordable supplies of compounds used in the manufacture of
our product candidates;
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the efforts of our
collaborators with respect to the commercialization of our products; and
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the securing of, costs
related to, and timing issues associated with, product manufacturing as well as sales
and marketing activities.
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If we fail to achieve announced milestones
in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and our business, prospects
and results of operations may be harmed.
We rely on third parties to conduct
our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully
commercializing product candidates.
We rely, and will rely in the future,
on medical institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to
perform data collection and analysis and others to carry out our clinical trials. Our development activities or clinical trials
conducted in reliance on third parties may be delayed, suspended, or terminated if:
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the third parties
do not successfully carry out their contractual duties or fail to meet regulatory obligations
or expected deadlines;
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we replace a third
party; or
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the quality or accuracy
of the data obtained by third parties is compromised due to their failure to adhere to
clinical protocols, regulatory requirements, or for other reasons.
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Third party performance failures may increase
our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product
candidates. While we believe that there are numerous alternative sources to provide these services, in the event that we seek
such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.
Even if collaborators with which
we contract in the future successfully complete clinical trials of our product candidates, those product candidates may not be
commercialized successfully for other reasons.
Even if we contract with collaborators
that successfully complete clinical trials for one or more of our product candidates, those candidates may not be commercialized
for other reasons, including:
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failure to receive
regulatory clearances required to market them as drugs;
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being subject to proprietary
rights held by others;
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being difficult or
expensive to manufacture on a commercial scale;
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having adverse side
effects that make their use less desirable; or
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failing to compete
effectively with products or treatments commercialized by competitors.
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Any third-party manufacturers we
engage are subject to various governmental regulations, and we may incur significant expenses to comply with, and experience delays
in, our product commercialization as a result of these regulations.
The manufacturing processes and facilities
of third-party manufacturers we have engaged for our current approved products are, and any future third-party manufacturer will
be, required to comply with the federal Quality System Regulation, or QSR, which covers procedures and documentation of the design,
testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of devices. The FDA
enforces the QSR through periodic unannounced inspections of manufacturing facilities. Any inspection by the FDA could lead to
additional compliance requests that could cause delays in our product commercialization. Failure to comply with applicable FDA
requirements, or later discovery of previously unknown problems with the manufacturing processes and facilities of third-party
manufacturers we engage, including the failure to take satisfactory corrective actions in response to an adverse QSR inspection,
can result in, among other things:
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administrative or
judicially imposed sanctions;
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injunctions or the
imposition of civil penalties;
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recall or seizure
of the product in question;
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total or partial suspension
of production or distribution;
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the FDA’s refusal
to grant pending future clearance or pre-market approval;
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withdrawal or suspension
of marketing clearances or approvals;
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refusal to permit
the export of the product in question; and
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Any of these actions, in combination or
alone, could prevent us from marketing, distributing or selling our products, and would likely harm our business.
In addition, a product defect or regulatory
violation could lead to a government-mandated or voluntary recall by us. We believe the FDA would request that we initiate a voluntary
recall if a product was defective or presented a risk of injury or gross deception. Regulatory agencies in other countries have
similar authority to recall drugs or devices because of material deficiencies or defects in design or manufacture that could endanger
health. Any recall would divert our management attention and financial resources, expose us to product liability or other claims,
and harm our reputation with customers.
We face substantial competition
from companies with considerably more resources and experience than we have, which may result in others discovering, developing,
receiving approval for, or commercializing products before or more successfully than us.
We compete with companies that design,
manufacture and market already-existing and new urology and sexual wellbeing products. We anticipate that we will face increased
competition in the future as new companies enter the market with new technologies and/or our competitors improve their current
products. One or more of our competitors may offer technology superior to ours and render our technology obsolete or uneconomical.
Most of our current competitors, as well as many of our potential competitors, have greater name recognition, more substantial
intellectual property portfolios, longer operating histories, significantly greater resources to invest in new technologies, more
substantial experience in product marketing and new product development, greater regulatory expertise, more extensive manufacturing
capabilities and the distribution channels to deliver products to customers. If we are not able to compete successfully, we may
not generate sufficient revenue to become profitable. Our ability to compete successfully will depend largely on our ability to:
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expand the market
for our approved products, especially Natesto, MiOXSYS and Fiera;
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successfully commercialize
our product candidates alone or with commercial partners;
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discover and develop
product candidates that are superior to other products in the market;
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obtain required regulatory
approvals;
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attract and retain
qualified personnel; and
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obtain patent and/or
other proprietary protection for our product candidates.
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Established pharmaceutical companies devote
significant financial resources to discovering, developing or licensing novel compounds that could make our products and product
candidates obsolete. Our competitors may obtain patent protection, receive FDA approval, and commercialize medicines before us.
Other companies are or may become engaged in the discovery of compounds that may compete with the product candidates we are developing.
Natesto competes in a large, growing market.
The U.S. prescription testosterone market is comprised primarily of topically applied treatments in the form of gels, solutions,
and patches. Testopel® and Aveed®, injectable products typically implanted directly under the skin by a physician, are
also FDA-approved. AndroGel is the market-leading TRT and is marketed by AbbVie.
For ZolpiMist, we compete with companies
that design, manufacture and market treatments for insomnia, some of which have a large market share.
For the MiOXSYS System, we compete with
companies that design, manufacture and market already existing and new in-vitro diagnostics and diagnostic imaging systems and
radio-imaging agents for cancer detection.
We anticipate that we will face increased
competition in the future as new companies enter the market with new technologies and our competitors improve their current products.
One or more of our competitors may offer technology superior to ours and render our technology obsolete or uneconomical. Most
of our current competitors, as well as many of our potential competitors, have greater name recognition, more substantial intellectual
property portfolios, longer operating histories, significantly greater resources to invest in new technologies, more substantial
experience in new product development, greater regulatory expertise, more extensive manufacturing capabilities and the distribution
channels to deliver products to customers. If we are not able to compete successfully, we may not generate sufficient revenue
to become profitable.
Any new product we develop or commercialize
that competes with a currently-approved product must demonstrate compelling advantages in efficacy, convenience, tolerability
and/or safety in order to address price competition and be commercially successful. If we are not able to compete effectively
against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
Government restrictions on pricing
and reimbursement, as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate
revenues.
The continuing efforts of the government,
insurance companies, managed care organizations and other payors of health care costs to contain or reduce costs of health care
may adversely affect one or more of the following:
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our or our collaborators’
ability to set a price we believe is fair for our approved products;
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our ability to generate revenue
from our approved products and achieve profitability; and
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the availability of capital.
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The 2010 enactments of the Patient Protection
and Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act, or the Health Care Reconciliation Act,
significantly impacted the provision of, and payment for, health care in the U.S. Various provisions of these laws are designed
to expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide health care benefits,
prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide additional support
for medical research. Amendments to the PPACA and/or the Health Care Reconciliation Act, as well as new legislative proposals
to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the U.S., could influence
the purchase of medicines and medical devices and reduce demand and prices for our products and product candidates, if approved.
This could harm our or our collaborators’ ability to market any approved products and generate revenues. As we expect to
receive significant revenues from reimbursement of our Natesto and ProstaScint products by commercial third-party payors and government
payors, cost containment measures that health care payors and providers are instituting and the effect of further health care
reform could significantly reduce potential revenues from the sale of any of our products and product candidates approved in the
future, and could cause an increase in our compliance, manufacturing, or other operating expenses. In addition, in certain foreign
markets, the pricing of prescription drugs and devices is subject to government control and reimbursement may in some cases be
unavailable. We believe that pricing pressures at the federal and state level, as well as internationally, will continue and may
increase, which may make it difficult for us to sell any approved product at a price acceptable to us or any of our future collaborators.
In addition, in some foreign countries,
the proposed pricing for a drug or medical device must be approved before it may be lawfully marketed. The requirements governing
pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict
the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices
of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt
a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. A member
state may require that physicians prescribe the generic version of a drug instead of our approved branded product. There can be
no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable
reimbursement and pricing arrangements for any of our products or product candidates. Historically, pharmaceutical products launched
in the European Union do not follow price structures of the U.S. and generally tend to have significantly lower prices.
Our financial results will depend
on the acceptance among hospitals, third-party payors and the medical community of our products and product candidates.
Our future success depends on the acceptance
by our target customers, third-party payors and the medical community that our products and product candidates are reliable, safe
and cost-effective. Many factors may affect the market acceptance and commercial success of our products and product candidates,
including:
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our ability to convince
our potential customers of the advantages and economic value our products and product
candidates over existing technologies and products;
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the relative convenience and
ease of our products and product candidates over existing technologies and products;
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the introduction of
new technologies and competing products that may make our products and product candidates
less attractive for our target customers;
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our success in training
medical personnel on the proper use of our products and product candidates;
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the willingness of
third-party payors to reimburse our target customers that adopt our products and product
candidates;
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the acceptance in
the medical community of our products and product candidates;
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the extent and success
of our marketing and sales efforts; and
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general economic conditions.
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If third-party payors do not reimburse
our customers for the products we sell or if reimbursement levels are set too low for us to sell one or more of our products at
a profit, our ability to sell those products and our results of operations will be harmed.
While Natesto and ZolpiMist are already
FDA-approved and generating revenues in the U.S., they may not receive, or continue to receive, physician or hospital acceptance,
or they may not maintain adequate reimbursement from third party payors. Additionally, even if one of our product candidates is
approved and reaches the market, the product may not achieve physician or hospital acceptance, or it may not obtain adequate reimbursement
from third party payors. In the future, we might possibly sell other product candidates to target customers substantially all
of whom receive reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare,
Medicaid, other domestic and foreign government programs, private insurance plans and managed care programs. Reimbursement decisions
by particular third-party payors depend upon a number of factors, including each third-party payor’s determination that
use of a product is:
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a covered benefit
under its health plan;
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appropriate and medically
necessary for the specific indication;
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neither experimental
nor investigational.
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Third-party payors may deny reimbursement
for covered products if they determine that a medical product was not used in accordance with cost-effective diagnosis methods,
as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to reimburse
for procedures and devices deemed to be experimental.
Obtaining coverage and reimbursement approval
for a product from each government or third-party payor is a time consuming and costly process that could require us to provide
supporting scientific, clinical and cost-effectiveness data for the use of our potential product to each government or third-party
payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. In addition,
eligibility for coverage does not imply that any product will be covered and reimbursed in all cases or reimbursed at a rate that
allows our potential customers to make a profit or even cover their costs.
Third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Levels
of reimbursement may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors
may adversely affect the demand for and reimbursement available for any product or product candidate, which in turn, could negatively
impact pricing. If our customers are not adequately reimbursed for our products, they may reduce or discontinue purchases of our
products, which would result in a significant shortfall in achieving revenue expectations and negatively impact our business,
prospects and financial condition.
Manufacturing risks and inefficiencies
may adversely affect our ability to produce our products.
We expect to engage third parties to manufacture
components of the MiOXSYS and RedoxSYS systems. We have an agreement for supplies of Natesto with Acerus, from whom we license
Natesto. We have an agreement with a third-party manufacturer for our ZolpiMist product as well. For any future product, we expect
to use third-party manufacturers because we do not have our own manufacturing capabilities. In determining the required quantities
of any product and the manufacturing schedule, we must make significant judgments and estimates based on inventory levels, current
market trends and other related factors. Because of the inherent nature of estimates and our limited experience in marketing our
current products, there could be significant differences between our estimates and the actual amounts of product we require. If
we do not effectively maintain our supply agreements for Natesto and Fiera, we will face difficulty finding replacement suppliers,
which could harm sales of those products. If we do not secure collaborations with manufacturing and development partners to enable
production to scale of the MiOXSYS System, we may not be successful in selling or in commercializing the MiOXSYS System in the
event we receive regulatory approval of the MiOXSYS System. If we fail in similar endeavors for future products, we may not be
successful in establishing or continuing the commercialization of our products and product candidates.
Reliance on third-party manufacturers
entails risks to which we would not be subject if we manufactured these components ourselves, including:
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reliance on third
parties for regulatory compliance and quality assurance;
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possible breaches
of manufacturing agreements by the third parties because of factors beyond our control;
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possible regulatory
violations or manufacturing problems experienced by our suppliers; and
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possible termination
or non-renewal of agreements by third parties, based on their own business priorities,
at times that are costly or inconvenient for us.
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Further, if we are unable to secure the
needed financing to fund our internal operations, we may not have adequate resources required to effectively and rapidly transition
our third party manufacturing. We may not be able to meet the demand for our products if one or more of any third-party manufacturers
is unable to supply us with the necessary components that meet our specifications. It may be difficult to find alternate suppliers
for any of our products or product candidates in a timely manner and on terms acceptable to us.
Any third-party manufacturers we
engage are subject to various governmental regulations, and we may incur significant expenses to comply with, and experience delays
in, our product commercialization as a result of these regulations.
The manufacturing processes and facilities
of third-party manufacturers we engage for our current and any future FDA-approved products are required to comply with the federal
Quality System Regulation, or QSR, which covers procedures and documentation of the design, testing, production, control, quality
assurance, labeling, packaging, sterilization, storage and shipping of devices. The FDA enforces the QSR through periodic unannounced
inspections of manufacturing facilities. Any inspection by the FDA could lead to additional compliance requests that could cause
delays in our product commercialization. Failure to comply with applicable FDA requirements, or later discovery of previously
unknown problems with the manufacturing processes and facilities of third-party manufacturers we engage, including the failure
to take satisfactory corrective actions in response to an adverse QSR inspection, can result in, among other things:
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administrative or
judicially imposed sanctions;
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injunctions or the
imposition of civil penalties;
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recall or seizure
of the product in question;
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total or partial suspension
of production or distribution;
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the FDA’s refusal
to grant pending future clearance or pre-market approval;
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withdrawal or suspension
of marketing clearances or approvals;
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refusal to permit
the export of the product in question; and
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Any of these actions, in combination or
alone, could prevent us from marketing, distributing or selling our products, and would likely harm our business.
In addition, a product defect or regulatory
violation could lead to a government-mandated or voluntary recall by us. We believe the FDA would request that we initiate a voluntary
recall if a product was defective or presented a risk of injury or gross deception. Regulatory agencies in other countries have
similar authority to recall drugs or devices because of material deficiencies or defects in design or manufacture that could endanger
health. Any recall would divert our management attention and financial resources, expose us to product liability or other claims,
and harm our reputation with customers.
Our future growth depends, in part,
on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability will depend,
in part, on our ability to commercialize our products and product candidates in foreign markets for which we intend to primarily
rely on collaboration with third parties. If we commercialize our products or product candidates in foreign markets, we would
be subject to additional risks and uncertainties, including:
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our inability to directly
control commercial activities because we are relying on third parties;
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the burden of complying
with complex and changing foreign regulatory, tax, accounting and legal requirements;
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different medical
practices and customs in foreign countries affecting acceptance in the marketplace;
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import or export licensing
requirements;
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longer accounts receivable
collection times;
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longer lead times
for shipping;
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language barriers
for technical training;
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reduced protection
of intellectual property rights in some foreign countries, and related prevalence of
generic alternatives to our products;
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foreign currency exchange
rate fluctuations;
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our customers’
ability to obtain reimbursement for our products in foreign markets; and
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the interpretation
of contractual provisions governed by foreign laws in the event of a contract dispute.
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Foreign sales of our products or product
candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade
restrictions and changes in tariffs.
We are subject to various regulations
pertaining to the marketing of our approved products.
We are subject to various federal and
state laws pertaining to healthcare fraud and abuse, including prohibitions on the offer of payment or acceptance of kickbacks
or other remuneration for the purchase of our products, including inducements to potential patients to request our products and
services. Additionally, any product promotion educational activities, support of continuing medical education programs, and other
interactions with health-care professionals must be conducted in a manner consistent with the FDA regulations and the Anti-Kickback
Statute. The Anti-Kickback Statute prohibits persons or entities from knowingly and willfully soliciting, receiving, offering
or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending,
or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and
Medicaid programs. Violations of the Anti-Kickback Statute can also carry potential federal False Claims Act liability. Additionally,
many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients
for healthcare items or services reimbursed by any third party payer, not only the Medicare and Medicaid programs, and do not
contain identical safe harbors. These and any new regulations or requirements may be difficult and expensive for us to comply
with, may adversely impact the marketing of our existing products or delay introduction of our product candidates, which may have
a material adverse effect on our business, operating results and financial condition.
Our products and product candidates
may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved
label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our
product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a
more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities.
Further, if a product candidate receives
marketing approval and we or others identify undesirable side effects caused by the product after the approval, or if drug abuse
is determined to be a significant problem with an approved product, a number of potentially significant negative consequences
could result, including:
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regulatory authorities
may withdraw or limit their approval of the product;
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regulatory authorities
may require the addition of labeling statements, such as a “Black Box warning”
or a contraindication;
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we may be required
to change the way the product is distributed or administered, conduct additional clinical
trials or change the labeling of the product;
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we may decide to remove
the product from the marketplace;
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we could be sued and
held liable for injury caused to individuals exposed to or taking the product; and
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our reputation may
suffer.
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Any of these events could prevent us from
achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing
an affected product or product candidates and significantly impact our ability to successfully commercialize or maintain sales
of our product or product candidates and generate revenues.
Natesto and ZolpiMist contain, and
future other product candidates may contain, controlled substances, the manufacture, use, sale, importation, exportation, prescribing
and distribution of which are subject to regulation by the DEA.
Natesto and ZolpiMist, which are both
approved by the FDA, are regulated by the DEA as Schedule III controlled substances. Before any commercialization of any product
candidate that contains a controlled substance, the DEA will need to determine the controlled substance schedule, taking into
account the recommendation of the FDA. This may be a lengthy process that could delay our marketing of a product candidate and
could potentially diminish any regulatory exclusivity periods for which we may be eligible. Natesto and ZolpiMist are, and our
other product candidates may, if approved, be regulated as “controlled substances” as defined in the Controlled Substances
Act of 1970, or CSA, and the implementing regulations of the DEA, which establish registration, security, recordkeeping, reporting,
storage, distribution, importation, exportation, inventory, quota and other requirements administered by the DEA. These requirements
are applicable to us, to our third-party manufacturers and to distributors, prescribers and dispensers of our product candidates.
The DEA regulates the handling of controlled substances through a closed chain of distribution. This control extends to the equipment
and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce.
A number of states and foreign countries also independently regulate these drugs as controlled substances.
The DEA regulates controlled substances
as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not
be marketed or sold in the U.S. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances
considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances.
Natesto is regulated by the DEA as a Schedule
III controlled substance, and ZolpiMist as a Schedule IV controlled substance. Consequently, the manufacturing, shipping, storing,
selling and using of the products are subject to a high degree of regulation. Also, distribution, prescribing and dispensing of
these drugs are highly regulated.
Annual registration is required for any
facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific
to the particular location, activity and controlled substance schedule.
Because of their restrictive nature, these
laws and regulations could limit commercialization of our product candidates containing controlled substances. Failure to comply
with these laws and regulations could also result in withdrawal of our DEA registrations, disruption in manufacturing and distribution
activities, consent decrees, criminal and civil penalties and state actions, among other consequences.
If testosterone replacement therapies
are found, or are perceived, to create health risks, our ability to sell Natesto could be materially adversely affected and our
business could be harmed.
Recent publications have suggested potential
health risks associated with testosterone replacement therapy, such as increased cardiovascular disease risk, including increased
risk of heart attack or stroke, fluid retention, sleep apnea, breast tenderness or enlargement, increased red blood cells, development
of clinical prostate disease, including prostate cancer, and the suppression of sperm production. Prompted by these events, the
FDA held a T-class Advisory Committee meeting on September 17, 2014 to discuss this topic further. The FDA has also asked health
care professionals and patients to report side effects involving prescription testosterone products to the agency.
At the T-class Advisory Committee meeting
held on September 17, 2014, the Advisory Committee discussed (i) the identification of the appropriate patient population for
whom testosterone replacement therapy should be indicated and (ii) the potential risk of major adverse cardiovascular events,
defined as non-fatal stroke, non-fatal myocardial infarction and cardiovascular death associated with testosterone replacement
therapy.
At the meeting, the Advisory Committee
voted that the FDA should require sponsors of testosterone products to conduct a post marketing study (e.g. observational study
or controlled clinical trial) to further assess the potential cardiovascular risk.
It is possible that the FDA’s evaluation
of this topic and further studies on the effects of testosterone replacement therapies could demonstrate the risk of major adverse
cardiovascular events or other health risks or could impose requirements that impact the marketing and sale of Natesto, including:
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mandate that certain
warnings or precautions be included in our product labeling;
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require that our product
carry a “black box warning”; and
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limit use of Natesto
to certain populations, such as men without specified conditions.
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Demonstrated testosterone replacement
therapy safety risks, as well as negative publicity about the risks of hormone replacement therapy, including testosterone replacement,
could hurt sales of and impair our ability to successfully relaunch Natesto, which could have a materially adverse impact on our
business.
FDA action regarding testosterone
replacement therapies could add to the cost of producing and marketing Natesto.
The FDA is requiring post-marketing safety
studies for all testosterone replacement therapies approved in the U.S. to assess long-term cardiovascular events related to testosterone
use. Depending on the total cost and structure of the FDA’s proposed safety studies there may be a substantial cost associated
with conducting these studies. Pursuant to our license agreement with Acerus Pharmaceuticals, Acerus is obligated to reimburse
us for the entire cost of any studies required for Natesto by the FDA. However, in the event that Acerus is not able to reimburse
us for the cost of any required safety studies, we may be forced to incur this cost, which could have a material adverse impact
on our business and results of operations.
Our approved products may not be
accepted by physicians, patients, or the medical community in general.
Even if the medical community accepts
a product as safe and efficacious for its indicated use, physicians may choose to restrict the use of the product if we or any
collaborator is unable to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our product
is preferable to any existing medicines or treatments. We cannot predict the degree of market acceptance of any of our approved
products, which will depend on a number of factors, including, but not limited to:
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the efficacy and safety
of the product;
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the approved labeling
for the product and any required warnings;
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the advantages and disadvantages
of the product compared to alternative treatments;
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our and any collaborator’s
ability to educate the medical community about the safety and effectiveness of the product;
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the reimbursement
policies of government and third-party payors pertaining to the product; and
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the market price of
our product relative to competing treatments.
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We may use hazardous chemicals and
biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be
time consuming and costly.
Our research and development processes
may involve the controlled use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk
of accidental contamination or discharge and any resultant injury from these materials. We may be sued for any injury or contamination
that results from our use or the use by third parties of these materials, and our liability may exceed any insurance coverage
and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal
of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human
health and safety matters. Compliance with environmental laws and regulations may be expensive and may impair our research and
development efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal
fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve
and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations
or any changes in the way existing and future laws and regulations are interpreted and enforced.
Intellectual Property Risks Related
to Our Business
We are dependent on our relationships
and license agreements, and we rely on the patent rights granted to us pursuant to the license agreements.
A number of our patent rights for are
derived from our license agreements with third parties. Pursuant to these license agreements, we have licensed rights to various
patents and patent applications within and outside of the United States. We may lose our rights to these patents and patent applications
if we breach our obligations under such license agreements, including, without limitation, our financial obligations to the licensors.
If we violate or fail to perform any term or covenant of the license agreements, the licensors may terminate the license agreements
upon satisfaction of applicable notice requirements and expiration of any applicable cure periods. Additionally, any termination
of license agreements, whether by us or the licensors will not relieve us of our obligation to pay any license fees owing at the
time of such termination. If we fail to retain our rights under these license agreements, we will not be able to commercialize
certain products subject to patent or patent application, and our business, results of operations, financial condition and prospects
would be materially adversely affected.
The commercial success of our products
depends, in large part, on our ability to use patents licensed to us by third parties in order to exclude others from competing
with our products. The patent position of emerging pharmaceutical companies like us can be highly uncertain and involve complex
legal and technical issues. Until our licensed patents are interpreted by a court, either because we have sought to enforce them
against a competitor or because a competitor has preemptively challenged them, we will not know the breadth of protection that
they will afford us. Our patents may not contain claims sufficiently broad to prevent others from practicing our technologies
or marketing competing products. Third parties may intentionally attempt to design around our patents or design around our patents
so as to compete with us without infringing our patents. Moreover, the issuance of a patent is not conclusive as to its validity
or enforceability, and so our patents may be invalidated or rendered unenforceable if challenged by others.
Our ability to compete may decline
if we do not adequately protect our proprietary rights or if we are barred by the patent rights of others.
Our commercial success depends on obtaining
and maintaining proprietary rights to our products and product candidates as well as successfully defending these rights against
third-party challenges. We will only be able to protect our products and product candidates from unauthorized use by third parties
to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them. Our ability to obtain patent
protection for our products and product candidates is uncertain due to a number of factors, including that:
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we may not have been
the first to make the inventions covered by pending patent applications or issued patents;
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we may not have been
the first to file patent applications for our products and product candidates;
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others may independently
develop identical, similar or alternative products, compositions or devices and uses
thereof;
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our disclosures in
patent applications may not be sufficient to meet the statutory requirements for patentability;
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any or all of our
pending patent applications may not result in issued patents;
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we may not seek or
obtain patent protection in countries that may eventually provide us a significant business
opportunity;
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any patents issued
to us may not provide a basis for commercially viable products, may not provide any competitive
advantages, or may be successfully challenged by third parties;
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our compositions,
devices and methods may not be patentable;
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others may design
around our patent claims to produce competitive products which fall outside of the scope
of our patents; or
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others may identify
prior art or other bases which could invalidate our patents.
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Even if we have or obtain patents covering
our products and product candidates, we may still be barred from making, using and selling them because of the patent rights of
others. Others may have filed, and in the future may file, patent applications covering products that are similar or identical
to ours. There are many issued U.S. and foreign patents relating to chemical compounds, therapeutic products, diagnostic devices,
personal care products and devices and some of these relate to our products and product candidates. These could materially affect
our ability to sell our products and develop our product candidates. Because patent applications can take many years to issue,
there may be currently pending applications unknown to us that may later result in issued patents that our products and product
candidates may infringe. These patent applications may have priority over patent applications filed by us.
Obtaining and maintaining a patent portfolio
entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees,
various other governmental fees on patents and/or applications due in several stages over the lifetime of patents and/or applications,
as well as the cost associated with complying with numerous procedural provisions during the patent application process. We may
or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure
to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of
a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we choose
to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position
could suffer.
Legal actions to enforce our patent rights
can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful
and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to
pursue litigation or other actions against those that have infringed on our patents, or used them without authorization, due to
the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual
property rights successfully, our competitive position could suffer, which could harm our business, prospects, financial condition
and results of operations.
Pharmaceutical and medical device
patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could
negatively impact our patent position.
The patent positions of pharmaceutical
and medical device companies can be highly uncertain and involve complex legal and factual questions. The interpretation and breadth
of claims allowed in some patents covering pharmaceutical compositions may be uncertain and difficult to determine and are often
affected materially by the facts and circumstances that pertain to the patented compositions and the related patent claims. The
standards of the U.S. Patent and Trademark Office, or USPTO, are sometimes uncertain and could change in the future. Consequently,
the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented.
U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to re-examination
proceedings, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject to opposition or comparable
proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent
application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such
interference, re-examination, post-grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights
under any issued patents may not provide us with sufficient protection against competitive products or processes.
In addition, changes in or different interpretations
of patent laws in the U.S. and foreign countries may permit others to use our discoveries or to develop and commercialize our
technology and products and product candidates without providing any compensation to us or may limit the number of patents or
claims we can obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and
those countries may lack adequate rules and procedures for defending our intellectual property rights.
If we fail to obtain and maintain patent
protection and trade secret protection of our products and product candidates, we could lose our competitive advantage and competition
we face would increase, reducing any potential revenues and adversely affecting our ability to attain or maintain profitability.
Developments in patent law could
have a negative impact on our business.
From time to time, the U.S. Supreme Court,
other federal courts, the U.S. Congress or the USPTO may change the standards of patentability and any such changes could have
a negative impact on our business.
In addition, the Leahy-Smith America Invents
Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law.
These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes
the way issued patents are challenged, and changes the way patent applications are disputed during the examination process. These
changes may favor larger and more established companies that have greater resources to devote to patent application filing and
prosecution. The USPTO has developed regulations and procedures to govern the full implementation of the America Invents Act,
and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file
provisions, became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act may
affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact
the America Invents Act will ultimately have on the cost of prosecuting our patent applications, our ability to obtain patents
based on our discoveries and our ability to enforce or defend any patents that may issue from our patent applications, all of
which could have a material adverse effect on our business.
If we are unable to protect the
confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, because
we operate in the highly technical field of discovery and development of therapies and medical devices, we rely in part on trade
secret protection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect.
We expect to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside
scientific and commercial collaborators, sponsored researchers, and other advisors. These agreements generally require that the
other party keep confidential and not disclose to third parties all confidential information developed by the party or made known
to the party by us during the course of the party’s relationship with us. These agreements also generally provide that inventions
conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may
not be honored and may not effectively assign intellectual property rights to us.
In addition to contractual measures, we
try to protect the confidential nature of our proprietary information using physical and technological security measures. Such
measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized
access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant
from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not
provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated
a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, courts outside
the U.S. may be less willing to protect trade secrets. Trade secrets may be independently developed by others in a manner that
could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to
be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position
could be harmed.
We may not be able to enforce our
intellectual property rights throughout the world.
The laws of some foreign countries do
not protect intellectual property rights to the same extent as the laws of the U.S. Many companies have encountered significant
problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some
countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection,
especially those relating to pharmaceuticals and medical devices. This could make it difficult for us to stop the infringement
of some of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign
countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries
limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries,
patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is
an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain
countries, and we will not have the benefit of patent protection in such countries.
Proceedings to enforce our patent rights
in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.
Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes
in the law and legal decisions by courts in the U.S. and foreign countries may affect our ability to obtain adequate protection
for our technology and the enforcement of intellectual property.
Third parties may assert ownership
or commercial rights to inventions we develop.
Third parties may in the future make claims
challenging the inventorship or ownership of our intellectual property. We have or expect to have written agreements with collaborators
that provide for the ownership of intellectual property arising from our collaborations. These agreements provide that we must
negotiate certain commercial rights with collaborators with respect to joint inventions or inventions made by our collaborators
that arise from the results of the collaboration. In some instances, there may not be adequate written provisions to address clearly
the resolution of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient
ownership and commercial rights to the inventions that result from our use of a third-party collaborator’s materials where
required, or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’s
samples, we may be limited in our ability to capitalize on the market potential of these inventions. In addition, we may face
claims by third parties that our agreements with employees, contractors, or consultants obligating them to assign intellectual
property to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result
in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture
the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are not successful,
we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property.
Either outcome could have an adverse impact on our business.
Third parties may assert that our
employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
We might employ individuals who were previously
employed at universities or other biopharmaceutical or medical device companies, including our competitors or potential competitors.
Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their
work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or
otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer
or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in
addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
A dispute concerning the infringement
or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable
outcome could harm our business.
There is significant litigation in the
pharmaceutical and medical device industries regarding patent and other intellectual property rights. While we are not currently
subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed
to future litigation by third parties based on claims that our products or product candidates infringe the intellectual property
rights of others. If our development and commercialization activities are found to infringe any such patents, we may have to pay
significant damages or seek licenses to such patents. A patentee could prevent us from using the patented drugs, compositions
or devices. We may need to resort to litigation to enforce a patent issued to us, to protect our trade secrets, or to determine
the scope and validity of third-party proprietary rights. From time to time, we may hire scientific personnel or consultants formerly
employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals
may be subject to allegations of trade secret misappropriation or other similar claims as a result of prior affiliations. If we
become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of
whether we win or lose. We may not be able to afford the costs of litigation. Any adverse ruling or perception of an adverse ruling
in defending ourselves against these claims could have a material adverse impact on our cash position and stock price. Any legal
action against us or our collaborators could lead to:
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payment of damages,
potentially treble damages, if we are found to have willfully infringed a party’s
patent rights;
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injunctive or other
equitable relief that may effectively block our ability to further develop, commercialize,
and sell products; or
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we or our collaborators
having to enter into license arrangements that may not be available on commercially acceptable
terms, if at all, all of which could have a material adverse impact on our cash position
and business, prospects and financial condition. As a result, we could be prevented from
commercializing our products and product candidates.
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Risks Related to Our Organization, Structure
and Operation
We intend to acquire, through asset
purchases or in-licensing, businesses or products, or form strategic alliances, in the future, and we may not realize the intended
benefits of such acquisitions or alliances.
We intend to acquire, through asset purchases
or in-licensing, additional businesses or products, form strategic alliances and/or create joint ventures with third parties that
we believe will complement or augment our existing business. If we acquire businesses or assets with promising markets or technologies,
we may not be able to realize the benefit of acquiring such businesses or assets if we are unable to successfully integrate them
with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing
any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits
or enhancing our business. We cannot assure you that, following any such acquisition or alliance, we will achieve the expected
synergies to justify the transaction. These risks apply to our acquisition of Natesto in April 2016 and ZolpiMist in June 2018.
As an example, we acquired Primsol in October 2015, but sold it in March 2017. Depending on the success or lack thereof of any
of our existing or future acquired products and product candidates, we might seek to out-license, sell or otherwise dispose of
any of those products or product candidates, which could adversely impact our operations if the dispositions triggers a loss,
accounting charge or other negative impact.
In fiscal 2018, the great majority
of our gross revenue and gross accounts receivable were due to three significant customers, the loss of which could materially
and adversely affect our results of operations.
The following
customers contributed greater than 10% of the Company's gross revenue during the year ended June 30, 2018 and 2017,
respectively. As of June 30, 2018, three customers accounted for 86% of gross revenue. The revenue from these customers as a percentage
of gross revenue was as follows:
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Year Ended June 30,
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2018
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2017
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Customer A
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32
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%
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34
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%
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Customer C
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30
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%
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18
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%
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Customer B
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24
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%
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22
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%
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The loss of one
or more of the Company's significant partners or collaborators could have a material adverse effect on its business, operating
results or financial condition.
We are also subject
to credit risk from our accounts receivable related to our product sales. As of June 30, 2018, three customers accounted for 81%
of gross accounts receivable. As of June 30, 2017, three customers accounted for 60% of gross accounts receivable.
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Year Ended June 30,
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2018
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2017
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Customer C
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35
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%
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18
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%
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Customer A
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27
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%
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25
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%
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Customer B
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19
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%
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17
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%
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Other
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12
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%
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0
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%
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We will need to develop and expand
our company, and we may encounter difficulties in managing this development and expansion, which could disrupt our operations.
As of June 30, 2018, we had 52 full-time
employees, and in connection with being a public company, we expect to continue to increase our number of employees and the scope
of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also,
our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a
substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively
manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our
infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity
among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources
from other projects, such as the planned expanded commercialization of our approved products and the development of our product
candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase
more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business
strategy. Our future financial performance and our ability to expand the market for our approved products and develop our product
candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development
and expansion of our company.
We depend on key personnel and attracting
qualified management personnel and our business could be harmed if we lose personnel and cannot attract new personnel.
Our success depends to a significant degree
upon the technical and management skills of our directors, officers and key personnel. Any of our directors could resign from
our board at any time and for any reason. Although our executive officers Joshua Disbrow, Jarrett Disbrow and David Green have
employment agreements, the existence of an employment agreement does not guarantee the retention of the executive officer for
any period of time, and each agreement obligates us to pay the officer lump sum severance of two years of salary if we terminate
him without cause, as defined in the agreement, which could hurt our liquidity. The loss of the services of any of these individuals
would likely have a material adverse effect on us. Our success also will depend upon our ability to attract and retain additional
qualified management, marketing, technical, and sales executives and personnel. We do not maintain key person life insurance for
any of our officers or key personnel. The loss of any of our directors or key executives, or the failure to attract, integrate,
motivate, and retain additional key personnel could have a material adverse effect on our business.
We compete for such personnel, including
directors, against numerous companies, including larger, more established companies with significantly greater financial resources
than we possess. There can be no assurance that we will be successful in attracting or retaining such personnel, and the failure
to do so could have a material adverse effect on our business, prospects, financial condition, and results of operations.
Product liability and other lawsuits
could divert our resources, result in substantial liabilities and reduce the commercial potential of our product candidates.
The risk that we may be sued on product
liability claims is inherent in the development and commercialization of pharmaceutical, medical device and personal care products
and devices. Side effects of, or manufacturing defects in, products that we develop and commercialized could result in the deterioration
of a patient’s condition, injury or even death. Once a product is approved for sale and commercialized, the likelihood of
product liability lawsuits increases. Claims may be brought by individuals seeking relief for themselves or by individuals or
groups seeking to represent a class. These lawsuits may divert our management from pursuing our business strategy and may be costly
to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced
to limit or forgo further commercialization of the affected products.
We may be subject to legal or administrative
proceedings and litigation other than product liability lawsuits which may be costly to defend and could materially harm our business,
financial condition and operations.
Although we maintain general liability,
clinical trial liability and product liability insurance, this insurance may not fully cover potential liabilities. In addition,
inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential
product or other legal or administrative liability claims could prevent or inhibit the commercial production and sale of any of
our products and product candidates that receive regulatory approval, which could adversely affect our business. Product liability
claims could also harm our reputation, which may adversely affect our collaborators’ ability to commercialize our products
successfully.
Our internal computer systems, or
those of our third-party contractors or consultants, may fail or suffer security breaches, which could result in a material disruption
of our product development programs.
Despite the implementation of security
measures, our internal computer systems and those of our third-party contractors and consultants are vulnerable to damage from
computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While
we do not believe that we have experienced any such system failure, accident, or security breach to date, if such an event were
to occur and cause interruptions in our operations, it could result in a loss of clinical trial data for our product candidates
which could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other
data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development of our product candidates could be delayed.
Our ability to use our net operating
loss carryforwards and certain other tax attributes may be limited.
As of June 30, 2018, we had federal net
operating loss carryforwards of approximately $59.3 million. The available net operating losses, if not utilized to offset taxable
income in future periods, will begin to expire in 2031 and will completely expire in 2037. Under the Internal Revenue Code of
1986, as amended (the “Code”) and the regulations promulgated thereunder, including, without limitation, the consolidated
income tax return regulations, various corporate changes could limit our ability to use our net operating loss carryforwards and
other tax attributes (such as research tax credits) to offset our income. Because Ampio’s equity ownership interest in our
company fell to below 80% in January 2016, we were deconsolidated from Ampio’s consolidated federal income tax group. As
a result, certain of our net operating loss carryforwards may not be available to us and we may not be able to use them to offset
our U.S. federal taxable income. As a consequence of the deconsolidation, it is possible that certain other tax attributes and
benefits resulting from U.S. federal income tax consolidation may no longer be available to us. Our company and Ampio do not have
a tax sharing agreement that could mitigate the loss of net operating losses and other tax attributes resulting from the deconsolidation
or our incurrence of liability for the taxes of other members of the consolidated group by reason of the joint and several liability
of group members. In addition to the deconsolidation risk, an “ownership change” (generally a 50% change (by value)
in equity ownership over a three-year period) under Section 382 of the Code could limit our ability to offset, post-change, our
U.S. federal taxable income. Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable
income a corporation may offset with pre-ownership change net operating loss carryforwards and certain recognized built-in losses.
We believe that the August 2017 financing created over a 50% change in our equity ownership so our current tax loss carryforward
will be limited in the future. Either the deconsolidation or the ownership change scenario could result in increased future tax
liability to us.
Several stockholders potentially
own a significant percentage of our stock and could be able to exert significant control over matters subject to stockholder approval.
In our August 2017 and March 2018 offerings,
some entities who invested in our common and preferred stock and warrant financing owned common and/or preferred stock and warrants
that potentially would enable them to beneficially own in excess of 4.99% or 9.99% of our common stock. The preferred stock and
warrants held by these investors contain a provision that prohibits the conversion or exercise of the preferred stock or warrants
should the holder beneficially own in excess of 4.99% or 9.99%, as elected by the investor, after giving effect to such conversion
or exercise. However, the significant ownership potential of these investors, and the significant investment that they have made
in our company, could give these stockholders the ability to influence us through their ownership positions, even if they are
prohibited from converting or exercising their preferred stock or warrants to acquire more than 4.99% or 9.99% of our common stock
at any time. Further, this significant ownership potential may prevent or discourage unsolicited acquisition proposals or offers
for our common stock that you may feel are in your best interest as one of our stockholders.
Restrictions under our August 2017
Securities Purchase Agreement may limit our ability to raise funds and operate our business.
Each investor in the August 2017 offering
has the right to participate for 24 months in any issuance by us of any common stock or common stock equivalents for cash consideration
or indebtedness or a combination thereof (a “Subsequent Financing”), up to an amount of the Subsequent Financing equal
to 35% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing. This offering
is considered a Subsequent Financing and, therefore, the investors in the August 2017 offering are entitled to participate.
In addition, the August 2017 Securities
Purchase Agreement contains the covenant described below that may restrict our ability to finance future operations or capital
needs or to engage in other business activities.
Until such time as no investor in the
August 2017 offering holds any of the warrants, we are prohibited from effecting or entering into an agreement to affect any issuance
by us of our common stock or common stock equivalents involving a Variable Rate Transaction, as defined in the Securities Purchase
Agreement. “Variable Rate Transaction” means a transaction in which we (i) issue any debt or equity securities that
are convertible into common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based
upon, and/or varies with, the trading prices of or quotations for the shares of our common stock at any time after the initial
issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to our business or the market for our common stock or (ii) enter into any transaction under,
any agreement, including, but not limited to, an equity line of credit, an “at-the-market” offering or similar agreement,
whereby we may issue securities at a future determined price.
The restrictions and covenants in the
August 2017 Securities Purchase Agreement, as well as any future financing agreements that we may enter into, may restrict our
ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability
to comply with these covenants may be affected by events beyond our control and we may not be able to meet those covenants.
Risks Related to Securities Markets
and Investment in our Securities
Our failure to meet the continued
listing requirements of the NASDAQ Capital Market could result in a delisting of our common stock.
If we fail to satisfy the continued listing
requirements of the NASDAQ Capital Market, such as the corporate governance requirements or the minimum closing bid price requirement,
the exchange may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our
common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting,
we anticipate that we would take actions to restore our compliance with applicable exchange requirements, such as stabilize our
market price, improve the liquidity of our common stock, prevent our common stock from dropping below such exchange’s minimum
bid price requirement, or prevent future non-compliance with such exchange’s listing requirements.
On April 9, 2018, we received a letter
from NASDAQ indicating that the Company has failed to comply with the minimum bid price requirement of NASDAQ Listing Rule 5550(a)(2).
NASDAQ Listing Rule 5550(a)(2) requires that companies listed on the NASDAQ Capital Market maintain a minimum closing bid price
of at least $1.00 per share. However, on August 10, 2018, we effected a 1-for-20 reverse stock split, which has brought us back
into compliance with NASDAQ Listing Rule 5550(a)(2).
Future sales and issuances of our
equity securities or rights to purchase our equity securities, including pursuant to equity incentive plans, would result in additional
dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
To the extent we raise additional capital
by issuing equity securities, our stockholders may experience substantial dilution. We may, as we have in the past, sell common
stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from
time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors
may be further diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and
new investors could gain rights superior to existing stockholders.
Pursuant to our 2015 Stock Plan, our Board
of Directors is currently authorized to award up to a total of 3.0 million shares of common stock or options to purchase shares
of common stock to our officers, directors, employees and non-employee consultants. As of June 30, 2018, options to purchase 1,798
shares of common stock issued under our 2015 Stock Plan at a weighted average exercise price of $325.97 per share were outstanding.
In addition, at June 30, 2018, there were outstanding warrants to purchase an aggregate of 1,882,661 shares of our common stock
at a weighted average exercise price of $25.94. Stockholders will experience dilution in the event that additional shares of common
stock are issued under our 2015 Stock Plan, or options issued under our 2015 Stock Plan are exercised, or any warrants are exercised
for shares of our common stock.
Our share price is volatile and
may be influenced by numerous factors, some of which are beyond our control.
The trading price of our common stock
is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond
our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus
and the documents incorporated by reference herein, these factors include:
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the products or product
candidates we acquire for commercialization;
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the products and product
candidates we seek to pursue, and our ability to obtain rights to develop, commercialize
and market those product candidates;
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our decision to initiate
a clinical trial, not to initiate a clinical trial or to terminate an existing clinical
trial;
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actual or anticipated
adverse results or delays in our clinical trials;
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our failure to expand
the market for our currently approved products or commercialize our product candidates,
if approved;
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unanticipated serious
safety concerns related to the use of any of our product candidates;
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overall performance
of the equity markets and other factors that may be unrelated to our operating performance
or the operating performance of our competitors, including changes in market valuations
of similar companies;
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conditions or trends
in the healthcare, biotechnology and pharmaceutical industries;
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introduction of new
products offered by us or our competitors;
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announcements of significant
acquisitions, strategic partnerships, joint ventures or capital commitments by us or
our competitors;
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our ability to maintain
an adequate rate of growth and manage such growth;
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issuances of debt
or equity securities;
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sales of our common
stock by us or our stockholders in the future, or the perception that such sales could
occur;
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trading volume of
our common stock;
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ineffectiveness of
our internal control over financial reporting or disclosure controls and procedures;
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general political
and economic conditions;
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effects of natural
or man-made catastrophic events;
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other events or factors,
many of which are beyond our control;
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adverse regulatory
decisions;
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additions or departures
of key scientific or management personnel;
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changes in laws or
regulations applicable to our product candidates, including without limitation clinical
trial requirements for approvals;
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disputes or other
developments relating to patents and other proprietary rights and our ability to obtain
patent protection for our product candidates;
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our dependence on
third parties, including CROs and scientific and medical advisors;
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failure to meet or
exceed any financial guidance or expectations regarding development milestones that we
may provide to the public;
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actual or anticipated
variations in quarterly operating results; and
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failure to meet or
exceed the estimates and projections of the investment community.
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In addition, the stock market in general,
and the stocks of small-cap healthcare, biotechnology and pharmaceutical companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad
market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk
Factors,” could have a dramatic and material adverse impact on the market price of our common stock.
If securities or industry analysts
do not publish research or publish inaccurate or unfavorable research about our business, our stock price and any trading volume
could decline.
Any trading market for our common stock
that may develop will depend in part on the research and reports that securities or industry analysts publish about us or our
business. Securities and industry analysts do not currently, and may never, publish research on us or our business. If no securities
or industry analysts commence coverage of our company, the trading price for our stock could be negatively affected. If securities
or industry analysts initiate coverage, and one or more of those analysts downgrade our stock or publish inaccurate or unfavorable
research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company
or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and any trading
volume to decline.
We effected a reverse stock split
at a ratio of 1-for-20 on August 10, 2018, which may not achieve one or more of our objectives.
We have effected four reverse stock splits
since June 8, 2015, each of which has impacted the trading liquidity of the shares of our common stock. There can be no assurance
that the market price per share of our common stock after a reverse stock split will remain unchanged or increase in proportion
to the reduction in the number of shares of our common stock outstanding before the reverse stock split. The market price of our
shares may fluctuate and potentially decline after a reverse stock split. Accordingly, the total market capitalization of our
common stock after a reverse stock split may be lower than the total market capitalization before the reverse stock split. Moreover,
the market price of our common stock following a reverse stock split may not exceed or remain higher than the market price prior
to the reverse stock split.
Additionally, there can be no assurance
that a reverse stock split will result in a per-share market price that will attract institutional investors or investment funds
or that such share price will satisfy investing guidelines of institutional investors or investment funds. As a result, the trading
liquidity of our common stock may not necessarily improve. Further, if a reverse stock split is effected and the market price
of our common stock declines, the percentage decline may be greater than would occur in the absence of a reverse stock split.
Future sales and issuances of our
common stock or rights to purchase common stock, including pursuant to our equity incentive plan or otherwise, could result in
dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We could need significant additional capital
in the future to continue our planned operations. To raise capital, we may sell common stock, convertible securities or other
equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock,
convertible securities or other equity securities in more than one transaction, investors in a prior transaction may be materially
diluted by subsequent sales. Additionally, any such sales may result in material dilution to our existing stockholders, and new
investors could gain rights, preferences and privileges senior to those of holders of our common stock. Further, any future sales
of our common stock by us or resales of our common stock by our existing stockholders could cause the market price of our common
stock to decline. Any future grants of options, warrants or other securities exercisable or convertible into our common stock,
or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the
market price of our common stock.
Some provisions of our charter documents
and applicable Delaware law may discourage an acquisition of us by others, even if the acquisition may be beneficial to some of
our stockholders.
Provisions in our Certificate of Incorporation
and Amended and Restated Bylaws, as well as certain provisions of Delaware law, could make it more difficult for a third-party
to acquire us, even if doing so may benefit some of our stockholders. These provisions include:
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the authorization
of 50.0 million shares of “blank check” preferred stock, the rights, preferences
and privileges of which may be established and shares of which may be issued by our Board
of Directors at its discretion from time to time and without stockholder approval;
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limiting the removal
of directors by the stockholders;
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allowing for the creation
of a staggered board of directors;
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eliminating the ability
of stockholders to call a special meeting of stockholders; and
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establishing advance
notice requirements for nominations for election to the board of directors or for proposing
matters that can be acted upon at stockholder meetings.
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These provisions may frustrate or prevent
any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace
members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject
to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any
of a broad range of business combinations with an interested stockholder for a period of three years following the date on which
the stockholder became an interested stockholder, unless such transactions are approved by the board of directors. This provision
could have the effect of discouraging, delaying or preventing someone from acquiring us or merging with us, whether or not it
is desired by or beneficial to our stockholders.
Any provision of our Certificate of Incorporation
or Bylaws or of Delaware law that is applicable to us that has the effect of delaying or deterring a change in control could limit
the opportunity for our stockholders to receive a premium for their shares of our common stock in the event that a potentially
beneficial acquisition is discouraged, and could also affect the price that some investors are willing to pay for our common stock.
The elimination of personal liability
against our directors and officers under Delaware law and the existence of indemnification rights held by our directors, officers
and employees may result in substantial expenses.
Our Certificate of Incorporation and our
Bylaws eliminate the personal liability of our directors and officers to us and our stockholders for damages for breach of fiduciary
duty as a director or officer to the extent permissible under Delaware law. Further, our Certificate of Incorporation and our
Bylaws provide that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by the Delaware
law and, subject to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit
or proceeding prior to its final disposition. Those indemnification obligations could expose us to substantial expenditures to
cover the cost of settlement or damage awards against our directors or officers, which we may be unable to afford. Further, those
provisions and resulting costs may discourage us or our stockholders from bringing a lawsuit against any of our current or former
directors or officers for breaches of their fiduciary duties, even if such actions might otherwise benefit our stockholders.
We do not intend to pay cash dividends
on our capital stock in the foreseeable future.
We have never declared or paid any dividends
on our common stock and do not anticipate paying any dividends in the foreseeable future. Any future payment of cash dividends
in the future would depend on our financial condition, contractual restrictions, solvency tests imposed by applicable corporate
laws, results of operations, anticipated cash requirements and other factors and will be at the discretion of our Board of Directors.
Our stockholders should not expect that we will ever pay cash or other dividends on our outstanding capital stock.
Risks Related to this Offering
The estimated results for the three
months ended September 30, 2018 are preliminary and may change.
The estimated results for the three months
ended September 30, 2018 are preliminary and may change. The Company and its auditor have not yet completed their normal quarterly
review procedures for the three months ended September 30, 2018, and as such, the final results for this period may differ from
these estimates. Any such changes could be material. These estimates should not be viewed as a substitute for full interim financial
statements prepared in accordance with U.S. generally accepted accounting principles. The preliminary results provided above are
not necessarily indicative of the actual results to be achieved for the remainder of fiscal 2019 or any future period. Accordingly,
reliance on these preliminary results involves a high degree of risk and you should not rely solely on these estimated results
when making an investment decision.
There is a limited trading market
for our common stock, which could make it difficult to liquidate an investment in our common stock, in a timely manner.
Our common stock is currently traded on
the NASDAQ Capital Market. Because there is a limited public market for our common stock, investors may not be able to liquidate
their investment whenever desired. We cannot assure that there will be an active trading market for our common stock and the lack
of an active public trading market could mean that investors may be exposed to increased risk. In addition, if we failed to meet
the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities
to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers
from recommending or selling our common stock, which may further affect its liquidity.
The terms of the Series C Preferred
Stock and the warrants could impede our ability to enter into certain transactions or obtain additional financing.
The terms of the Series C Preferred Stock
and the warrants require us, upon the consummation of any “fundamental transaction” (as defined in the securities),
to, among other obligations, cause any successor entity resulting from the fundamental transaction to assume all of our obligations
under the Series C Preferred Stock and the warrants and the associated transaction documents. In addition, holders of Series C
Preferred Stock and warrants are entitled to participate in any fundamental transaction on an as-converted or as-exercised basis,
which could result in the holders of our common stock receiving a lesser portion of the consideration from a fundamental transaction.
The terms of the Series C Preferred Stock and the warrants could also impede our ability to enter into certain transactions or
obtain additional financing in the future.
You will experience immediate and
substantial dilution as a result of this offering and may experience additional dilution in the future.
You will incur immediate and substantial
dilution as a result of this offering. After giving effect to the sale by us of shares offered in this offering at an assumed
public offering price of $2.63 per share, and after deducting underwriting discounts and commissions and estimated offering expenses
payable by us, investors in this offering can expect an immediate dilution of approximately $0.63 per share. See “Dilution”
below for a more detailed discussion of the dilution you will incur if you purchase our common stock in the offering. In addition,
the conversion of shares of Series C Preferred Stock and exercise of the warrants will result in the issuance of additional shares
of common stock that will result in significant dilution to holders of our common stock.
Management will have broad discretion
as to the use of the proceeds from this offering and may not use the proceeds effectively.
Our management will have broad discretion
in the application of the net proceeds from this offering and could spend the proceeds in ways that may not improve our results
of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse
effect on our business and cause the price of our common stock to decline.
The Series C Preferred Stock and
warrants will not be listed on any securities exchange and as such there will not be a public market for such securities.
There is no established public trading
market for the Series C Preferred Stock or warrants, and we do not expect a market to develop. In addition, we do not intend to
apply for listing of the Series C Preferred Stock or warrants on any securities exchange or trading system. Without an active
market, the liquidity of the Series C Preferred Stock and warrants will be limited, and investors may be unable to liquidate their
investments in the Series C Preferred Stock and warrants.
The offering price will be set by
our Board of Directors and does not necessarily indicate the actual or market value of our common stock.
Our Board of Directors will approve the
offering price and other terms of this offering after considering, among other things: the number of shares authorized in our
certificate of incorporation; the current market price of our common stock; trading prices of our common stock over time; the
volatility of our common stock; our current financial condition and the prospects for our future cash flows; the availability
of and likely cost of capital of other potential sources of capital; and market and economic conditions at the time of the offering.
The offering price is not intended to bear any relationship to the book value of our assets or our past operations, cash flows,
losses, financial condition, net worth or any other established criteria used to value securities. The offering price may not
be indicative of the fair value of the common stock.
The warrants may not have any value.
The warrants will be exercisable for five
years from the closing date at an initial exercise price per share of $ .
In the event that the price of a share of our common stock does not exceed the exercise price of the warrants during the period
when the warrants are exercisable, the warrants may not have any value.
The warrants are subject to an issuer
call.
If, after the closing date, (i) the
volume weighted average price for each of 30 consecutive trading days (the “Measurement Period”), which Measurement
Period commences on the closing date, exceeds 300% of the exercise price (subject to adjustment for forward and reverse stock
splits, recapitalizations, stock dividends and the like after the initial exercise date), (ii) the average daily volume for such
Measurement Period exceeds $600,000 per trading day and, (iii) the warrant holder is not in possession of any material non-public
information which was provided by the Company, then the Company may, within one trading day of the end of such Measurement Period,
call for cancellation of all or any portion of the warrants for which an exercise notice has not yet been delivered for consideration
equal to $0.001 per warrant share. The Company’s right to call the warrants shall be exercised ratably among the holders
based on the then outstanding warrants. You may be unable to reinvest your proceeds from the call in an investment with a return
that is as high as the return on the warrants would have been if they had not been called.
A warrant does not entitle the holder
to any rights as common stockholders until the holder exercises the warrant for shares of our common stock.
Until you acquire shares of our common
stock upon exercise of your warrants, the warrants will not provide you any rights as a common stockholder. Upon exercise of your
warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs
on or after the exercise date.