ITEM 1. Business.
Throughout this Annual Report on Form 10-K, the terms "we," "us," "our," "registrant," and "Company" refer to Mount Tam Biotechnologies, Inc., a Nevada corporation and, where applicable, its wholly-owned subsidiary Mount Tam Biotechnologies, Inc., a Delaware corporation ("Mount Tam"), and effective October 2018, its wholly-owned subsidiary Mount Tam Therapuetics, Inc., a Delaware corporation.
Overview
The Company was established in November 2011 under the name TabacaleraYsidron. On August 13, 2015, the registrant entered into a Share Exchange and Conversion Agreement (the "Exchange Agreement") by and among the registrant and a holder of a majority of the issued and outstanding capital stock of the registrant (the "Majority Shareholder"), on the one hand, and Mount Tam, the stockholders of Mount Tam ("Mount Tam Stockholders"), and the holders of certain convertible promissory notes of Mount Tam ("Mount Tam Noteholders"). Pursuant to the Exchange Agreement, the Company acquired all of the issued and outstanding equity securities of Mount Tam and the Mount Tam Stockholders and the Mount Tam Noteholders become the controlling stockholders of the registrant. The transactions contemplated by the Exchange Agreement are hereinafter referred to as the "Share Exchange." Prior to the Share Exchange, the registrant was a "shell company" (as such term is defined in Rule 12b-2 under the Exchange Act), however, after the Share Exchange the registrant is no longer a shell company.
Effective on August 31, 2015, the registrant changed its name from TabacaleraYsidron, Inc. to Mount TAM Biotechnologies, Inc. The name change was effected through a parent/subsidiary short-form merger of Mount TAM Biotechnologies, Inc., our wholly-owned Nevada subsidiary which we formed solely for the purpose of the name change, with and into the Company, with the Company as the surviving corporation. With the exception of the name change, there were no changes to the Company's Articles of Incorporation or Bylaws. There will be no mandatory exchange of stock certificates.
We are an emerging biopharmaceutical company established to optimize, develop and bring to market a portfolio of products focused on improving the health and wellbeing of individuals afflicted with serious diseases, with a lead product targeting systemic lupus erythematosus ("SLE") and a strategy to bring to market novel therapeutics across a range of serious disease areas.
On August 17, 2014, Mount Tam entered into a Research Collaboration and License Agreement (the "
Buck Institute License Agreement
") with The Buck Institute for Research on Aging, an independent non-profit research organization devoted to aging and the diseases of aging based in Northern California ("
Buck Institute
"), pursuant to which Mount Tam secured a worldwide exclusive license to certain compounds and technology to develop, manufacture and commercialize these compounds in the field of autoimmune diseases. Our most advanced product candidate is TAM-01, a preclinical stage compound, which represents what we believe to be a promising therapeutic candidate for the treatment of SLE. In July 2016 an amendment was signed which broadened the license to include any and all conditions, human and veterinary. In February 2017 we announced that we were advancing into Discovery TAM-03, a novel rapamycin analog ("rapalog") which we consider to be a potential candidate for addressing an unmet need in several important cancer types. In July 2017 we announced that we had entered into collaboration with a prominent academic laboratory in the field of neurodegeneration to explore the potential of our compounds in Parkinson’s Disease.
On October 18, 2018, the “Company” and Mount Tam Biotechnologies, Inc., a Delaware corporation, its wholly-owned Delaware subsidiary (“Mount Tam Delaware”), entered into a stock purchase agreement (the “SPA”) with ARJ Consulting, LLC, a New York limited liability company (the “Buyer”), pursuant to which the Company sold 100% of the capital stock in and of Mount Tam Delaware to the Buyer (the “Sale Transaction”). Prior to the Sale Transaction, the Company caused Mount Tam to transfer certain assets, including the Buck Institute License Agreement, that Mount Tam Delaware was holding to another wholly-owned subsidiary of the Company, Mount Tam Therapeutics, Inc., a newly formed (October 2018) Delaware corporation. At the time of the Sale Transaction Mount Tam possessed certain Net Operating Losses and tax credits. Pursuant to the terms of the SPA, the Buyer purchased Mount Tam for a purchase price of $410,000.
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All company operations are based in the United States. As of the date of this report, we had no products that have obtained marketing approval in any jurisdiction. Additionally, we have not generated revenues since inception and do not expect to do so in the foreseeable future due to the early stage nature of our current product candidate.
Background on the Potential SLE Market
As of the date of this Report, we were focusing the development of our lead product candidate in the field of SLE, an autoimmune disorder where current treatments are often not adequate to fully control disease and a condition where a serious unmet need remains.
According to the Lupus Foundation of America, 1.5 million Americans have some form of lupus although some other estimates are more conservative. The exact etiology of lupus is unknown. As an autoimmune disease, the immune system is unable to properly differentiate between healthy tissues and foreign invaders, leading the immune system to attack healthy tissues. This may cause inflammation of the joints, heart, lungs, kidneys, brain and blood vessels. Lupus is a disease that goes through stages of remission and flares.
SLE is the most serious form of lupus. It is a chronic, inflammatory disorder that can damage many parts of the body, including the skin, joints and internal organs. Lupus nephritis ("
LN
") is a common and very serious complication for people with SLE, causing inflammation of the kidneys that may lead to significant illness and even death.
There is currently no known cure for SLE and no treatment that fully stabilizes the disease. Patients diagnosed with lupus are treated with a range of therapies including anti-malarials, corticosteroids, immunosuppressants, and newer biologic agents that primarily address the symptoms of the disease. Despite the range of available therapies, the burden of disease for SLE patients remains high, with significant morbidity and mortality seen in this population even with best currently available care. SLE also brings a strong economic impact to patients and to society at large, both in direct and indirect economic impacts due to increased medical costs, lost wages for patients and for caregivers.
Our Product Candidates:
TAM-01
Our lead product candidate, TAM-01, is a novel rapalog which exerts its action through direct binding and inhibition of the mammalian Target of Rapamycin ("
mTOR
"). mTOR is a key regulatory pathway which is altered in individuals suffering from a range of disorders including autoimmune diseases such as lupus. Based on extensive research over the last several decades we now understand that mTOR inhibitors, particularly rapamycin, may reduce disease activity and normalize T cell activation-induced calcium fluxing in SLE patients, and may also normalize immune function through suppression of autoreactive B cells.
The only rapalogs currently approved by FDA are rapamycin (sirolimus) and its first generation analogs (temsirolimus, everolimus), but none of these are approved for use in SLE patients. Unfortunately their potential utility as therapeutic agents for the treatment of many chronic diseases such as SLE is limited due to their significant side effects, including impaired glucose tolerance, insulin resistance, and lipid dysregulation. Our lead product candidate, TAM-01 is a novel and proprietary rapalog, which has been shown in extensive preclinical pharmacology studies to deliver the high therapeutic efficacy of rapamycin while significantly reducing or abolishing some of its side effects.
Discovery, lead optimization and pre-development activities (including preliminary scale up) have been largely completed for TAM-01 and it is ready for initiation of cGMP manufacturing to be followed by IND-enabling safety studies (“GLP Tox studies”). A number of pharmacological studies in validated disease models (such as the NZBW/F1J SLE mouse model) have demonstrated that TAM-01 exhibits dose-dependent efficacy similar to rapamycin or temsirolimus. At 14-week dosage, TAM-01 is shown to reduce disease progression as measured by proteinuria, renal IgG and IgM deposition, anti-dsDNA antibody titers and ANA antibody titers. Examination of the kidney pathology of the NZBW/F1J mice showed that TAM-01 ameliorated kidney disease and reduced renal IgG and IgM deposits similarly to temsirolimus. Additionally, other studies have shown that, in contrast to both rapamycin and temsirolimus, TAM-01 has minimal impact on glucose levels, glucose tolerance, did not induce hyperlipidemia (cholesterol and triglyceride elevations), and had minimal impact on reticulocyte counts.
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Although rapamycin and other rapalogs are thought to act primarily through the inhibition of the protein complex mTOR Complex 1 ("TORC1"), it is now well established that these drugs also have inhibitory effects on mTOR Complex 2 ("TORC2"). Our studies have shown TAM-01 to be a more selective TORC1 inhibitor vs. rapamycin and its analogs (having greater TORC1 inhibitory activity relative to TORC2 inhibitory activity) and we believe that this greater selectivity is the reason TAM-01 has shown a superior adverse event profile in mice vs. other rapalogs while still maintaining a strong efficacy profile. This theory, however, has not been proven in clinical trials and the superior adverse event profile seen in mice may not be demonstrated in clinical trials in humans.
TAM-01 exhibits superior oral bioavailability vs. rapamycin, which is expected to result in reduced variability of absorption and superior pharmacokinetics, making it suitable for administration via a flexible dosing regimen. TAM-01 has completed preliminary non-GLP 14-day toxicology, safety, PK, ADME, preliminary scale up manufacturing studies, and analytic and purification methods have been established. We are ready to initiate cGMP manufacturing and GLP studies in order to prepare and submit an Investigational New Drug ("
IND
") to FDA. We intend to advance TAM-01 to phase 1 clinical development in the United States within 18-24 months from the time we have completed our fundraising targets and recruitment of all required personnel. There can be no assurance, however, that the Company will be able to begin phase 1 clinical development in this time frame, if at all.
Rapalogs have been used in cancer therapy for some time to treat a range of cancers. Novartis' Affinitor/Votubia (everolimus), the leading rapalog for treating cancer, was first approved in 2009 to treat advanced kidney cancer and is now approved to treat a range of other cancers including certain breast and pancreatic cancers as well as tuberous sclerosis complex. Novartis reported sales of Afinitor/Votubia in 2018 were approx. $1.6 billion.
Real unmet need remains in these cancers however, with median progression free survival (PFS) in clinical trials with Afinitor reported to be less than 1 year in several important cancer types. An improved therapy that could meaningfully increase PFS, or as/more importantly, overall survival (OS), that still provided acceptable tolerability would likely be welcome by both healthcare providers and patients and we believe that by altering the mTORC1:2 inhibitory profile and other important pharmaceutical characteristics, e.g. potency and PK profiles we have the potential to accomplish this.
Given the unmet need and the unique characteristics of TAM-01, we are in the process of undertaking the first steps to characterize the cancer killing potential of TAM-01 through
in vitro
and
in vivo
experimentation.
However, preclinical and clinical development of cancer therapeutics is particularly challenging and we are at an early stage in the characterization of TAM-01 as a potential cancer therapeutic with many challenges, both known and unknown, lying ahead and so probability of product approval and commercialization must be considered low until more data are generated to support TAM-01s potential as a clinical development candidate.
Parkinson’s Disease (PD) is a devastating disease affecting around one million individuals in the US, impacting quality of life for both patients and caregivers and costing the US economy approx. $20B annually. Dysfunction in the process of autophagy (the natural process for ‘cellular cleanup’ where protein debris is ‘recycled’) is a key component in the development of Parkinson's disease, with PD patients showing altered autophagy and increased mTOR activity.
As it is well known that mTORC1 inhibitors can increase the rate of autophagy, the potential for rapalogs to address unmet need in Parkinson’s Disease (PD) has been explored in multiple preclinical models and rapamycin has shown promise in this area. Given TAM-01’s pharmacologic profile and potential to deliver a unique combination of efficacy and tolerability vs. current rapalogs, Mount Tam has entered into preclinical studies to explore its compounds potential in this area, including TAM-01. These are early investigations into this historically challenging area for clinical development, with Mount Tam’s goal being to quickly determine the potential of our compounds in this area and to determine our future pathway in PD.
TAM-03
TAM-03 is a novel rapalog with a differentiated selectivity profile of TORC1 vs. TORC2 inhibition (as compared to rapamycin, to on-market rapalogs temsirolimus and everolimus, and to TAM-01), and also, favorable potency and bioavailability profiles. We believe that this overall profile makes it an appropriate candidate for further discovery work as a cancer therapy target, and potentially other indications. As with TAM-01, we are in the process of
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undertaking the first steps to characterize the cancer killing potential of TAM-03 through both
in vitro
and
in vivo
experimentation. We are also exploring TAM-03’s potential in Parkinson’s Disease through exploratory
in vivo
models as part of an ongoing collaboration with an academic laboratory with significant experience in studying neurodegenerative diseases. Initial results for TAM-03 in several
in vivo
Parkinson’s Disease studies are very encouraging showing impressive efficacy at multiple dose levels and suggesting that TAM-03 has the potential to become an important clinical candidate to treat this devastating disease.
Our Suppliers and Manufacturers
We do not own or operate, and as of the date of this Report had no plans to establish, any manufacturing facilities. We will rely on third-party contract manufacturers ("CMOs") for the manufacture of our product candidates for larger scale preclinical and clinical testing, as well as for commercial quantities of any product candidates that are approved.
We do not have any current contractual relationships for the manufacture of commercial supplies of our product candidates if they are approved, and we intend to enter into agreements with a third-party contract manufacturer and one or more back-up manufacturers for the commercial production of our product candidates as they near potential approval.
Any drug products to be used in clinical trials and any approved product that we may commercialize will need to be manufactured in facilities, and by processes, that comply with FDA's current good manufacturing practice ("cGMP") requirements and comparable requirements of the regulatory agencies of other jurisdictions in which we are seeking approval.
Competition
We are a development company with no products on the market as of the date of this Report. We face competition from other companies, academic institutions, governmental agencies and other public and private research organizations for collaborative arrangements with pharmaceutical and biotechnology companies, in recruiting and retaining highly qualified scientific and management personnel and for licenses to additional technologies. Many of our competitors will have substantially greater financial, technical and human resources than we have. Our success depends in part on our ability to build, obtain regulatory approval for and market acceptance of, and actively manage a portfolio of drugs that addresses serious unmet medical needs.
If approved, our lead compound TAM-01 would compete with currently marketed drugs and therapies used for treatment of SLE and potentially with drug candidates currently in preclinical or clinical development. Patients diagnosed with SLE are currently treated with a range of therapies with varied success. Our main competitor is a biologic product, Benlysta(R), the only FDA approved drug specifically for SLE patients. Benlysta targets and blocks B Lymphocyte Stimulator, which promotes autoimmunity by permitting autoimmune B cells to live longer. However, Benlysta has not been evaluated in patients with severe active lupus nephritis or severe active central nervous system lupus and is not recommended for these patients. TAM-01 intends to take advantage of these limitations and to provide an effective therapy for these patients. Clinical success, however, is uncertain and our failure to compete effectively could have a material adverse effect on our business.
Oncology clinical development is very competitive with one recently published study stating that there were more than 1,500 clinical trials underway in the oncology space during the study period, far more than any other therapeutic area. In this environment any newly approved oncology product must show significant benefit over standard of care at time of approval, a significant barrier to entry.
Neurodegenerative diseases bring tremendous economic impact to society and burden of disease to patients and their families. There is a very high level of unmet need in this area and with the importance of these diseases to societies many large pharmaceutical manufacturers and biotechs are actively developing therapeutics to target these diseases. This creates a competitive environment and for our compounds to be successful will require us to show benefit vs. current and future therapeutics and will require us to compete against companies with access to much greater resources and expertise.
Intellectual Properties and Licenses
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We strive to protect and enhance the proprietary technologies that we believe are important to our business and seek to obtain and maintain patents for any patentable aspects of our products and any other inventions that are important to the development of our business. Our success depends in part on our ability to obtain and maintain our patent portfolio and other proprietary protection for commercially important technology, inventions and know-how related to our business, to defend and enforce our patents, to maintain our licenses to use intellectual property owned by third parties, to preserve the confidentiality of our trade secrets and to operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in our targeted therapeutic.
On August 17, 2014, Mount Tam entered into the Buck Institute License Agreement. This agreement establishes a joint research effort led by Buck Institute to identify and develop compounds from two specific chemical chemotypes identified therein. We provide certain funding for Buck Institute's research efforts performed under the Buck Institute License Agreement. Under the terms of the Buck Institute License Agreement, Buck Institute assigned exclusive, worldwide rights to develop, manufacture and commercialize pharmaceutical products that incorporate a compound from one of two chemical compounds, identified therein, and exclusive rights to practice the drug discovery platform technology as necessary to research, develop and commercialize such pharmaceutical products. Mount Tam retains rights to inventions made by its employees, and Buck Institute will assign to Mount Tam all inventions made under the Buck Institute License Agreement jointly by its employees and Buck Institute personnel, provided that Mount Tam has complied with its funding obligations set forth in the Buck Institute License Agreement. On March 19, 2015 Mount Tam entered into an amendment to the Buck Institute License Agreement to extend the deadline of funding milestones and its reimbursement obligations for expenses that Buck Institute accrued relating to the patents under the Buck Institute License Agreement. On April 1, 2015, Mount Tam satisfied this revised funding milestone deadline with Buck Institute.
During the second quarter of 2016 the Company entered into negotiations with the Buck Institute to resolve certain outstanding financial concerns, and to broaden the Research Collaboration and License Agreement beyond the area of autoimmune disease. On July 18, 2016, the Company entered into an amendment (the "Amendment") to the Research Collaboration and License Agreement (the "License Agreement") between the Company and The Buck Institute.
By way of background, and as previously disclosed in the Company's public filings, the Company previously entered into a Research Collaboration and License Agreement (the "Buck Institute License Agreement") with the Buck Institute, which establishes a joint research effort led by Buck Institute to identify and develop compounds from two specific chemical chemotypes identified therein. The Company agreed to provide certain funding for Buck Institute's research efforts performed under the Buck Institute License Agreement. Under the terms of the Buck Institute License Agreement, Buck Institute assigned exclusive, worldwide rights to develop, manufacture and commercialize pharmaceutical products that incorporate a compound from one of two chemical compounds, identified therein, and exclusive rights to practice the drug discovery platform technology as necessary to research, develop and commercialize such pharmaceutical products. (Additional information about the Buck Institute License Agreement, together with prior amendments thereto, may be found in the Company's public filings).
Pursuant to this Amendment, the Research Collaboration Term of the License Agreement is tolled until the Company can achieve a Qualified Financing (defined as any financing occurring after the date of the Amendment which results in gross proceeds to the Company of at least $2,000,000). Once a Qualified Financing has been achieved, the research collaboration efforts will resume, and will continue for a period of twenty-one months (the "Extended Research Collaboration Term"). The Company and The Buck Institute agreed to work together to determine a new research plan, specifying the research and development activities of both parties during the Extended Research Collaboration Term.
Moreover, in the Amendment the parties agreed that the field of use covered by the License Agreement would be expanded, with the new definition being "the treatment, diagnosis or prevention of any and all conditions or diseases including, without limitation, systemic lupus erythematous and multiple sclerosis for human and/or veterinary use." (Under the original License Agreement, the Company's field of use had been restricted to autoimmune disorders.)
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Within the licensed library is TAM-01. TAM-01's composition of matter is patented in the US, having an expiration date of December 2032. TAM-01's composition of matter patent has been allowed in Japan, expected to provide coverage through 2032 or beyond. Our licensed TAM-01 European (EU) patent claiming TAM-01 as well as compositions, uses, and processes for preparing TAM01, was granted in February 2018 and validated in 18 EU nations in the second quarter of 2018. We continue, as part of our ongoing research and development efforts, to strive to defend and to strengthen the intellectual property position of our key assets.
As consideration for the assignments and licenses, we issued Buck Institute 1,200,000
(post-merger)
(450,000 pre-merger) shares of our common stock and Mount Tam is obligated to pay to Buck Institute milestone payments on development of its proprietary products claimed by patents assigned or licensed to it by Buck Institute. Mount Tam also is obligated to pay low single digit royalties, including annual minimum royalties, on sales of such products. Should Mount Tam grant licenses or sublicenses to those patents to third parties, Mount Tam is obligated to share a percentage or resulting revenue with Buck Institute. Mount Tam's royalty payment obligations are reduced if currently pending patent applications become invalid or if Mount Tam has to pay third parties to obtain certain licenses for the company to manufacture, use, sell or import its products produced pursuant to the Buck Institute License Agreement. Payment obligations terminate on expiration or annulment of the last patent covered by the Buck Institute License Agreement.
The Buck Institute License Agreement will terminate upon the expiration of our payment obligations thereunder. Mount Tam can terminate the licenses to any or all licensed patents upon specified advance notice to Buck Institute. Buck Institute may terminate the license provisions of the agreement only for cause. Termination of the Buck Institute License Agreement does not terminate Mount Tam's rights in patents assigned to it.
In addition to our TAM-01 license, Mount Tam continues to work diligently to expand its intellectual property portfolio. As part of these efforts, an international (PCT) patent application directed to TAM-03, as well as compositions, uses and processes for preparing TAM-03, and claiming a February 2017 priority date, was filed in February 2018 (published in August 2018).
Governmental Regulations
To date, we have conducted and will continue to conduct our preclinical research through contract research organizations ("CROs"), through our partnership with the Buck Institute and through other academic collaborations. We do not at this time have the ability to independently conduct clinical trials for our product candidates, and we expect to continue to rely on CROs, medical institutions and academic collaborators to perform this function for both preclinical and clinical activities. Our reliance on these third parties for pre-clinic and clinical development activities reduces our control over these activities. Although we have, in the ordinary course of business, entered into agreements with these third parties, we continue to be responsible for confirming that all of our preclinical and clinical trials are conducted in accordance with approved investigational plans and protocols. Moreover, FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices or cGCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. To date, we believe that our CROs, the Buck Institute and academic collaborators have performed well.
The process of complying with FDA guidelines and obtaining approvals from FDA of applications to market drugs and products is costly, time consuming and subject to unanticipated delays. There is no assurance that we will be able to obtain FDA approval for any of our products.
Discovery and Development Activities
To gain regulatory approval of our products, we must demonstrate, through experiments, preclinical studies and clinical trials that our drug product candidate meets the safety and efficacy standards established by FDA and other international regulatory authorities. In addition, we must demonstrate that all development-related laboratory, clinical and manufacturing practices comply with regulations of FDA, other international regulators and where applicable, local regulators.
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Regulations establish standards for various actions including: drug substances and materials; drug manufacturing operations and facilities; and analytical laboratories and medical development laboratory processes and environments. In each instance, these standards are in connection with research, development, testing, manufacture, quality control, labeling, storage, record keeping, approval, advertising and promotion, and distribution of product candidates, on a product-by-product basis.
Preclinical Studies and Clinical Trials
Development testing generally begins with laboratory testing and experiments, as well as research studies using animal models to obtain preliminary information on a product's efficacy and to identify potential safety issues. The results of these studies are compiled along with other information in an IND application, which is filed with FDA. After resolving any questions raised by FDA, which may involve additional testing and animal studies, clinical trials may begin. Regulatory agencies in other countries generally require a Clinical Trial Application to be submitted and approved before each trial can commence in each country.
Clinical trials normally are conducted in three sequential phases and may take many years to complete. Phase 1 consists of testing the drug product in a small number of humans, often healthy volunteers, to determine preliminary safety and a tolerable dose range. Phase 2 usually involves studies in a limited patient population to evaluate the effectiveness of the drug product in humans having the disease or medical condition for which the product is indicated, determine dosage tolerance and optimal dosage and identify possible common adverse effects and safety risks. Phase 3 consists of additional controlled testing at multiple clinical sites to establish clinical safety and effectiveness in an expanded patient population of geographically dispersed test sites to evaluate the overall benefit-risk relationship for administering the product and to provide an adequate basis for product labeling. Phase 4 clinical trials may be conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication.
The conduct of clinical trials is subject to stringent medical and regulatory requirements. The time and expense required to establish clinical sites, provide training and materials, establish communications channels and monitor a trial over a long period of time is substantial. The conduct of clinical trials at institutions located around the world is subject to foreign regulatory requirements governing human clinical trials, which vary widely from country to country. Delays or terminations of clinical trials could result from a number of factors, including stringent enrollment criteria, slow rate of enrollment, size of patient population, having to compete with other clinical trials for eligible patients, geographical considerations and others. Clinical trials are monitored by the regulatory agencies as well as medical advisory and standards boards, which could determine at any time to reevaluate, alter, suspend, or terminate a trial based upon accumulated data, including data concerning the occurrence of adverse health events during or related to the treatment of patients enrolled in the trial, and the regulator's or monitor's risk/benefit assessment with respect to patients enrolled in the trial. If they occur, such delays or suspensions could have a material impact on our development programs.
Regulatory Review
The results of preclinical and clinical trials are submitted to FDA in a New Drug Application ("
NDA
"), with comparable filings submitted to other international regulators. After the initial submission, FDA has a period of time in which it must determine if the NDA is complete. After an NDA is submitted, although the statutory period provided for FDA's review is less than one year, dealing with questions or concerns of the agency and, taking into account the statutory timelines governing such communications, may result in review periods that can take several years. If an NDA is accepted for filing, following FDA's review, FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not provide an adequate basis for approval. If FDA grants approval, the approval may be conditioned upon the conduct of post-marketing clinical trials or other studies to confirm the product's safety and efficacy for its intended use. Until FDA has issued its approval, no marketing activities can be conducted in the United States. Similar regulations apply in other countries. There can be no assurance that any of the Company's drug candidates will receive FDA approval or the approval of regulators in other countries.
Fast Track and Breakthrough Designations
FDA has various programs, including fast track and breakthrough therapy designations, which are intended
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to expedite the process for reviewing drugs. Even if a drug qualifies for one or more of these programs, FDA may later decide that the drug no longer meets the conditions for qualification. Generally, drugs that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments.
Fast track designation is intended to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need. Designation may be granted on the basis of preclinical data. A sponsor of a drug that receives fast track designation will typically have more frequent interactions with FDA during drug development. In addition, products that have been designated as fast track can obtain rolling review.
Breakthrough therapy designation is intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy. A breakthrough therapy designation conveys all of the fast track program features, more intensive FDA guidance on an efficient drug development program, an organizational commitment involving senior managers, and eligibility for rolling review and priority review.
A key difference between fast track designation and breakthrough designation is what needs to be demonstrated to qualify for the programs. A breakthrough therapy designation is for a drug that treats a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies. In contrast, a fast track designation is for a drug that treats a serious or life-threatening condition, and nonclinical or clinical data demonstrate the potential to address unmet medical needs for the serious condition.
Where appropriate, the Company intends to seek fast track designation for TAM-01 and TAM-03. There can be no assurance that FDA will grant fast track designation. Even if such designation is provided, it may not result in a faster development or review time. Moreover, fast track designations do not increase the odds of approval. A fast track designation may be rescinded at any time if the drug candidate does not continue to meet the qualifications for these programs.
Manufacturing Standards
FDA and other international regulators establish standards and routinely inspect facilities and equipment, analytical and quality laboratories and processes used in the manufacturing and monitoring of products. Prior to granting approval of a drug product, FDA will conduct a pre-approval inspection of the manufacturing facilities, and the facilities of suppliers, to determine that the drug product is manufactured in accordance with cGMP and product specifications. Following approval, FDA will conduct periodic inspections. If, in connection with a facility inspection, FDA determines that a manufacturer does not comply with cGMP regulations and product specifications, FDA will issue an inspection report citing the potential violations and may seek a range of remedies, from administrative sanctions, including the suspension of our manufacturing operations, to seeking civil or criminal penalties.
International Approvals
Even if we were to succeed in gaining regulatory approval to market our products in the United States, we will still need to apply for approval with other international regulators if we want to sell outside the United States. Regulatory requirements and approval processes are similar in approach to that of the United States. With certain exceptions, although the approval of FDA carries considerable weight, international regulators are not bound by the findings of FDA and there is a risk that foreign regulators will not accept a clinical trial design or may require additional data or other information not requested by FDA.
Post-approval Regulations
Following the grant of marketing approval, FDA regulates the marketing and promotion of drug products. Promotional claims are generally limited to the information provided in the product package insert for each drug product, which is negotiated with FDA during the NDA review process. In addition, FDA enforces regulations designed to guard against conflicts of interest, misleading advertising and improper compensation of prescribing physicians. FDA will review, among other things, direct-to-consumer advertising, prescriber-directed advertising and
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promotional materials, sales representative communications to healthcare professionals, promotional programming and promotional activities on the Internet. FDA will also monitor scientific and educational activities. If FDA determines that a company has promoted a product for an unapproved use ("off-label"), or engaged in other violations, it may issue a regulatory letter and may require corrective advertising or other corrective communications to healthcare professionals. Enforcement actions may also potentially include product seizures, injunctions and civil or criminal penalties. The consequences of such an action and the related adverse publicity could have a material adverse effect on a developer's ability to market its drug and its business as a whole.
Following approval, FDA and other international regulators will continue to monitor data to assess the safety and efficacy of an approved drug. A post-approval discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or a recall or withdrawal of the product from the market, as well as possible civil or criminal sanctions. Similar oversight is provided by regulators in jurisdictions outside the US.
None of our products under development has been approved for marketing in the United States or elsewhere. We may not be able to obtain regulatory approval for any of our products under development. If we do not obtain the requisite governmental approvals or if we fail to obtain approvals of the scope we request, we or our licensees or strategic alliance or marketing partners may be delayed or precluded entirely from marketing our products, or the commercial use of our products may be limited. Such events would have a material adverse effect on our business, financial condition and results of operations.
Other Healthcare Laws and Regulations
If we obtain regulatory approval for any of our current or future product candidates, we may also be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we conduct our business. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
·
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
·
federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
·
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
·
the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members;
Health Insurance Portability and Accountability Act of 1996, as amended by Health Information Technology for Economic and Clinical Health Act of 2009, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and
·
state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's
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voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and impact our financial results.
Employees
As of the date of this Report, we have two employees. In addition, we use advisors and consultants for research and development, clinical, regulatory, legal and administrative activities. We plan to hire additional staff as we expand research, production, business development, and sales and marketing programs. None of our employees are represented by a labor union.
Research and Development
We estimate that we have spent $1,145,623 on research and development activities during the last two fiscal years.
Compliance with Environmental Laws
Our operations may require the use of hazardous materials (including biological materials) which subject us to a variety of federal, provincial and local environmental and safety laws and regulations. Some of the regulations under the current regulatory structure provide for strict liability, holding a party potentially liable without regard to fault or negligence. We could be held liable for damages and fines as a result of our, or others', business operations should contamination of the environment or individual exposure to hazardous substances occur. We cannot predict how changes in laws or development of new regulations will affect our business operations or the cost of compliance.
ITEM 1A. Risk Factors.
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other information contained in this Annual Report and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on the Company, our business, financial condition, results of operations and/or liquidity could be seriously harmed. In that event, the market price of our common stock will likely decline, and you may lose all or part of your investment.
Risks Related to Our Business
Our success depends heavily on the successful development, regulatory approval and commercialization of TAM-01, our lead product candidate, and of TAM-03, our follow-on compound (“Our Candidates”).
We do not have any products that have been granted regulatory approval. We cannot commercialize our compounds in the United States without first obtaining regulatory approval for these products from FDA, nor can we commercialize our candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Clinical trials require many years to complete and the FDA review process that follows completion of clinical trials typically takes 10 months or more, and approval is never guaranteed. As a result, our near-term prospects, including our ability to finance our operations and generate revenue, are substantially dependent on our ability to successfully complete clinical trials and to subsequently obtain regulatory approval for, and if approved,
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to successfully commercialize our candidates in a timely manner.
Obtaining regulatory approval for marketing of any product candidate in one country does not ensure we will be able to obtain regulatory approval in other countries, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
Even if we were to successfully obtain approval for any product candidate from FDA and comparable regulatory authorities outside the United States, any approval might contain significant limitations related to use restrictions or may be subject to burdensome and costly post-approval study or risk management requirements. If we are unable to obtain regulatory approval for our product candidate in one or more jurisdictions, or if any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue our operations. Also, any regulatory approval of our product candidates, once obtained, may be withdrawn by the regulatory authority. Furthermore, even if we obtain regulatory approval, commercial success will depend on how successfully we are able to address a number of challenges, including the following:
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development of our own commercial organization and/or establishment of commercial collaborations with partners;
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establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payors;
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the ability of our third-party manufacturers to manufacture quantities of our candidates using commercially viable processes at a scale sufficient to meet anticipated demand and that are compliant with applicable regulations;
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our success in educating physicians, other health care professionals and patients about the benefits, administration and use of our candidates;
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the availability, actual advantages, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; and
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the effectiveness of our own or our potential commercial collaborators' marketing, sales and distribution strategy and operations.
Many of these factors are beyond our control. If we or any commercialization partners are unable to successfully commercialize our candidates or any future product candidate, we may not be able to earn sufficient revenues to continue our business.
The regulatory approval processes of FDA and comparable authorities outside the United States are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for one or more of our product candidates, our business will be substantially harmed.
The time required to complete clinical trials and to obtain approval by FDA and comparable authorities outside the United States is unpredictable and typically takes many years. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's development and may vary among jurisdictions. We have not obtained regulatory approval for our candidates, and it is possible that our existing candidates, or any product candidates we may seek to develop in the future, will never obtain regulatory approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation of any clinical trials that we propose to conduct or require us to conduct additional clinical trials;
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we may be unable to demonstrate to the satisfaction of FDA or comparable foreign regulatory authorities that our product candidate is both safe and effective for its proposed indication;
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we may be unable to demonstrate that our product candidate's clinical and other benefits outweigh its safety risks;
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FDA or comparable regulatory authorities outside the United States may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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FDA or comparable regulatory authorities outside the United States may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of FDA or comparable regulatory authorities outside the United States may change significantly in a manner rendering our clinical data insufficient for approval.
Failing to obtain regulatory approval to market one or more of our product candidates would harm our business, results of operations and prospects significantly.
In addition, even if we were to obtain approval, such regulatory approval may be for more limited indications than we request, may impact the price we intend to charge for our products, may be contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could harm the commercial prospects for our product candidates.
We have not previously submitted an NDA or any similar drug approval filing to FDA or any comparable authority outside the United States for our product candidates, and we cannot be certain that our product candidate will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market our product candidates in one or more jurisdictions, our revenue will be dependent, to a significant extent, upon the size of the markets in the jurisdictions for which we gain regulatory approval.
Even if our candidates, and any future product candidates, receive regulatory approval, they may fail to achieve the degree of market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, healthcare payors and others in the medical community necessary for commercial success.
Existing therapies for SLE have well-established market positions and familiarity with physicians, payers and patients. If we are unable to achieve significant differentiation for TAM-01 from existing and widely accepted therapies for SLE, our opportunity for TAM-01 to be commercialized successfully, if approved, would be adversely affected. Additionally, the markets for novel cancer therapeutics are extremely competitive with both regulators and payors requiring a clear demonstration of benefit vs. standard-of-care for approval and subsequent reimbursement. In this environment, even if one or more of our candidates receive regulatory approval they may not be commercially successful.
If TAM-01, TAM-03 or any of our future product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, payers and others in the medical community. The degree of market acceptance of our product candidate, if approved for commercial sale, will depend on a number of factors, including the following:
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convenience and ease of administration of the product candidate compared to alternative treatments;
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the prevalence and severity of any side effects;
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their efficacy and potential advantages compared to alternative treatments;
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the willingness of physicians and other health care providers to change their current treatment practices;
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the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;
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the strength of marketing and distribution support; and
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the price we charge for our product candidate.
Neither TAM-01 nor TAM-03 have ever been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale.
We have never manufactured our product candidates on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for our candidates or other future product candidates there is no assurance that our manufacturer, that we have not yet engaged, will be able to manufacture the approved product to specifications acceptable to FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand.
If our suppliers are unable to produce sufficient quantities of any approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.
We may not be successful in our efforts to build a pipeline of drug candidates.
A key element of our strategy is to use and expand our proprietary drug discovery platform to build a pipeline of drug candidates to address different targets, and progress those drug candidates through clinical development for the treatment of a variety of different types of diseases. Although our research efforts to date have resulted in identification of a series of targets, we may not be able to develop drug candidates that are safe and effective inhibitors or promoters of all or any of these targets. Even if we are successful in building a product pipeline, the potential drug candidates that we identify may not be suitable for clinical development for a number of reasons, including causing harmful side effects or demonstrating other characteristics that indicate a low likelihood of receiving marketing approval or achieving market acceptance. If our methods of identifying potential drug candidates fail to produce a pipeline of potentially viable drug candidates, then our success as a business will be dependent on the success of fewer potential drug candidates, which introduces risks to our business model and potential limitations to any success we may achieve.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new specialty pharmaceutical products is highly competitive. We face competition with respect to TAM-01 and TAM-03, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are many large pharmaceutical and biotechnology companies that are developing or currently market and sell products to our target patient groups. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. There may also be companies unknown to us that are engaged in the development of products that are potentially competitive with those that we are developing. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
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We currently have no sales representatives or distribution personnel and no marketing capabilities. If we are unable to develop a sales and marketing and distribution capability, we will not be successful in commercializing current or future product candidates.
We have not yet built out an infrastructure to sell, market or distribute therapeutic products. If TAM-01, TAM-03 or other future product candidates are approved, we intend to commercialize them, whether on our own or as part of a strategic partnership, with our own specialty sales force in the United States and with commercial partners globally.
There are risks involved with both establishing our own sales and marketing and distribution capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
We may be unable to identify appropriate commercial partners to distribute and market our products outside the United States or to negotiate terms with such commercial partners that are favorable or acceptable to us. Also, we may be unable to maintain those relationships. The inability to identify, successfully negotiate with, and maintain relationships with, commercial partners for distribution outside the United States could limit and/or delay our ability to commercialize our products outside the United States.
If we obtain approval to commercialize any of our product candidates outside the United States, we will be subject to additional risks.
If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business, including:
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different regulatory requirements for drug approvals in countries outside the United States;
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reduced protection for intellectual property rights;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;non-United States taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing business in another country;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
Even if we receive regulatory approval for TAM-01, TAM-03 or future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements.
Any regulatory approvals that we may receive for our product candidates will contain approved indicated uses, and we will be required to market any approved products in accordance with the indicated uses and our approved
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labeling. In addition, any regulatory approvals may contain conditions for approval or requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. In addition, if FDA or a comparable regulatory authority outside the United States approves our product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs, Quality System Regulation, or QSR, requirements and current good clinical practices for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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fines, warning or untitled letters or holds on clinical trials;
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refusal by FDA to approve pending applications or supplements to approved applications filed, or suspension or revocation of product approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions, the imposition of civil penalties or criminal prosecution.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. If we are not able to maintain regulatory compliance or if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, regulatory sanctions may be applied or we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
Our product candidates may cause serious adverse side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any marketing approval.
It is impossible to predict when or if our product candidate will prove safe enough to receive regulatory approval. Undesirable side effects could result in a more restrictive label or the delay or denial of regulatory approval by FDA or other comparable regulatory authority outside the United States for the affected product candidate. Additionally, if our product candidate receives marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:
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we may be forced to suspend the marketing of such product;
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regulatory authorities may withdraw their approvals of such product;
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regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such products;
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FDA or other regulatory bodies may issue safety alerts, "Dear Healthcare Provider" letters, press releases or other communications containing warnings about such product;
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FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies, or REMS, or a comparable regulatory authority outside the United States may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome and costly implementation requirements on us;
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we may be required to change the way the product is administered or conduct additional clinical trials;
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we could be sued and held liable for harm caused to subjects or patients;
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we may be subject to litigation or product liability claims; and
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our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidate, if approved.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to any of our future product candidates. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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significant costs to defend the related litigation;
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substantial monetary awards to patients;
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loss of revenue; and
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the inability to commercialize any products that we may develop.
Insurance coverage is increasingly expensive. We currently do not have any product liability or any other insurance, and may not be able to obtain and maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for our drug candidates and our business could be substantially harmed.
We depend upon independent investigators and contractors, such as CROs, universities and other academic institutions, such as Buck Institute, to conduct our preclinical studies and clinical trials. We rely upon, and plan to continue to rely upon, such third-party entities to execute our preclinical studies and clinical trials and to monitor and manage data produced by and relating to those studies and trials. However, we may not be able to in the future establish arrangements with CROs when needed or on terms that are acceptable to us, or at all, which could negatively affect our development efforts with respect to our drug candidates and materially harm our business, operations and prospects. As a result of the use of third-party contractors, we will have only limited control over certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies, including each of our clinical trials, is conducted in accordance with the applicable protocol, legal and regulatory requirements as well as scientific standards, and our reliance on any third-party entity will not relieve us of our regulatory responsibilities.
Based on our present expectations, we and our third-party contractors will be required to comply with current cGCP for all of our drug candidates in clinical development. Regulatory authorities enforce cGCP through periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of our contractors fail to comply with applicable cGCP, the clinical data generated in the applicable trial may be deemed unreliable and FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving a drug candidate for marketing, which we may not have sufficient cash or other resources to support and which would delay our ability to generate revenue from any sales of such drug candidate. Any agreements governing our relationships with outside contractors such as CROs or other contractors we may engage in the future, may provide those outside contractors
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with certain rights to terminate a clinical trial under specified circumstances. If such an outside contractor terminates its relationship with us during the performance of a clinical trial, we would be forced to seek an engagement with a substitute contractor, which we may not be able to do on a timely basis or on commercially reasonable terms, if at all, and the applicable clinical trial would experience delays or may not be completed.
If our contractors do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to a failure to adhere to our clinical protocols, legal and regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for, or successfully commercialize, the affected drug candidates. In addition, we will be unable to control whether or not they devote sufficient time and resources to our preclinical and clinical programs. These outside contractors may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. As a result, our operations and the commercial prospects for the effected drug candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. These contractors may also have relationships with other commercial entities, some of whom may compete with us. If our contractors assist our competitors to our detriment, our competitive position would be harmed.
Clinical drug development involves a lengthy and expensive process with uncertain outcomes, is very difficult to design and implement, and any of our clinical trials could produce unsuccessful results or fail at any stage in the process.
We are still in the preclinical stages of our development of TAM-01 and TAM-03 and hope to begin clinical trials in 2020. Clinical trials conducted on humans are expensive and can take many years to complete, and outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Additionally, any positive results of preclinical studies and early clinical trials of a drug candidate may not be predictive of the results of later-stage clinical trials, such that drug candidate may reach later stages of clinical trials and fail to show the desired safety and efficacy traits despite having shown indications of those traits in preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier phases of the trials. Therefore, the results of any ongoing or future clinical trials we conduct may not be successful.
We may experience delays in pursuing our planned clinical trials, and any planned clinical trials may not begin on time, may require redesign, may not enroll sufficient healthy volunteers or patients in a timely manner, and may not be completed on schedule, if at all.
Clinical trials may be delayed for a variety of reasons, including delays related to:
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obtaining regulatory approval to commence a trial;
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reaching agreement on acceptable terms with prospective CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining institutional review board, or IRB, approval at each trial site;
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enrolling suitable volunteers or patients to participate in a trial;
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developing and validating companion diagnostics on a timely basis;
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changes in dosing or administration regimens;
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having patients complete a trial or return for post-treatment follow-up;
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inability to monitor patients adequately during or after treatment;
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clinical investigators deviating from trial protocols or dropping out of a trial;
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regulators instituting a clinical hold due to observed safety findings or other reasons;
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adding new or substituting clinical trial sites; and
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manufacturing sufficient quantities of drug candidate for use in clinical trials.
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We plan to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. Although we expect that we will have agreements in place with CROs governing their committed activities and conduct, we will have limited influence over their actual performance. As a result, we ultimately do not and will not have control over a CRO's compliance with the terms of any agreement it may have with us, its compliance with applicable regulatory requirements, or its adherence to agreed time schedules and deadlines, and a future CRO's failure to perform those obligations could subject any of our clinical trials to delays or failure.
Further, we may also encounter delays if a clinical trial is suspended or terminated by us, by any IRB or Ethics Committee at an institution in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for the trial, if applicable, or by FDA, or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements, inspection of the clinical trial operations or trial site by FDA or other regulatory authorities resulting in the imposition of a clinical hold, exposing participants to health risks caused by unforeseen safety issues or adverse side effects, development of previously unseen safety issues, failure to demonstrate a benefit from using a drug candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Therefore, we cannot predict with any certainty the schedule for commencement or completion of any currently ongoing, planned or future clinical trials.
If we experience delays in the commencement or completion of, or due to suspension or termination of, any clinical trial for our drug candidates, the commercial prospects of the drug candidate could be harmed, and our ability to generate product revenues from the drug candidate may be delayed or eliminated. In addition, any delays in completing our clinical trials will increase our costs, slow down our drug candidate development and approval process and jeopardize regulatory approval of our drug candidates and our ability to commence sales and generate revenues. The occurrence of any of these events could harm our business, financial condition, results of operations and prospects significantly.
We rely and expect to continue to rely completely on third parties to formulate and manufacture our preclinical, clinical trial and post-approval drug supplies. The development and commercialization of any of our drug candidates could be stopped, delayed or made less profitable if those third parties fail to provide us with sufficient quantities of such drug supplies or fail to do so at acceptable quality levels, including in accordance with applicable regulatory requirements or contractual obligations and our operations could be harmed as a result.
We have no experience in drug formulation or manufacturing. We do not currently have, nor do we plan to acquire, the infrastructure or capability internally, such as our own manufacturing facilities, to manufacture our preclinical and clinical drug supplies for use in the conduct of our clinical trials or commercial quantities of any drug candidates that may obtain regulatory approval. Therefore, we lack the resources and expertise to formulate or manufacture our own drug candidates. We have entered into agreements with third-party CMOs for the clinical-stage manufacture of certain of our drug candidate. We plan to enter into agreements with one or more manufacturers to manufacture, supply, store and distribute drug supplies for our current and future clinical trials and/or commercial sales. We intend to establish or continue those relationships for the supply of our drug candidates, however, there can be no assurance that we will be able to retain those relationships on commercially reasonable terms, if at all. If we are unable to maintain those relationships, we could experience delays in our development efforts as we locate and qualify new CMOs. If our current drug candidate or any drug candidates we may develop or acquire in the future receive regulatory approval, we will rely on one or more CMOs to manufacture the commercial supply of such drugs.
Our reliance on a limited number of CMOs exposes us to the following risks:
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We may be unable to identify manufacturers on acceptable terms, or at all, because the number of potential manufacturers is limited and FDA must approve any replacement contractor. This approval would require new testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.
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Our third-party manufacturers might be unable to formulate and manufacture our drugs in the volume and of the quality required to meet our clinical needs and commercial needs, if any.
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Our future contract manufacturers may not perform as contractually agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products.
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Drug manufacturers are subject to ongoing periodic unannounced inspection by FDA, the Drug Enforcement Administration, and corresponding state agencies to ensure strict compliance with current good manufacturing practices, or cGMP, regulations and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers' compliance with these regulations and standards.
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If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.
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Each of these risks could delay our clinical trials, the approval, if any, of our drug candidates by FDA or the commercialization of our drug candidates or result in higher costs or deprive us of potential product revenues.
We expect to have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of FDA or other comparable foreign authorities, we would be prevented from obtaining regulatory approval for our drug candidates unless and until we engage a substitute contract manufacturer that can comply with such requirements, which we may not be able to do. Any such failure by any of our contract manufacturers would significantly impact our ability to develop, obtain regulatory approval for or market our drug candidates, if approved.
Further, we plan to rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our drug candidates for our clinical trials. We do not have, nor do we expect to enter into, any agreements for the commercial production of these raw materials, and we do not expect to have any control over the process or timing of our contract manufacturers' acquisition of raw materials needed to produce our drug candidates. Any significant delay in the supply of a drug candidate or the raw material components thereof for an ongoing clinical trial due to a manufacturer's need to replace a third-party supplier of raw materials could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our drug candidates. Additionally, if our future manufacturers or we are unable to purchase these raw materials to commercially produce any of our drug candidates that gain regulatory approvals, the commercial launch of our drug candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our drug candidates.
Disagreements with respect to the commercial terms of our sales, licensing, purchase or manufacturing agreements may limit our commercial success.
The rights and obligations of the partners to which we may license our TAM-01 technology are governed by the Buck Institute License Agreement. In addition, our relationships with CROs and CMOs are governed by the service agreements between us and each manufacturer. Although we attempt to address the full range of possible events that may occur during the development or the manufacturing of TAM-01 drug candidate and products, unanticipated or extraordinary events may occur beyond those contemplated by said agreements. Furthermore, our business relationships with our product manufacturers and our collaborators may include assumptions, understandings or agreements that are not included in our agreements with them, or that are inaccurately or incompletely represented by their terms. In addition, key terms in such agreements may be misunderstood or contested, even when both we and the other party previously believed that we had a mutual understanding of our obligations.
Any differences in interpretation or misunderstandings between us and other parties may result in substantial costs and delays with respect to the development, manufacturing or sale of TAM-01 drug product, and may negatively impact our revenues and operating results. Product manufacturers may fail to produce the products and partners may fail to develop the drug candidate under the timeline or in the manner we anticipated, and results may differ from the
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terms upon which we had agreed. As a result, we may be unable to supply drugs of the quality or in the quantity demanded or required. We may suffer harm to our reputation in the market from missed development goals or deadlines, and may be unable to capitalize upon market opportunities as a result. Resolution of these problems may entail costly and lengthy litigation or dispute resolution procedures. In addition, there is no guarantee that we will prevail in any such dispute or, if we do prevail, that any remedy we receive, whether legal or otherwise, will adequately redress the harm we have suffered. The delays and costs associated with such disputes may themselves harm our business and reputation and limit our ability to successfully compete in the market going forward.
Our future success depends on our ability to retain our chief executive officer and chief financial officer and to attract, retain and motivate qualified personnel.
We are highly dependent on our chief executive officer, and chief financial officer and the other principal members of our management team that may be hired in the future. The loss of the services of any of these people could impede the achievement of our research, development and commercialization objectives.
Recruiting and retaining qualified and experienced scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers or engaged by entities other than us and may have commitments under employment, consulting or advisory contracts with other entities that may limit their availability to us.
Our ability to timely submit an Investigational New Drug to FDA will depend on our ability to recruit all necessary personnel and to raise sufficient funds for such recruitment.
Our ability to execute on our current plan for the completion of all activities and submission of an IND to FDA will depend on our ability to recruit the necessary personnel to support our development activities. Failure to complete all hires as planned will result in significant delays in the submission of the IND, if at all. Further, our ability to hire and retain such personnel will depend on our ability to raise sufficient funds for such recruitment. Any delays in raising the necessary funds will result in recruiting delays, which in turn will delay the submission of the IND.
We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We currently have two employees. We expect to experience significant growth in the number of our employees and the scope of our operations if we are able to successfully develop and commercialize TAM-01, particularly in the areas of regulatory affairs, sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the anticipated expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Future growth would impose significant added responsibilities on members of management, including:
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managing our clinical trials effectively, which we anticipate being conducted at numerous clinical sites;
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identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience we will require;
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managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
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managing additional relationships with various strategic partners, suppliers and other third parties;
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improving our managerial, development, operational and finance reporting systems and procedures; and
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expanding our facilities.
Our failure to accomplish any of these tasks could prevent us from successfully growing our Company. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on our product candidate or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates and are currently focused principally on TAM-01 as well as certain activities intended to advance TAM-03 as an oncology candidate, or in other disease areas where we deem TAM-03 to have the potential to address serious unmet need. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through future collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
Guidelines and recommendations published by various organizations can reduce the use of our product candidate.
Government agencies promulgate regulations and guidelines directly applicable to us and to our product candidate. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of therapies.
Recommendations or guidelines suggesting the reduced use of our product candidate or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our product candidate.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We are a development stage company with limited operating history. To date, we have focused primarily on developing our lead product candidate, TAM-01 and follow-on compound TAM-03. Our product candidates will require substantial additional development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We have incurred cumulative net loss from inception (August 13, 2014) to December 31, 2018 of $8,977,593.
We have devoted most of our financial resources to product and technology development. To date, we have financed our operations primarily through the sale of equity securities and convertible debt securities. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. To date, our product candidate has not been commercialized, and if our product candidate is not successfully developed or commercialized, or if revenue is insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market our product candidate in the United States, our revenue is also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success inside and outside the United States.
We expect to continue to incur substantial and increased expenses as we expand our development activities. We also expect an increase in our expenses associated with creating additional infrastructure to support operations as a public company. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future.
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We have never generated any revenue and may never be profitable.
Our ability to generate revenue and achieve profitability depends on our ability, with collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our product candidate. We do not anticipate generating revenue from sales of our product candidate for the foreseeable future, if ever. Our ability to generate future revenue from product sales depends heavily on our success in:
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completing development of TAM-01;
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obtaining regulatory approval for TAM-01;
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completing development of TAM-03;
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obtaining regulatory approval for TAM-03; and
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launching and commercializing our product candidates for which we receive regulatory approval, either by building our own targeted sales force or by collaborating with third parties.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of increased expenses, when, or if, we will begin to generate revenue from product sales, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we are required by FDA or other regulatory authority to perform studies in addition to those that we currently anticipate.
Even if our product candidate is approved for commercial sale, to the extent we do not engage a third party collaborator, we anticipate incurring significant costs associated with commercializing any approved product candidate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
If we fail to obtain additional financing, we would be forced to delay, reduce or eliminate our product development programs.
Developing pharmaceutical products is expensive. As of December 31, 2018, we had cash and cash equivalents of $57,641. As such, we will need additional financing in order to execute our plans. Attempting to secure financing will divert our management from day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that any financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:
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significantly delay, scale back or discontinue the development or commercialization of our product candidates;
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seek corporate partners for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;
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relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or
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significantly curtail, or cease, operations.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects.
There could be an adverse change or increase in the laws and/or regulations governing our business.
We and our operating subsidiary are subject to various laws and regulations in different jurisdictions, and the interpretation and enforcement of laws and regulations are subject to change. We are also subject to different tax
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regulations in each of the jurisdictions where we conduct our business or where our management or the management of our operating subsidiary is located. We expect the scope and extent of regulation in the jurisdictions in which we conduct our business, or where our management or the management of our operating subsidiary is located, as well as regulatory oversight and supervision, to generally continue to increase. There can be no assurance that future regulatory, judicial and legislative changes in any jurisdiction will not have a material adverse effect on us or hinder us in the operation of its business.
Risks Related to Our Intellectual Property
If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively in our market.
While we intend to continue to apply for patent protection with respect to our product candidates, the strength of patents in the life sciences field involves complex legal and scientific questions and can be uncertain. Patent applications may fail to result in issued patents with claims that cover the products in the United States or in other countries. If this were to occur, early generic competition could be expected against product candidates in development. There is also no assurance that all of the potentially relevant prior art relating to a patent application, which can invalidate a patent or prevent a patent from issuing based on a pending patent application, will be found.
Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated, which could adversely affect our ability to establish market share or successfully execute our business strategy to increase sales of our products and would negatively impact our financial condition and results of operations, including causing a significant decrease in our revenues and cash flows.
Furthermore, patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our patent claims. If a patent application fails to issue or if the breadth or strength of protection of a patent or patent application is threatened, competitors could directly compete against our products and we would have no recourse. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found valid and enforceable or will be unthreatened by third parties or will offer adequate coverage of our products. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file or invent any patent application. Furthermore, if a third party has filed such patent application, an interference proceeding in the United States can be provoked by such third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In the United States, the natural expiration of a maintained patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Once the patent life has expired, we may be open to competition from competitors that will be able to freely use our technology described in our expired patent(s).
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or which we elect not to patent, processes for which patents are difficult to enforce and any other elements of our development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, our competitors may independently discover our trade secrets and proprietary information. For example, FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present
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time how FDA's disclosure policies may change in the future, if at all.
Changes in either the patent laws or interpretations of the patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. An inability to obtain, enforce and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. Further, the laws of some foreign countries do not tend to protect proprietary rights to the same extent or in the same manner as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement may not be as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuance to us, in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection. We may be unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, and therefore we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
Further, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not tend to favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
If we breach any of the agreements under which we license from third parties the intellectual property rights or commercialization rights to our drug candidate, particularly our license agreement with Buck Institute, we could lose license rights that are important to our business and our operations could be materially harmed.
Under the Buck Institute License Agreement, Mount Tam licenses significant intellectual property related to TAM-01 from the Buck Institute. Under the terms of the Buck Institute License Agreement, Buck Institute assigns to Mount Tam certain assets, materials and records resulting from the research. Mount Tam retains rights to inventions made by its employees, and Buck Institute assigns to Mount Tam all inventions made under the Buck Institute License Agreement jointly by Mount Tam's employees and Buck Institute personnel, provided that Mount Tam's employees have made a certain inventive contribution. With respect to all other inventions made in the course of the research, Buck Institute grants to Mount Tam worldwide exclusive license rights under patents and patent applications claiming such inventions. Buck Institute retains rights to practice these inventions for research and teaching purposes. Mount Tam bears the costs of filing, prosecution and maintenance of patents assigned or licensed to us under the Buck Institute License Agreement.
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As consideration for the assignments and licenses, Mount Tam is obliged to pay to Buck Institute milestone payments on development of its proprietary products claimed by patents assigned or licensed to Mount Tam by Buck Institute. Mount Tam also is obliged to pay low single-digit royalties, including annual minimum royalties, on sales of such products. Should Mount Tam grant licenses or sublicenses to those patents to third parties, Mount Tam is obliged to pay to Buck Institute certain undisclosed variable fees as a function of out-licensing revenues, or the Out-License Fee, where such Out-License Fees are creditable against annual license payments to Buck Institute. Mount Tam's payment obligations are reduced by our proportionate contribution to a joint invention. Payment obligations terminate on expiration or annulment of the last patent covered by the agreement.
In addition to the Buck Institute License Agreement, we may seek to enter into additional agreements with other third parties in the future granting similar license rights with respect to other potential drug candidates. If we fail to comply with any of the conditions or obligations or otherwise breach the terms of the Buck Institute License Agreement, or any future license agreement we may enter on which our business or drug candidates are dependent, Buck Institute or other licensors may have the right to terminate the applicable agreement in whole or in part and thereby extinguish our rights to the licensed technology and intellectual property and/or any rights we have acquired to develop and commercialize certain drug candidates, including, with respect to the Buck Institute License Agreement, TAM-01 d. Under the Buck Institute License Agreement, Mount Tam can terminate the licenses to any or all licensed patents upon specified advance notice to Buck Institute. Buck Institute may terminate the license provisions of the agreement only for cause. Termination of the agreement does not terminate Mount Tam's rights in patents assigned to Mount Tam but would terminate Mount Tam's rights to patents licensed to it under the Buck Institute License Agreement. The loss of the rights licensed to Mount Tam under the Buck Institute License Agreement, or any future license agreement that we may enter granting us rights on which our business or drug candidates are dependent, would eliminate our ability to further develop the applicable drug candidates and would materially harm our business, prospects, financial condition and results of operations.
Claims that we infringe the intellectual property rights of others may prevent or delay our drug discovery and development efforts.
Our research, development and commercialization activities, as well as any drug candidates or products resulting from those activities, may infringe or be accused of infringing a patent or other form of intellectual property under which we do not hold a license or other rights. Third parties may assert that we are employing their proprietary technology without authorization.
There may be third-party patents of which we are currently unaware with claims that cover the use or manufacture of our drug candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our drug candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our drug candidates infringes upon these patents. If our activities or drug candidates infringe the patents or other intellectual property rights of third parties, the holders of such intellectual property rights may be able to block our ability to commercialize such drug candidates unless we obtain a license under the intellectual property rights or until any applicable patents expire or are determined to be invalid or unenforceable.
Defense of any intellectual property infringement claims against us, regardless of their merit, would involve substantial litigation expense and would be a significant diversion of resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties, limit our business to avoid the infringing activities, pay royalties and/or redesign our infringing drug candidates or alter related formulations, processes, methods or other technologies, any or all of which may be impossible or require substantial time and monetary expenditure. Further, if we were to seek a license from the third party holder of any applicable intellectual property rights, we may not be able to obtain the applicable license rights when needed or on reasonable terms, or at all. Some of our competitors may be able to sustain the costs of complex patent litigation or proceeding more effectively than us because they have substantially greater resources. The occurrence of any of the above events could prevent us from continuing to develop and commercialize one or more of our drug candidates and our business could materially suffer.
We may desire to, or be forced to, seek additional licenses to use intellectual property owned by third parties, and such licenses may not be available on commercially reasonable terms or at all.
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In addition to Buck Institute, other third parties may also hold intellectual property, including patent rights, that are important or necessary to the development of our drug candidate, in which case we would need to obtain a license from that third party or develop a different formulation of the product that does not infringe upon the applicable intellectual property, which may not be possible. Additionally, we may identify drug candidates that we believe are promising and whose development and other intellectual property rights are held by third parties. In such a case, we may desire to seek a license to pursue the development of those drug candidates. Any license that we may desire to obtain or that we may be forced to pursue may not be available when needed on commercially reasonable terms or at all. Any inability to secure a license that we need or desire could have a material adverse effect on our business, financial condition and prospects.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our current or potential licensors. To attempt to stop infringement or unauthorized use, we may need to file infringement claims, which can be expensive and time-consuming and distract management.
If we pursue any infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the relevant technology on the grounds that our patents do not cover the technology in question. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, which could reduce the likelihood of success of, or the amount of damages that could be awarded resulting from, any infringement proceeding we pursue in any such jurisdiction. An adverse result in any infringement litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing, which could limit the ability of our drug candidates to compete in those jurisdictions. Interference proceedings provoked by third parties or brought by the USPTO or at its foreign counterparts to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to use it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, or at all.
Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.
Risks Related to an Investment in Our Securities
Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of any investment in our common stock.
Our operations to date have been limited to developing TAM-01 and follow-on compound TAM-03. In addition, as an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. Nor have we demonstrated an ability to obtain regulatory approval for or to commercialize a product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing a significant number of pharmaceutical products.
Our common stock has limited liquidity.
Our common stock is quoted on the OTC Markets (OTC Pink). OTC Pink securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTC Pink securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Pink issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange. As such, our securities are thinly traded compared to larger more widely known companies in the same industry. Thinly traded common stock can be more volatile than stock trading in an active public market. We cannot predict the extent to which an active public market for our common stock will develop or be sustained. In addition,
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there is no assurance that trading in the Company's common stock will continue on the OTC Pink Market or on any other securities exchange or quotation medium.
Our stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations which may limit a shareholder's ability to buy and sell our stock.
Our stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a shareholder's ability to buy and sell our stock.
In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain all earnings for our operations.
Our common shares are not currently traded with any substantial volume, and you may be unable to sell at or near ask prices or at all if you need to sell or liquidate a substantial number of shares at one time.
We cannot predict the extent to which an active public market for our common stock will develop or be sustained.
Our common shares are currently quoted, but currently with little to no volume, based on quotations on the OTC Markets (OTC Pink), meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in
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our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.
Shareholders should be aware that, according to SEC Release No. 34-29093, the market for "penny stocks" has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the future volatility of our share price.
Our corporate actions are substantially controlled by our principal shareholders and affiliated entities.
As of April 4, 2019, our principal shareholders, which includes our officers and directors, own approximately 49.6% of our outstanding shares of common stock. These shareholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in these principal shareholders and their affiliated entities, elections of our Board will generally be within the control of these shareholders and their affiliated entities. While all of our shareholders are entitled to vote on matters submitted to our shareholders for approval, the concentration of shares and voting control presently lies with these principal shareholders and their affiliated entities. As such, it would be difficult for shareholders to propose and have approved proposals not supported by management. There can be no assurances that matters voted upon by our officers and directors in their capacity as shareholders will be viewed favorably by all of our shareholders.
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
Our Articles of Incorporation, as amended, contain a provision permitting us to eliminate the liability of our directors for monetary damages to our company and shareholders to the extent provided by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
Legislative actions, higher insurance costs and potential new accounting pronouncements may impact our future financial position and results of operations.
There have been regulatory changes and there may potentially be new accounting pronouncements or additional regulatory rulings that will have an impact on our future financial position and results of operations. In addition, insurers are likely to increase premiums as a result of high claims rates over the past several years, which we expect will increase our premiums for insurance policies. Further, there could be changes in certain accounting rules. These and other potential changes could materially increase the expenses we report under generally accepted accounting principles, and adversely affect our operating results.
We may have material liabilities that were not discovered before, and have not been discovered since, the closing of the Exchange Agreement.
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As a result of the Share Exchange, the former business plan and management of the registrant, previously known as "TabacaleraYsidron, Inc.", have been abandoned and replaced with the business and management team of Mount Tam. Prior to the Share Exchange, there were no relationships or other connections among the businesses or individuals associated with those two entities. As a result, we may have material liabilities based on activities before the Share Exchange that have not been discovered or asserted. We could experience losses as a result of any such undisclosed liabilities that are discovered in the future, which could materially harm our business and financial condition. Although the Exchange Agreements and the other agreements entered into in connection with the Share Exchange contains customary representations and warranties from Mount Tam and the registrant concerning their respective assets, liabilities, financial condition and affairs, there may be limited or no recourse against pre-Share Exchange shareholders or principals in the event those representations prove to be untrue. As a result, our current and future shareholders will bear some, or all, of the risks relating to any such unknown or undisclosed liabilities.
We may be exposed to additional risks as a result of "going public" by means of a reverse acquisition transaction.
We may be exposed to additional risks because the business of Mount Tam has become a public company through a "reverse acquisition" transaction. There has been increased focus by government agencies on transactions such as the Share Exchange in recent years, and we may be subject to increased scrutiny by the SEC and other government agencies and holders of our securities as a result of the completion of that transaction. Further, as a result of our existence as a "shell company" under applicable rules of the SEC prior to the closing of the Exchange Agreement on August 13, 2015, we are subject to certain restrictions and limitations for certain specified periods of time relating to potential future issuances of our securities and compliance with applicable SEC rules and regulations. Additionally, our "going public" by means of a reverse acquisition transaction may make it more difficult for us to obtain coverage from securities analysts of major brokerage firms following the Share Exchange because there may be little incentive to those brokerage firms to recommend the purchase of our common stock. Further, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our common stock. The occurrence of any such event could cause our business or stock price to suffer.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent material misstatements.
The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company's internal controls over financial reporting in its annual report, which contains management's assessment of the effectiveness of our internal controls over financial reporting. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Effective internal controls, particularly those related to sales revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent material misstatements, or in certain extreme cases, fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our stock. Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.