Item 1A. Risk Factors
Any investment in our Common Stock involves
a high degree of risk. The following risk factors and other information included in this Quarterly Report on Form 10-Q should be
carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
not presently known to us or that we currently believe to be immaterial may also adversely affect our business. We refer you to
our “Cautionary Note Regarding Forward-Looking Statements,” which identifies certain forward-looking statements contained
in this report that are qualified by these risk factors. If any of the following risks occur, our business, financial condition,
results of operations and future growth prospects could be materially and adversely affected.
Risks Related to Our Evaluation of Strategic Alternatives
Our business to date has been almost entirely dependent on
the success of vonapanitase, and we have decided to discontinue further development of vonapanitase and devote significant time
and resources to identifying and evaluating strategic alternatives, which may not be successful.
To date, we have invested substantially all
of our efforts and financial resources in the research and development of our lead indication for vonapanitase in radiocephalic
fistulas, which was our only product candidate to enter Phase 3 clinical trials. On March 28, 2019, we announced that our second
Phase 3 trial, PATENCY-2, did not meet its co-primary endpoints of fistula use for hemodialysis (p=0.328) and secondary patency
(p=0.932). In April 2019, based on the results of the PATENCY-2 clinical trial, we discontinued research and development activities
to reduce operating expenses, including a reduction in our workforce, to preserve our cash resources while we evaluate our strategic
alternatives with a goal to maximize stockholder value, including the possibility of a merger or sale of our company. We have retained
H.C. Wainwright & Co., LLC to advise and assist us in this strategic review, along with legal advisors. There can be no assurance
that our process to identify and evaluate potential strategic alternatives will result in any definitive offer to consummate a
strategic transaction, or if made that the terms thereof will be acceptable to the Company. If any definitive offer to consummate
a strategic transaction is received, there can be no assurance that a definitive agreement will be executed or that, if a definitive
agreement is executed, the transaction will be consummated. In addition, there can be no assurance that any transaction, involving
our company and/or assets, that is consummated would enhance stockholder value. There also can be no assurance that we will conduct
further drug research or development activities in the future.
If we do not successfully consummate a strategic transaction,
our board of directors may decide to pursue a dissolution and liquidation of our company. In such an event, the amount of cash
available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash
that will need to be reserved for commitments and contingent liabilities.
There can be no assurance that the process
to identify a strategic transaction will result in a successfully consummated transaction. If no transaction is completed, our
board of directors may decide to pursue a dissolution and liquidation of our company. In such an event, the amount of cash available
for distribution to our stockholders will depend heavily on the timing of such decision and, ultimately, such liquidation, since
the amount of cash available for distribution continues to decrease as we fund our operations while we evaluate our strategic alternatives.
In addition, if our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation
of our company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable
provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. Our commitments
and contingent liabilities may include (i) obligations under our employment and related agreements with certain employees that
provide for severance and other payments following a termination of employment occurring for various reasons, including a change
in control of our company; (ii) potential litigation against us, and other various claims and legal actions arising in the ordinary
course of business; and (iii) non-cancelable obligations. As a result of this requirement, a portion of our assets may need to
be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to
a dissolution and liquidation of our company. If a dissolution and liquidation were pursued, our board of directors, in consultation
with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly,
holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution
or winding up of our company.
If we are successful in completing a strategic transaction,
we may be exposed to other operational and financial risks.
Although there can be no assurance that a
strategic transaction will result from the process we have undertaken to identify and evaluate strategic alternatives, the negotiation
and consummation of any such transaction will require significant time on the part of our management, and the diversion of management’s
attention may disrupt our business. The negotiation and consummation of any such transaction may also require more time or greater
cash resources than we anticipate and expose us to other operational and financial risks, including:
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increased near-term or long-term expenditures;
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exposure to unknown liabilities;
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incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions;
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higher-than-expected acquisition and integration costs;
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write-downs of assets or goodwill or impairment charges;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
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inability to retain key employees of our company or any acquired businesses.
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Any of the foregoing risks could
have a material adverse effect on our business, financial condition and prospects.
We are substantially dependent on our remaining employees
to facilitate the consummation of a strategic transaction.
Our ability to successfully complete a strategic
transaction depends in large part on our ability to retain certain of our remaining personnel, particularly Timothy Noyes, our
President and Chief Executive Officer and George Eldridge, our Senior Vice President, Chief Financial Officer, Treasurer and Secretary.
Despite our efforts to retain these employees, one or more may terminate their employment with us on short notice. The loss of
the services of any of our employees could potentially harm our ability to evaluate and pursue strategic alternatives, as well
as fulfill our reporting obligations as a public company. In connection with our discontinuation of research and development activities,
by the end of May 2019 we plan to terminate all but four of our employees including all of our executive officers, with exception
of Messrs. Noyes and Eldridge.
We may not realize any additional value in a strategic transaction
for our intellectual property.
The market capitalization of our company is
or may be below the value of our cash, cash equivalents and marketable securities at the time of consummation of any strategic
transaction. Although the PATENCY-2 clinical trial failed to meet its co-primary endpoints, we believe that data from preclinical
and other clinical studies of vonapanitase may support potential further investigation and development activities. However, potential
counterparties in a strategic transaction involving our company may place minimal or no value on our assets, given the limited
data regarding their potential application. Further, the development and any potential commercialization of investigational vonapanitase
will require substantial additional funding associated with conducting the necessary clinical testing and obtaining regulatory
approval. Consequently, any potential counterparty in a strategic transaction involving our company may choose not to spend additional
resources and continue development of vonapanitase and may attribute little or no value, in such a transaction, to vonapanitase
or our other intellectual property.
We could be subject to securities class action litigation.
In the past, securities class action litigation
has often been brought against a company following certain significant business transactions, such as the sale of a company or
announcement of other strategic transactions, or the announcement of negative events, such as negative results from clinical trials.
These events may also result in investigations by the Securities and Exchange Commission. We may be exposed to such litigation
or investigation even if no wrongdoing occurred. If we face such litigation, it could result in substantial costs and a diversion
of management’s attention and resources, which could harm our business and our ability to consummate a potential strategic
transaction or the ultimate value our stockholders receive in any such transaction.
Although we have ceased all further development of vonapanitase,
if we were to resume research and development activities, we would require substantial additional funding. Raising additional capital
may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies
or to a product candidate.
We currently do not have any external source
of funds and do not expect to generate any revenue. We believe that our existing cash, cash equivalents and marketable securities
and interest thereon will be sufficient to fund our projected operating requirements under our current operating plan, which is
to seek a strategic alternative to maximize stockholder value, and into 2020. We have based our estimates on assumptions that may
prove to be wrong, and we may use our available capital resources sooner than we currently expect if our operating plans change.
If our current operating plans change and we determine to pursue further research and development activities, we will require substantial
additional funding to operate, and would expect to finance these cash needs through a combination of equity offerings, debt financings,
government or other third-party funding and licensing or collaboration arrangements.
To the extent that we raise additional capital
through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms
of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights
of our stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends,
and may impose limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business.
Additional funds may not be available when
we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may
be required to further curtail or cease our operations or we may have to relinquish valuable rights to our technologies, any future
revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us
Risks Related to Our Historical Business Operations and Financial
Condition
We have identified conditions and events that raise substantial
doubt about our ability to continue as a going concern.
As of March 31, 2019, we had approximately
$16.8 million in existing cash, cash equivalents and available-for-sale investments, and an accumulated deficit of $217.0
million. We believe that our existing cash, cash equivalents and available-for-sale investments will be sufficient to fund operations
and capital expenditures into 2020; however, we anticipate operating losses to continue for the foreseeable future due to, among
other things, costs related to its administrative organization. These conditions raise substantial doubt about our ability to continue
as a going concern within one year after the date that the financial statements are issued. To alleviate the conditions that
raise substantial doubt about our ability to continue as a going concern, management has implemented a reduction in expenditures
plan and is currently exploring strategic alternatives as a source of funding. While the current reduction in spending expenditure
plans will allow us to fund our operations in the near-term, we cannot guarantee that we will be able to successfully implement
a strategic transaction or obtain sufficient additional funding when needed or that such funding, if available, will be obtainable
on terms satisfactory to us. In the event that these plans cannot be effectively realized, there can be no assurance that we will
be able to continue as a going concern.
We have a limited operating history and have incurred significant
losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future.
We are a biotechnology company, and we have
not commercialized any products or generated any revenues from the sale of products. We have historically devoted substantially
all of our efforts and our financial resources to research and development, including our clinical and preclinical development
activities. In April 2019, we discontinued substantially all our research and development activities to reduce operating expenses
while we evaluate our strategic alternatives with a goal to enhance stockholder value, including the possibility of a merger or
sale of the Company. To date, we have financed our operations primarily through the sale of equity securities and, prior to our
initial public offering, the sale of convertible debt. We have incurred losses from operations in each year since our inception,
and our net losses were $20.7 million and $30.0 million for the years ended December 31, 2018 and 2017, respectively and $6.5 million
and $6.1 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, we had an accumulated
deficit of $217.0 million. We do not expect to generate any product revenues in the foreseeable future. We do not know whether
or when we will generate revenue or become profitable.
We expect to continue to incur significant
expenses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter and year to year,
such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In
any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors,
which could cause our stock price to decline.
Risks Related to Clinical Development, Regulatory Review and Approval
of Our Product
We may be subject to certain federal or state “fraud
and abuse” laws and other healthcare laws and regulations. If we are found to be in violation of any such laws or regulations,
we may be required to pay a penalty and/or be suspended from participation in federal or state healthcare programs, which may adversely
affect our business, financial condition and ability to consummate a strategic transaction.
We may be subject to various federal and state
laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback
laws make it illegal for a prescription drug or biologic manufacturer to solicit, offer, receive or pay any remuneration in exchange
for, or to induce, the referral of business, including the purchase or prescription of a particular drug or biologic. Other laws
that we may be subject to include the civil False Claims Act, criminal False Claims Act, the HIPAA fraud and abuse provisions,
the Civil Monetary Penalties statute, Section 1927 of the Social Security Act, the Veterans Health Care Act, the Foreign Corrupt
Practices Act, federal and state statutes and regulations pertaining to payments made to physicians and other health care providers,
the HIPAA privacy and security provisions, and other analogous state laws. Due to the breadth of the statutory provisions, it is
possible that our practices might be challenged under anti-kickback, healthcare, or other fraud and abuse laws. Moreover, recent
healthcare reform legislation has strengthened these laws. For example, the Patient Protection and Affordable Care Act, or ACA,
among other things, amends the intent requirement of the federal anti-kickback and certain of the criminal healthcare fraud statutes
to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In
addition, the ACA clarifies that the government may assert that a claim that includes items or services resulting from a violation
of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. False
claims laws prohibit anyone from knowingly presenting, or causing to be presented for payment, to government third-party payors
(including Medicare and Medicaid) claims for reimbursed drugs, or biologics or services that are false or fraudulent, claims for
items or services not provided as claimed, or claims for medically unnecessary items or services. Liability may also arise from
false certification of compliance with laws and regulations that are conditions of payment. Our activities relating to the sale
and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws, and other healthcare
statutes are punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion
from federal healthcare programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other
things, rigorous operational and monitoring requirements on companies. We may further be subject to such other actions as debarment
from government contracts and future orders under existing contracts, refusal to allow us to enter into supply contracts, including
government contracts, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations,
any of which could adversely affect our business.
Given the significant penalties and fines that
can be imposed on companies and individuals if convicted or found liable, allegations of violations under fraud and abuse laws
often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include
significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government
were to allege or convict us or our executive officers of violating these laws, our business and ability to consummate any strategic
transaction, could be harmed. In addition, private individuals have the ability to bring similar actions under the False Claims
Act. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and
the increasing attention being given to them by law enforcement authorities. Further, an increasing number of state laws require
manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what
is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be
subject to the penalty provisions of the pertinent state authorities.
Similar rigid restrictions are imposed on the
promotion and marketing of medicinal products in the European Union and other countries. Laws (including those governing promotion,
marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even
in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity
by our international distribution partners can have adverse implications for us.
Risks Related to Our Intellectual Property
If our efforts to protect our intellectual property related
to vonapanitase or any additional product candidates are not adequate, we may not be able to compete effectively in our market
or consummate any strategic transaction on terms that enhance stockholder value.
We rely upon a combination of patents, patent
applications, know-how and confidentiality agreements to protect the intellectual property related to our only product candidate,
vonapanitase, and will use a similar strategy to protect any additional product candidates. The patent position of biotechnology
companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United
States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or
predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable
in biotechnology patents. The patent applications that we own may fail to result in issued patents with claims that cover vonapanitase
or any additional product candidates in the United States or in other countries. There is no assurance that all potentially relevant
prior art relating to our patents and patent applications has been found, and prior art that is not before the patent examiners,
as well as prior art that is before the patent examiners, could be used by a third party to invalidate a patent or could be relied
on to prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if these
patents cover vonapanitase or any additional product candidates, third parties may challenge their validity, enforceability or
scope, which may result in our patents being narrowed or invalidated.
Furthermore, even if they are unchallenged,
our patents and patent applications may not adequately provide exclusivity for vonapanitase or any additional product candidates,
prevent others from designing around our patents with similar products that are outside the scope of our patents, or prevent others
from operating in jurisdictions in which we did not pursue patent protection. Any of these outcomes could impair our ability to
prevent competition from third parties, which may have an adverse impact on our business.
If patent applications we hold with respect
to vonapanitase or any additional product candidates fail to issue, if their breadth or strength of protection is threatened, or
if they fail to provide meaningful exclusivity for vonapanitase or any additional product candidates, it could dissuade companies
from collaborating with us, including in any strategic transaction, or from valuing our intellectual property in a manner that
enhances stockholder value in any potential strategic transaction. As of March 31, 2019 we own 42 issued patents and own 14 pending
patent applications, most of which cover aspects of vonapanitase or its use. We cannot offer any assurances about which, if any,
of the pending patent applications will issue as patents, the breadth of any such patents or any of our currently issued patents,
or whether any issued patents will be challenged by third parties or will be found invalid and unenforceable if challenged. Any
successful challenge to these patent applications, or patents that may issue from them, or to currently issued patents owned by
us, could deprive us of rights necessary for the successful commercialization of vonapanitase or any other product candidate that
we may develop. 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 a patent application relating to any
particular aspect of a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding
in the United States can be initiated by these third parties, or by the USPTO itself, to determine who was the first to invent
any of the subject matter covered by the patent claims of our patents and patent applications.
In the United States, for patent applications
filed prior to March 16, 2013, assuming the other requirements for patentability are met, the first to invent is entitled to the
patent, while outside the United States, the first to file a patent application is entitled to the patent. Certain of our currently
pending utility patent applications are examined under the system in place before March 16, 2013. Third parties are allowed to
submit prior art prior to the issuance of a patent by the USPTO, and may become involved in reexamination,
inter partes
review or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or
litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position with
respect to third parties.
In addition, patents have a limited lifespan.
In most countries, the statutory term of a patent is 20 years from the earliest domestic priority date claimed. In the United States,
for applications filed after June 7, 1995, the statutory term of a patent is 20 years from earliest non-provisional priority date
claimed. Various extensions of patent protection may be available in particular countries; however, in all circumstances, the life
of a patent, and the protection it affords, has a limited term. If we encounter delays in obtaining regulatory approvals, the period
of time during which we could market a product under patent protection could be reduced. We expect to seek extensions of patent
protection where these are available in any countries where we are prosecuting patents. Such possible extensions include those
permitted under the Drug Price Competition and Patent Term Restoration Act of 1984 in the United States, which permits up to five
years’ extension of patent protection and no more than fourteen years following product approval for a single patent that
covers an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient that has not
previously been marketed. The scope of protection available during an extension of a patent claiming a product is limited to the
approved product itself for approved uses, and the scope of protection available during an extension of a patent claiming a method
of using a product is limited to the uses claimed in the patent and approved for the product. The actual length of the extension
is calculated by adding one half of the time between the IND effective date and a company's initial submission of a marketing application,
plus the entire time between the submission of the marketing application and the FDA's approval of the application. However, the
applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other
countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our
patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of
our investment in development and clinical trials by referencing our clinical and preclinical data, and then may be able to launch
their product earlier than might otherwise be the case.
Any loss of, or failure to obtain, patent protection
could have a material adverse impact on our business and our ability to consummate any strategic transaction, including our ability
to consummate a strategic transaction that enhances stockholder value. We may be unable to prevent competitors from entering the
market with a product that is similar to or the same as our products.
Confidentiality agreements with employees and third parties
may not prevent unauthorized disclosure of proprietary information.
We seek to protect our proprietary technology
and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.
We also seek to preserve the integrity and confidentiality of our data and know-how by maintaining physical security of our premises
and physical and electronic security of our information technology systems. Nonetheless, despite these precautions, agreements
or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our know-how may otherwise
become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use
intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how
and inventions.
Enforcing a claim that a third party illegally
obtained and is using any of our know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts
outside the United States sometimes are less willing than United States courts to protect know-how. Misappropriation or unauthorized
disclosure of our know-how could impair our competitive position and may have a material adverse effect on our business.
We may become involved in lawsuits to protect or enforce our
intellectual property, which could be expensive, time consuming and unsuccessful, and which may lead to a finding that our patents
are invalid and/or unenforceable.
Competitors may infringe our patents or misappropriate
or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary
to enforce or defend our intellectual property rights, to protect our know-how and/or to determine the validity and scope of our
own intellectual property rights. Intellectual property litigation can be expensive and time consuming. Many of our current and
potential competitors have the ability to dedicate substantially greater resources to litigate intellectual property rights than
we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating our intellectual
property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and
financial results. In addition, in an infringement proceeding, a court may decide that our patents are invalid or unenforceable,
and may refuse to stop the other party from using the technology at issue, including on the grounds that our patents are invalid
or unenforceable or do not cover the technology in question. An adverse result in any litigation proceeding could put one or more
of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation.
If we are unable to adequately protect our proprietary technology,
or obtain and maintain issued patents which are sufficient to protect our current product candidate, vonapanitase, or any additional
product candidates, others could compete against us more directly, which would have a material adverse impact on our business,
financial condition and ability to consummate a strategic transaction.
We strive to protect and enhance the proprietary
technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions,
their methods of use and any other inventions that are important to the development of our business. We also rely on know-how to
protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our ability to successfully implement our business
strategies, including the potential consummation of a strategic transaction will depend significantly on our ability to obtain
and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to
our business, defend and enforce our current patents and any future patents that may issue, preserve the confidentiality of our
know-how and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely
on know-how and in-licensing opportunities to develop, strengthen and maintain the proprietary position of vonapanitase or any
additional product candidates.
We cannot provide any assurances that any of
our pending patent applications will mature into issued patents and, if they do, that such patents or our currently issued patents
will include claims with a scope sufficient to protect vonapanitase or any additional product candidates or otherwise provide any
competitive advantage. For example, one of our patents that may provide coverage for vonapanitase only covers particular formulations.
As a result, this patent would not prevent third-party competitors from creating, making and marketing alternative formulations
that fall outside the scope of our patent claims. There can be no assurance that any such alternative formulations will not be
equally effective.
Moreover, other parties have developed technologies
that may be related or competitive to our approach, and may have filed or may file patent applications and may have received or
may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or formulations
or by claiming subject matter that could dominate our patent position. These third party patent positions may limit or even eliminate
our ability to obtain patent protection for certain inventions.
The patent positions of biotechnology and pharmaceutical
companies, including our patent position, involve complex legal and factual questions, and, therefore, the issuance, scope, validity
and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged,
deemed unenforceable, invalidated, or circumvented. United States patents and patent applications may also be subject to interference
proceedings,
ex parte
reexamination, or
inter partes
review proceedings, and challenges in district court. Patents
may be subjected to opposition, revocation proceedings, or comparable proceedings lodged in various foreign, both national and
regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss
or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be
costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore,
an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in
turn could affect our ability to develop, market or otherwise commercialize vonapanitase or any additional product candidates.
Furthermore, though a patent is presumed valid
and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate
proprietary protection or competitive advantages against competitors with similar products. Even if a patent issues and is held
to be valid and enforceable, competitors may be able to design around our patents, such as using pre-existing or newly developed
technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may
not be able to prevent the unauthorized disclosure or use of our technical knowledge or know-how by consultants, vendors, former
employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as
the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.
If these developments were to occur, they could have a material adverse effect on our sales.
In addition, proceedings to enforce or defend
our patents, if and when issued, could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly.
These proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one
or more of our patents are invalid or otherwise unenforceable. If any of our patents, if and when issued, covering vonapanitase
or any additional product candidates, are invalidated or found unenforceable, our financial position and results of operations
would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties
covered vonapanitase, or any additional product candidates, our financial position and results of operations would also be materially
and adversely impacted.
The degree of future protection for our proprietary
rights is uncertain, and we cannot ensure that:
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any of our patents or pending patent applications, if issued, will include claims having a scope sufficient to protect vonapanitase or any additional product candidates;
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any of our pending patent applications will issue as patents at all;
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we will be able to successfully commercialize product candidates, if approved, before our relevant patents expire;
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we were the first to make the inventions covered by each of our patents and pending patent applications;
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we were the first to file patent applications for these inventions;
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others will not develop similar or alternative technologies that do not infringe our patents;
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others will not use pre-existing technology to effectively compete against us;
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any of our patents will be found ultimately to be valid and enforceable;
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any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;
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we will develop additional proprietary technologies or product candidates that are separately patentable; or
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that our commercial activities or products will not infringe the patents or proprietary rights of others.
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We rely upon unpatented know-how to maintain
our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not
a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate
the terms of these agreements, we may not have adequate remedies for any such breach or violation, and our confidential know-how
could become known to others through such breaches or violations. Further, our know-how could otherwise become known or be independently
discovered by our competitors. Further, the term of confidentiality requirements for current and terminated agreements with some
of our consultants, contract manufacturing or research organizations and other third parties is finite.
We may be subject to claims challenging the inventorship or
ownership of our patents and other intellectual property.
We enter into confidentiality and intellectual
property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other
advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will
be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights
to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which the academic advisor
is required to assign any inventions developed in connection with providing services to us, the academic advisor may not have the
right to assign these inventions to us, as it may conflict with his or her obligations to assign all intellectual property to his
or her employing institution.
Litigation may be necessary to defend against
these and other claims challenging inventorship or ownership of inventions. If we are unsuccessful in defending against any of
these claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership
of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even
if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management
and other employees.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies,
and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental
patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the case.
Issued patents covering vonapanitase or covering any additional
product candidates could be found invalid or unenforceable if challenged in court.
If we initiated legal proceedings against a
third party to enforce a patent, if and when issued, covering vonapanitase or any additional product candidate, the defendant could
counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include
alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds
for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information
from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative
bodies in the United States or abroad, even outside the context of litigation. These mechanisms include reexamination and
inter
partes
review in the United States and equivalent proceedings in foreign jurisdictions,
e.g.
, opposition proceedings.
These proceedings could result in revocation or amendment of our patents in such a way that they no longer cover, for example,
vonapanitase or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
With respect to validity, for example, we cannot be certain that there is no invalidating prior art, including prior art of which
we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on the applicable product candidate. A
loss of patent protection would have a material adverse impact on our business.
We will not seek to protect our intellectual property rights
in all jurisdictions throughout the world, and we may not be able to adequately enforce our intellectual property rights even in
the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on
product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual
property rights in some countries outside the United States could be less extensive than those in the United States, assuming that
rights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property
rights to the same extent as federal and state laws in 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 do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing
products to territories where we have patent protection, but enforcement is not 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. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual
property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign countries do not protect
intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems
in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries,
particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially
those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents
against third parties, including government agencies or government contractors. In these countries, patents may provide limited
or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not
have the benefit of patent protection in such countries.
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 favor the enforcement of patents and other intellectual property protection,
particularly those relating to biopharmaceuticals, 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, could put 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.
Some of our intellectual property may have been discovered
through government funded programs and thus may be subject to federal regulations such as government “march-in” rights,
certain reporting requirements, and a preference for United States industry. Compliance with these regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with foreign
manufacturers.
Some of our intellectual property rights may
have been generated through the use of United States government funding and therefore are subject to certain federal regulations.
For example, our patents relating to some therapeutic uses of vonapanitase and associated systems and kits that include a catheter,
which we refer to as the “therapy family,” arose from research funded by the United States government. As a result,
the United States government has certain rights to this intellectual property pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole
Act. These United States government rights in certain inventions developed under a government-funded program include a non-exclusive,
non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States
government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions
to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government
action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public
use under federal regulations, also referred to as “march-in rights.” The United States government also has the right
to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail
to file an application to register the intellectual property within specified time limits. In addition, the United States government
may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual
property generated under a government funded program is also subject to certain reporting requirements, compliance with which may
require us or the applicable licensor to expend substantial resources. In addition, the United States government requires that
any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially
in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show
that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be
likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially
feasible. This preference for United States manufacturers may limit our ability to contract with foreign product manufacturers
for products covered by the applicable intellectual property.
We currently do not plan to apply for additional
United States government funding, but if we do, and we discover compounds or drug or biological candidates as a result of such
funding, intellectual property rights to these discoveries may be subject to the applicable provisions of the Bayh-Dole Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent protection for vonapanitase, our business may be materially
harmed.
Depending upon the timing, duration and specifics
of the first FDA marketing approval of vonapanitase and, if applicable, any additional product candidates, a United States patent
that we own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration
Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit extension of one patent that covers
an FDA-approved drug or biologic that contains an active ingredient or salt or ester of the active ingredient that has not previously
been marketed for up to five years and no more than fourteen years after product approval for patent term lost during product development
and the FDA regulatory review process. The length of the extension is calculated by adding one half of the time between the IND
effective date and a company's initial submission of a marketing application, plus the entire time between the submission of the
marketing application and the FDA's approval of the application. During this period of extension, the scope of protection is limited
to the approved product for approved uses (for patents claiming a product) and any use claimed by the patent and approved for the
product (for patents claiming a method of using a product).
Although we plan on seeking patent term restoration
for our products, it may not be granted if, for example, we fail to apply within applicable deadlines, fail to apply prior to expiration
of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the applicable time period or the scope of
patent protection afforded could be less than we request. If we are unable to obtain patent term restoration or the term of any
such patent restoration is less than we request, our competitors may be able to enter the market and compete against us sooner
than we anticipate, and our ability to generate revenues could be materially adversely affected.
Changes in United States patent law could diminish the value
of patents in general, thereby impairing our ability to protect our products.
As is the case with other biotechnology companies,
our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology
industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In
addition, the United States has in recent years implemented wide-ranging patent reform legislation, the Leahy-Smith America Invents
Act, or America Invents Act. The America Invents Act includes a number of significant changes to United States patent law. These
include provisions that affect the way patent applications will be prosecuted, provides expanded opportunities for post-grant administrative
review of patents before the USPTO, and may also affect patent litigation. The USPTO developed new regulations and procedures to
govern administration of the America Invents Act, and many of the substantive changes to patent law associated with the America
Invents Act, in particular the first to file provisions, only became effective on March 16, 2013. A third party that files a patent
application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if
we had made the invention before it was made by the third party. This requires us to be cognizant of the time from invention to
filing of a patent application. Thus, for our U.S. patent applications containing a priority claim after March 16, 2013, there
is a greater level of uncertainty in the patent law. Moreover, some of the patent applications in our portfolio will be subject
to examination under the pre-America Invents Act law and regulations, while other patents applications in our portfolio will be
subject to examination under the law and regulations, as amended by the America Invents Act. This introduces additional complexities
and costs into the prosecution and management of our portfolio.
In addition, the America Invents Act and recent
Supreme Court and U.S. Court of Appeals for the Federal Circuit decisions limit where a patentee may file a patent infringement
suit, and the America Invents Act provides opportunities for third parties to challenge any issued patent in the USPTO. These provisions
apply to all of our U.S. patents, even those filed before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings
compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially
provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be
insufficient to invalidate the claim if first presented in a federal court action. Accordingly, a third party may attempt to use
the USPTO procedures to invalidate our patent claims because it may be easier for them to do so relative to challenging the patent
in a federal court action. It is not clear what, if any, impact the America Invents Act will have on the operation of our business.
However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution
of our patent applications and the enforcement or defense of any patents that may issue from our patent applications, all of which
could have a material adverse effect on our business and financial condition.
In addition, recent United States Supreme Court
rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners
in certain situations. The full impact of these decisions is not yet known. For example, on March 20, 2012 in
Mayo Collaborative
Services v. Prometheus Laboratories, Inc.
, the Court held that several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not patent-eligible subject matter. The decision appears to impact diagnostics
patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain
patent protection for certain inventions. Additionally, on June 13, 2013 in
Association for Molecular Pathology v. Myriad Genetics,
Inc.,
the Court held that claims to isolated genomic DNA are not patent-eligible, but claims to complementary DNA molecules
are patent-eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products
is uncertain. On June 19, 2014 in
Alice Corporation Pty. Ltd. v. CLS Bank International, et al.,
a case involving
patent claims directed to a method for mitigating settlement risk, the Court held that the patent eligibility of claims directed
to abstract ideas, products of nature, and laws of nature should be determined using the same framework set forth in Prometheus.
The
USPTO has issued a series of guidelines setting forth procedures for determining subject matter eligibility of claims directed
to abstract ideas, products of nature, and laws of nature in line with the
Prometheus, Myriad and Alice
decisions. This
guidance does not limit the application of
Myriad
to DNA, but, rather, applies the decision to other natural products. The
USPTO’s interpretation of the case law and new guidelines for examination may influence, possibly adversely, prosecution
and defense of certain types of claims in our portfolio.
In addition to increasing uncertainty with
regard to our ability to obtain future patents, this combination of events has created uncertainty with respect to the value of
patents, once obtained. Depending on these and other decisions by the United States Congress, the federal courts and the USPTO,
the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents
or to enforce our current or future patents.
We may be subject to damages resulting from claims that we
or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Our employees have been previously employed
at other biotechnology or pharmaceutical companies, including our competitors or potential competitors, or at universities or academic
medical centers. We also engage advisors and consultants who are concurrently employed at universities or who perform services
for other entities. Although we are not aware of any claims currently pending against us, we may be subject to claims that we or
our employees, advisors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade
secrets or other proprietary information, of a former employer or other third party. We may in the future also be subject to claims
that an employee, advisor or consultant performed work for us that conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a distraction to management. If we are unsuccessful in defending against
such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of
key personnel or their work product could hamper or prevent our ability to commercialize vonapanitase or any additional product
candidates, which would materially adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by
our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect
our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive
advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be
able to exercise or extract value from our intellectual property rights fully or at all. The following examples are illustrative:
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we might not have been the first to make the inventions covered by a patent or pending patent application that we own;
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we might not have been the first to file patent applications covering an invention;
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others may independently develop similar or alternative technologies without infringing our intellectual property rights;
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third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
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pending patent applications that we own may not lead to issued patents;
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patents that we own may not provide us with any competitive advantages, or may be held invalid or unenforceable;
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third parties may assert an ownership interest in our intellectual property;
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we may not develop or in-license additional proprietary technologies that are patentable; and
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the patents or proprietary rights of others may have an adverse effect on our business.
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Should any of these events occur, they could
significantly harm our business and results of operations.
Risks Related to Our Business and Industry
If product liability lawsuits are successfully brought against
us, our insurance may be inadequate and we may incur substantial liability.
We face an inherent risk of product liability
claims as a result of the clinical testing of vonapanitase or any additional product candidates. We will face an even greater risk
if we commercially sell vonapanitase or any additional product candidate that we develop. We maintain primary product liability
insurance and excess product liability insurance that cover our clinical trials, and we plan to maintain insurance against product
liability lawsuits for commercial sale of our potential products. Historically, the potential liability associated with product
liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable
estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to
the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use
of our potential products, for which our insurance coverage may not be adequate, and the cost of any product liability litigation
or other proceeding, even if resolved in our favor, could be substantial.
For example, we may be sued if any product
we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn
of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in
class action lawsuits based on drugs or biologics that had unanticipated adverse effects. Claims could also be asserted under state
consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities or be required to limit commercialization of vonapanitase or any additional product candidates. Regardless of the merits
or eventual outcome, liability claims may result in:
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reduced resources of our management to pursue our business strategy;
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decreased demand for our product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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initiation of investigations by regulators;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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significant costs to defend resulting litigation;
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diversion of management and scientific resources from our business operations;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We currently have a $5 million product liability
insurance coverage in connection with our clinical trials and we will need to increase our insurance coverage if and when we begin
selling vonapanitase or any additional product candidates if and when they receive marketing approval. However, the product liability
insurance we will need to obtain in connection with the commercial sales of vonapanitase or any additional product candidates if
and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable cost. In addition, insurance
coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable
cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial
production and sale of vonapanitase or any additional product candidates if and when they obtain regulatory approval, which could
materially adversely affect our business, financial condition, results of operations, cash flows and prospects.
Additionally, we do not carry insurance for
all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment
practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance.
We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability
may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results
of operations.
We currently have our API produced for us by a contract manufacturer
exclusively in one manufacturing facility and if this or any future facility, any facility we use for storage of the finished product
or our equipment were damaged or destroyed, our ability to continue to operate our business would be materially harmed.
Our executive offices are located in Waltham,
Massachusetts, and our API is manufactured at Lonza’s facility located in Visp, Switzerland. We completed three drug substance
process validation runs at Lonza’s facility in Visp, Switzerland and currently store such material in only one location.
We are vulnerable to natural disasters, such as severe storms and other events that could disrupt our operations. We do not carry
insurance for natural disasters and we may not carry sufficient business interruption insurance to compensate us for losses that
may occur. If the current manufacturing facility or any future facility, stored product or equipment were damaged or destroyed,
or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business
would be materially harmed.
Our business and operations would suffer in the event of system
failures or security breaches.
Despite the implementation of security measures,
our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer
viruses, unauthorized access, cyber attacks, natural disasters, terrorism, war and telecommunication and electrical failures. If
issues were to arise and cause interruptions in our operations, it could result in a material disruption of our drug and biologic
development programs or could cause loss of critical data or the unauthorized disclosure, access, acquisition, alteration, or use
of personal or other confidential information. For example, the loss of clinical trial data from completed or planned clinical
trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or
inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of vonapanitase
or any additional product candidates could be delayed. We may also be vulnerable to cyber attacks by hackers, or other malfeasance.
This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and detrimentally
impact our business or result in significant legal and financial exposure and/or reputational harm.
In addition, while we select third-party vendors
and business partners carefully and routinely evaluate the cybersecurity of our CROs and other key vendors, we do not control their
actions. Any problems caused by these third parties, including those resulting from cyber attacks and security breaches at a vendor,
could result in material delays in our development programs and regulatory approval efforts and adversely affect our business.
Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them
may lead to increased harm of the type described above.
There are also numerous federal, state, and
local laws and regulations in the United States and around the world regarding privacy and the collection, processing, storing,
sharing, disclosing, using, cross-border transfer, and protecting of personal information and other data, the scope of which are
changing, subject to differing interpretations, and which may be costly to comply with, may result in regulatory fines or penalties,
and may be inconsistent between countries and jurisdictions or conflict with other requirements. We strive to comply with all applicable
laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection, to the extent possible.
However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from
one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Several
proposals are pending before federal, state, and foreign legislative and regulatory bodies that could affect our business. Any
failure or perceived failure by us to comply with our privacy-related obligations to third parties, or our privacy-related legal
obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which
could include personally identifiable information or other user data, may result in governmental investigations, enforcement actions,
regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including
clinical sites, regulators or potential partners, to lose trust in us, which could have an adverse effect on our business.
Our employees may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.
We are exposed to the risk of employee fraud
or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and foreign
regulators, provide accurate information to the FDA and foreign regulators, comply with healthcare fraud and abuse laws and regulations
in the United States and abroad, and report financial information or data accurately or disclose unauthorized activities to us.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical
trials, which could result in regulatory sanctions and serious harm to our reputation. We have a Code of Business Conduct and Ethics,
but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any actions are instituted against
us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on
our business, including the imposition of significant fines or other sanctions.
We have broad discretion in our use of our cash and cash equivalents
and may not use them effectively.
Our management has broad discretion to use
our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve our results of operations
or enhance the value of our Common Stock. The failure of our management to apply these funds effectively could result in financial
losses that could have a material adverse effect on our business, cause the price of our Common Stock to decline and delay the
development of our product candidates. Pending their use to fund our operations, we may invest our cash and cash equivalents in
a manner that does not produce income or that loses value.
Risks Related to Our Common Stock
Our stock price is volatile and our stockholders may not be
able to resell shares of our common stock at or above the price they paid.
The trading price of our common stock is highly
volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These
factors include those discussed in this “Risk Factors” section of this report and others such as:
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announcement of a strategic transaction, including the acquisition of our company or its assets;
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announcements relating to collaborations that we may enter into with respect to the development or commercialization of our vonapanitase;
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our failure to develop and commercialize vonapanitase or any additional product candidates;
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
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changes in the market’s expectations about our operating results;
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adverse results or delays in preclinical studies or clinical trials;
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success of competitive products;
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adverse developments concerning our collaborations and our manufacturers;
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operating and stock price performance of other companies that investors deem comparable to us;
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overall performance of the equity markets;
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announcements by us or our competitors of acquisitions, new product candidates or programs, significant contracts, commercial relationships or capital commitments;
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product liability claims related to our clinical trials or product candidates;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for vonapanitase or any additional product candidates;
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commencement of, or involvement in, litigation involving our company, our general industry, or both;
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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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the volume of shares of our Common Stock available for public sale;
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additions or departures of key scientific or management personnel;
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changes in laws and regulations affecting our business, including but not limited to clinical trial requirements for approvals;
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any major change in our board or management;
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changes in accounting practices;
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ineffectiveness of our internal control over financial reporting;
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sales of substantial amounts of Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
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general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
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Broad market and industry factors may materially
harm the market price of our Common Stock irrespective of our operating performance. The stock market in general, and NASDAQ and
the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations
of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for technology or software stocks
or the stocks of other companies which investors perceive to be similar to us, the opportunities in the digital simulation market
or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results
of operations.
Our common stock is listed on NASDAQ under
the symbol "PRTO". To continue to be listed on Nasdaq, we are required to satisfy a number of conditions. We may not
satisfy NASDAQ's other requirements for continued listing. If we cannot satisfy these requirements, Nasdaq could delist our common
stock and could limit our strategic alternatives and ability to consummate a potential transaction.
We cannot assure you that we will be able to satisfy the Nasdaq
listing requirements in the future. If we are delisted from Nasdaq, trading in our shares of common stock may be conducted, if
available, on the "OTC Bulletin Board Service" or, if available, via another market. In the event of such delisting,
an investor would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of
the shares of our common stock, and our ability to raise future capital through the sale of the shares of our common stock or other
securities convertible into or exercisable for our common stock could be severely limited. A determination could also then be made
that our common stock is a "penny stock" which would require brokers trading in our common stock to adhere to more stringent
rules and possibly result in a reduced level of trading. This could have a long-term impact on our ability to raise future capital
through the sale of our common stock.
Our common stock may be delisted from the NASDAQ Global Market
if we are unable to maintain compliance with NASDAQ’s continued listing standards.
NASDAQ imposes, among other requirements, continued
listing standards including minimum bid and public float requirements. The price of our common stock must trade at or above $1.00
to comply with NASDAQ's minimum bid requirement for continued listing on the NASDAQ Global Market. If our stock trades at bid prices
of less than $1.00 for a period in excess of 30 consecutive business days, NASDAQ could send a deficiency notice to us for not
remaining in compliance with the minimum bid listing standards. Our common stock has traded below $1.00 since our announcement
of the PATENCY-2 top-line results on March 28, 2019.
Additionally, the
market value of our listed securities must be at or above $50,000,000 for continued listing on the NASDAQ. If the market value
of our listed securities is less than $50,000,000 for 30 consecutive business days, NASDAQ could send a deficiency notice to us
for not remaining in compliance the market value standard. The market value of our listed securities has been below $50,000,000
since our announcement of the PATENCY-2 top-line results on March 28, 2019.
If the closing bid price of our common stock
continues to fail to meet NASDAQ's minimum closing bid price requirement, if the market value of our listed securities continues
to fail to meet NASDAQ’s minimum market value standard, or if we otherwise fail to meet any other applicable requirements
of NASDAQ and we are unable to regain compliance, NASDAQ may make a determination to delist our common stock.
Any delisting of our common stock could adversely
affect the market liquidity of our common stock and the market price of our common stock could decrease. Furthermore, if our common
stock were delisted it could adversely affect our ability to complete one or more strategic transactions for the company, to obtain
financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and
employees.
We are an “emerging growth company” and as a result
of the reduced disclosure and governance requirements applicable to emerging growth companies, our Common Stock may be less attractive
to investors.
We are an “emerging growth company,”
or EGC, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not EGCs, including: not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and stockholder approval of any golden parachute payments not previously approved.
We may take advantage of these reporting exemptions
until we are no longer an EGC. We will remain an EGC until the earlier of (1) the last day of the fiscal year (a) following the
fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c)
in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that is held by non-affiliates
exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible
debt during the prior three-year period.
We cannot predict whether investors will find
our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as a result,
there may be a less active trading market for our Common Stock and our stock price may be more volatile. In addition, the JOBS
Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards.
This allows an EGC to delay the adoption of these accounting standards until they would otherwise apply to private companies. We
have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised
accounting standards as other public companies that are not EGCs.
Even after we no longer qualify as an EGC,
we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions
from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of
the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We cannot predict if investors will find our Common Stock less attractive because we will rely on these exemptions. If some investors
find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock
price may be more volatile.
Actual or potential sales of our Common Stock by our employees,
including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock price to fall or prevent it
from increasing for numerous reasons, and actual or potential sales by such persons could be viewed negatively by other investors.
In accordance with the guidelines specified
under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number of our employees, including executive
officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to sell shares of our
Common Stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require
public filings. Actual or potential sales of our Common Stock by such persons could cause the price of our Common Stock to fall
or prevent it from increasing for numerous reasons. For example, a substantial number of shares of our Common Stock becoming available
(or being perceived to become available) for sale in the public market could cause the market price of our Common Stock to fall
or prevent it from increasing. Also, actual or potential sales by such persons could be viewed negatively by other investors.
The resale of the shares of Common Stock issuable upon the conversion of our Series
A Convertible Preferred Stock could adversely affect the prevailing market price of our Common Stock and cause stockholders to
experience dilution.
On August 2, 2017, we issued and sold 22,000
shares of our Series A Convertible Preferred Stock, par value $0.001 per share, for a purchase price of $1,000 per share, or an
aggregate purchase price of $22.0 million. Each share of Series A Convertible Preferred Stock is convertible into approximately
1,005 shares of our Common Stock at a conversion price of $0.9949 per share, provided that any conversion of Series A Convertible
Preferred Stock by a holder into shares of Common Stock is prohibited if, as a result of such conversion, the holder, together
with its affiliates and any other person or entity whose beneficial ownership of our Common Stock would be aggregated with such
holder’s for purposes of Section 13(d) of the Exchange Act, would beneficially own more than 9.985% of the total number of
shares of our Common Stock issued and outstanding after giving effect to such conversion (the “Blocker”). Pursuant
to the registration statement that we filed with the SEC for the resale by holders of our Series A Preferred Convertible Stock,
as selling stockholders, of the aggregate 22,112,775 shares of Common Stock that are issuable upon conversion of the Series A Convertible
Preferred Stock, the outstanding shares of Series A Convertible Preferred Stock may, at each holder’s election, be converted
into our Common Stock, subject to the Blocker. As of March 2019, 340 shares of our Series A Convertible Preferred Stock were converted
into Common Stock. Although we cannot predict if and when the holders of Series A Convertible Preferred Stock may sell such shares
in the public market, any converted shares of Common Stock will be available for immediate resale and be able to be freely sold
in the open market. The conversion of shares of Series A Convertible Preferred Stock into shares of Common Stock will result in
substantial dilution to holders of our Common Stock. Further, the sale of a significant amount of these shares of Common Stock
in the open market or the perception that these sales may occur could adversely affect prevailing market prices of our Common Stock,
including causing the market price of our Common Stock to decline or become highly volatile.
We are highly dependent on our ability to raise additional
capital and raising additional funds through debt or equity financing could be dilutive and may cause the market price of our Common
Stock to decline.
We have financed our cash needs through a combination
of equity offerings and debt financings, and potentially through strategic partnerships with third parties. To the extent that
additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could
result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely
affect the rights of our current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by us,
or the possibility of such issuance, may cause the market price of our Common Stock to decline and existing stockholders may not
agree with our financing plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantial
portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness and could impose
restrictions on our operations, such as limitations on our ability to incur additional debt, limitations on our ability to acquire,
sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct
our business. Additional funding may not be available to us on acceptable terms, or at all.
If securities analysts do not publish research or reports
about our business or if they downgrade our stock, the price of our Common Stock could decline.
The trading market for our Common Stock will
rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our
competitors. We do not control these analysts. If securities analysts do not cover our Common Stock, the lack of research coverage
may adversely affect the market price of our Common Stock. Furthermore, if one or more of the analysts who do cover us downgrade
our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline.
If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in
the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and
may also impair our ability to expand our business with existing customers and attract new customers.
The concentration of our capital stock ownership with insiders
will likely limit your ability to influence corporate matters.
As of March 27, 2019, our executive officers,
directors, current 5% or greater stockholders, and their respective affiliates together beneficially owned or controlled, in aggregate,
more than 50% of the shares of our outstanding Common Stock. As a result, these executive officers, directors and principal stockholders,
acting together, will have substantial influence over most matters that require approval by our stockholders, including the election
of directors, any merger, consolidation or sale of all or substantially all or of our assets or any other significant corporate
transaction. Corporate action might be taken even if other stockholders oppose such action. These stockholders may delay or prevent
a change of control or otherwise discourage a potential acquirer from attempting to obtain control of our company, even if such
change of control would benefit our other stockholders. This concentration of stock ownership may adversely affect investors’
perception of our corporate governance or delay, prevent or cause a change in control of our company, any of which could adversely
affect the market price of our Common Stock.
Future sales and issuances of our Common Stock or rights to
purchase Common Stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage
ownership of our stockholders and could cause our stock price to fall.
We have filed a registration statement permitting
shares of Common Stock issued in the future, pursuant to our employee benefit plans, to be freely resold by plan participants in
the public market, subject to applicable lock-up agreements, applicable vesting schedules and, for shares held by directors, executive
officers and other affiliates, volume limitations under Rule 144 for shares. Our 2014 Amended and Restated Employee Incentive Plan
and 2014 Employee Stock Purchase Plan also contain a provision for the annual increase of the number of shares reserved for issuance
under such plan, which shares we also intend to register in the future as such annual increase occurs. If the shares we may issue
from time to time under our employee benefit plans are sold, or if it is perceived that they will be sold, by the award recipient
in the public market, the trading price of our Common Stock could decline.
We expect that significant additional capital
will be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts,
expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell
Common Stock, convertible securities or other equity securities in one or more transactions, including in at-the-market offerings,
at prices and in a manner we determine from time to time. If we sell Common Stock, convertible securities or other equity securities
in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution
to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our Common
Stock.
We will incur significant increased costs as a result of operating
as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we have incurred and will
continue to incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act, and rules of the SEC and those of NASDAQ impose various requirements on public companies including requiring
establishment and maintenance of effective disclosure and financial controls. Our management and other personnel devote a substantial
amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase
our legal and financial compliance costs and will make some activities more time-consuming and costly.
The Sarbanes-Oxley Act requires, among other
things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular,
we must perform system and process evaluation and testing of our internal control over financial reporting to allow management
to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley
Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of
our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on
Form 10-K following the date on which we are no longer an EGC. Our compliance with Section 404 of the Sarbanes-Oxley Act will require
that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit
group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical
accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent
registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be
material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ,
the SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to successfully implement our business
plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we
will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage
our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures
or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting
is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley
Act. This, in turn, could have an adverse impact on trading prices for our Common Stock, and could adversely affect our ability
to access the capital markets.
We do not expect to pay any cash dividends for the foreseeable
future.
You should not rely on an investment in our
Common Stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Common Stock
in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. Accordingly, investors
must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any return
on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.
Our ability to use our net operating loss carryovers and certain
other tax attributes may be limited.
As described above under “—Risks
Related to Our Financial Condition and Need for Additional Capital,” we have incurred net losses since our inception and
anticipate that we will continue to incur significant losses for the foreseeable future. Under the Internal Revenue Code, as amended
(the “Code”), a corporation is generally allowed a deduction for net operating losses, or NOLs, carried over from a
prior taxable year. Under that provision, we can carry forward our NOLs to offset our future taxable income, if any, until such
NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits.
If a corporation undergoes an “ownership
change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, Sections
382 and 383 of the Code, limit the corporation’s ability to use carryovers of its pre-change NOLs, credits and certain other
tax attributes to reduce its tax liability for periods after the ownership change. We completed a preliminary analysis to determine
if there were changes in ownership for tax years through 2017, as defined by Section 382 of the Internal Revenue Code that would
limit our ability to utilize certain net operating loss and tax credit carryforwards and it was preliminarily determined a change
in ownership occurred in 2017. With this change in ownership, as defined by Section 382, we believe utilization of our net operating
losses and tax credits carryforwards have become limited. As a result, this could result in increased U.S. federal income tax liability
for us if we generate taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase
our state tax liability. The use of our tax attributes will also be limited to the extent that we do not generate positive taxable
income in future tax periods.
Provisions in our amended and restated certificate of incorporation,
our amended and restated bylaws and Delaware law may have anti- takeover effects that could discourage an acquisition of us by
others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace
or remove our current management.
Our amended and restated certificate of incorporation,
amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in
control of us or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions
that:
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authorize “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our Common Stock;
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create a classified Board of Directors whose members serve staggered three-year terms;
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specify that special meetings of our stockholders can be called only by our Board of Directors;
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prohibit stockholder action by written consent;
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establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our Board of Directors;
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provide that our directors may be removed only for cause;
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provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum;
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specify that no stockholder is permitted to cumulate votes at any election of directors;
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expressly authorize our Board of Directors to modify, alter or repeal our amended and restated bylaws; and
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require supermajority votes of the holders of our Common Stock to amend specified provisions of our amended and restated certificate of incorporation and amended and restated by laws.
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These provisions, alone or together, could
delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because we are incorporated in
the State of Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the
ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision of our amended and restated certificate
of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control
could limit the opportunity for our stockholders to receive a premium for their shares of our Common Stock, and could also affect
the price that some investors are willing to pay for our Common Stock.
Our amended and restated certificate of incorporation
designates the Court of Chancery of the State of Delaware and federal court within the State of Delaware as the exclusive forum
for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation
provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware and federal court within the State
of Delaware will be exclusive forums for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting
a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3)
any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our amended
and restated certificate of incorporation or our amended and restated bylaws, or (4) any other action asserting a claim against
us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares
of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate
of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a
judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage
such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of
our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified
types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which
could adversely affect our business and financial condition.