PART II.
ITEM 1A. RISK FACTORS
We operate
in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse
effect on our business, prospects, financial condition and results of operations, and you should carefully consider them. Accordingly,
in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other
information contained in this Quarterly Report on Form 10-Q and our other public filings with the SEC. Other events that we do not currently
anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Risk Factor Summary
Below is a summary of the principal factors that make an investment
in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks
summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together
with all of the other information appearing in or incorporated by reference into this Quarterly Report on Form 10-Q and our other public
filings with the SEC before making investment decisions regarding the common stock. Other
events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition
and results of operations.
- We are a clinical-stage company, we have a very limited operating history, are not currently profitable,
do not expect to become profitable in the near future and may never become profitable.
- We are dependent on the success of one or more of our current product candidates and we cannot
be certain that any of them will receive regulatory approval or be commercialized.
- If development of our product candidates does not produce favorable results, or encounters challenges,
we and our collaborators, if any, may be unable to commercialize these products.
- We expect to continue to incur significant research and development expenses, which may make it
difficult for us to attain profitability.
- Given our lack of current cash flow, we may need to raise additional capital; however, it may be
unavailable to us or, even if capital is obtained, may cause dilution or place significant restrictions on our ability to operate
our business. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization
of our product candidates, or continue our development programs.
- Our product candidates may cause undesirable side effects that could delay or prevent their regulatory
approval or commercialization or have other significant adverse implications on our business, financial condition and results
of operations.
- Delays in the commencement or completion of clinical trials could result in increased costs to
us and delay our ability to establish strategic collaborations.
- The COVID-19 pandemic, and any other pandemic, epidemic or outbreak of an infectious disease may
materially and adversely affect our business and operations.
- Results of earlier clinical trials may not be predictive of the results of later-stage clinical
trials.
- We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform
other tasks. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory
requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, financial
condition and results of operations could be substantially harmed.
- Our product candidates are subject to extensive regulation under the U.S. Food and Drug Administration
(“FDA”), the European Medicines Agency (the “EMA”) or comparable foreign authorities, which can be costly and
time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
- If our competitors have product candidates that are approved faster, marketed more effectively,
are better tolerated, have a more favorable safety profile or are demonstrated to be more effective than ours, our commercial
opportunity may be reduced or eliminated.
- We rely completely on third parties to manufacture our preclinical and clinical drug supplies,
and our business, financial condition and results of operations could be harmed if those third parties fail to provide us with
sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
- The commercial success of our product candidates depends upon their market acceptance among physicians, patients,
healthcare payors and the medical community.
- If we fail to retain current members of our senior management and scientific personnel, or to attract
and keep additional key personnel, we may be unable to successfully develop or commercialize our product candidates.
- We may not be successful in obtaining or maintaining necessary rights to our product candidates
through acquisitions and in-licenses.
- If we fail to comply with our obligations in the agreements under which we in-license intellectual
property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we
could lose intellectual property rights that are important to our business.
- We may not be able to protect our proprietary or licensed technology in the marketplace.
- The market price of our common stock is expected to be volatile.
Risk Factors
The risk factors set forth below with an asterisk (*) next to the
title are new risk factors or risk factors containing material changes from the risk factors previously disclosed in Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 4, 2022:
Risks Related to the Company
*We are a clinical-stage company, we have a very limited
operating history, are not currently profitable, do not expect to become profitable in the near future and may never become profitable.
We are a clinical-stage biopharmaceutical company. Since our
incorporation, we have focused primarily on the development and acquisition of clinical-stage therapeutic candidates. All of our therapeutic
candidates are in the clinical development stage and none of our pipeline therapeutic candidates have been approved for marketing or are
being marketed or commercialized.
As a result, we have no meaningful historical operations upon
which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for any of our product
candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the biopharmaceutical industry.
We also have generated minimal revenues from collaboration and licensing agreements and no revenues from product sales to date and continue
to incur significant research and development and other expenses. As a result, we have not been profitable and have incurred significant
operating losses in every reporting period since our inception. We have incurred an accumulated deficit of $155.2 million from our inception
through March 31, 2022.
For the foreseeable future, we expect to continue to incur
losses, which will increase significantly from historical levels as we expand our drug development activities, seek partnering
and/or regulatory approvals for our product candidates and begin to commercialize them if they are approved by the FDA, the EMA or
comparable foreign authorities. Even if we succeed in developing and commercializing one or more product candidates, we may never
become profitable.
We are dependent on the success
of one or more of our current product candidates and we cannot be certain that any of them will receive regulatory approval or be
commercialized.
We have spent significant time, money
and effort on the licensing and development of our core assets, SLS-002, SLS-005 and SLS-006 and our other earlier-stage assets, SLS-004,
SLS-007, SLS-008, SLS-010 and SLS-012. To date, no pivotal clinical trials designed to provide clinically and statistically significant
proof of efficacy, or to provide sufficient evidence of safety to justify approval, have been completed with any of our pipeline product
candidates. All of our product candidates will require additional development, including clinical trials as well as further preclinical
studies to evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, and regulatory clearances before
they can be commercialized. Positive results obtained during early development do not necessarily mean later development will succeed
or that regulatory clearances will be obtained. Our drug development efforts may not lead to commercial drugs, either because our product
candidates may fail to be safe and effective or because we have inadequate financial or other resources to advance our product candidates
through the clinical development and approval processes. If any of our product candidates fail to demonstrate safety or efficacy at any
time or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development
of the product candidate.
We do not anticipate that any of our current product candidates
will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization for
a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our potential
future partners, if any, may be unable to commercialize them successfully for a variety of reasons. These include, for example, the availability
of alternative treatments, lack of cost-effectiveness, the cost of manufacturing the product on a commercial scale and competition with
other drugs. The success of our product candidates may also be limited by the prevalence and severity of any adverse side effects. If
we fail to commercialize one or more of our current product candidates, we may be unable to generate sufficient revenues to attain or
maintain profitability, and our financial condition and stock price may decline.
If development of our product candidates does not produce
favorable results, or encounters challenges, we and our collaborators, if any, may be unable to commercialize these products.
To receive regulatory approval for the commercialization of our
core assets, SLS-002, SLS-005 and SLS-006 and our earlier-stage assets, SLS-004, SLS-007, SLS-008, SLS-010 and SLS-012, or any other product
candidates that we may develop, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans
to the satisfaction of the FDA, the EMA and comparable foreign authorities. In order to support marketing approval, these agencies typically
require successful results in one or more Phase III clinical trials, which our current product candidates have not yet reached and may
never reach. The development process is expensive, can take many years and has an uncertain outcome. Failure can occur at any stage of
the process. We may experience numerous unforeseen events during, or as a result of, the development process that could delay or prevent
commercialization of our current or future product candidates, including the following:
- clinical trials may produce negative or inconclusive results;
- preclinical studies conducted with product candidates during clinical development to, among other
things, evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation may produce unfavorable results;
- we or our contract manufacturers may encounter manufacturing challenges or the FDA may raise concerns
regarding Chemistry, Manufacturing, and Controls (CMC) data or GMP compliance, or biocompatibility or drug-device interaction concerns
for our combination product candidates;
- patient recruitment and enrollment in clinical trials may be slower than we anticipate;
- costs of development may be greater than we anticipate;
- our product candidates may cause undesirable side effects that delay or preclude regulatory approval
or limit their commercial use or market acceptance, if approved;
- collaborators who may be responsible for the development of our product candidates may not devote
sufficient resources to these clinical trials or other preclinical studies of these candidates or conduct them in a timely manner; or
- we may face delays in obtaining regulatory approvals to commence one or more clinical trials.
Success in early development does not mean that later development
will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and
efficacy despite having progressed through initial clinical trials.
We have licensed or acquired all of the intellectual property
related to our product candidates from third parties. All clinical trials, preclinical studies and other analyses performed to date with
respect to our product candidates have been conducted by their original owners. Therefore, as a company, we have limited experience in
conducting clinical trials for our product candidates. Since our experience with our product candidates is limited, we will need to train
our existing personnel and hire additional personnel in order to successfully administer and manage our clinical trials and other studies
as planned, which may result in delays in completing such planned clinical trials and preclinical studies. Moreover, to date our product
candidates have been tested in less than the number of patients that will likely need to be studied to obtain regulatory approval. The
data collected from clinical trials with larger patient populations may not demonstrate sufficient safety and efficacy to support regulatory
approval of these product candidates.
We currently do not have strategic collaborations in place for
clinical development of any of our current product candidates, except for our collaborative agreement with Team Sanfilippo Foundation
("TSF"), which we assumed in connection with the asset purchase agreement with Bioblast Pharma Ltd. for IV Trehalose, which
is now known as SLS-005. Therefore, in the future, we or any potential future collaborative partner will be responsible for establishing
the targeted endpoints and goals for development of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate
the safety and efficacy levels required for regulatory approvals. Even if we believe data collected during the development of our product
candidates are promising, such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities.
Further, data generated during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities
may interpret such data in different ways than us or our collaborators. Our failure to adequately demonstrate the safety and efficacy
of our product candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product
candidates.
Since we do not currently possess the resources necessary to
independently develop and commercialize our product candidates or any other product candidates that we may develop, we may seek to enter
into collaborative agreements to assist in the development and potential future commercialization of some or all of these assets as a
component of our strategic plan. However, our discussions with potential collaborators may not lead to the establishment of collaborations
on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading to development and potential
commercialization delays, which would adversely affect our business, financial condition and results of operations.
We expect to continue to incur significant research and
development expenses, which may make it difficult for us to attain profitability.
We expect to expend substantial funds in research and development,
including preclinical studies and clinical trials of our product candidates, and to manufacture and market any product candidates in the
event they are approved for commercial sale. We also may need additional funding to develop or acquire complementary companies, technologies
and assets, as well as for working capital requirements and other operating and general corporate purposes. Moreover, our planned increases
in staffing will dramatically increase our costs in the near and long-term.
However, our spending on current and future research and development
programs and product candidates for specific indications may not yield any commercially viable products. Due to our limited financial
and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Because the successful development of our product candidates
is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition,
we may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates, to become profitable.
*Given our lack of current cash flow, we may need to raise
additional capital; however, it may be unavailable to us or, even if capital is obtained, may cause dilution or place significant
restrictions on our ability to operate our business. If we fail to raise the necessary additional capital, we may be unable to complete
the development and commercialization of our product candidates, or continue our development programs.
As of March 31, 2022, we had a cash balance of approximately
$61.8 million. Since we will be unable to generate sufficient, if any, cash flow to fund our operations for the foreseeable future, we
may need to seek additional equity or debt financing to provide the capital required to maintain or expand our operations.
As a result of our recurring losses from operations, there is
uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt
about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required
to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial
statements for the year ended December 31, 2021 included a “going concern” explanatory paragraph indicating that our recurring
losses from operations raise substantial doubt about our ability to continue as a going concern.
We currently have an effective shelf registration statement on
Form S-3 filed with the SEC. We may use the shelf registration statement on Form S-3 to offer from time to time any combination of debt
securities, common and preferred stock and warrants, and, as of the date hereof, a total of $95.1 million of securities remains available
for issuance pursuant to the shelf registration statement.
There can be no assurance that we will be able to raise sufficient
additional capital on acceptable terms or at all. In addition, the impact of the COVID-19 pandemic on the global financial markets may
reduce our ability to access capital, which could negatively affect our liquidity and ability to continue as a going concern. If such
additional financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit
or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our
business, financial condition and results of operations will be materially adversely affected. In addition, we may be required to grant
rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our inability to fund
our business could lead to the loss of your investment.
Our future capital requirements will depend on many factors,
including, but not limited to:
- the scope, rate of progress, results and cost of our clinical trials, preclinical studies and other
related activities;
- our ability to establish and maintain strategic collaborations, licensing or other arrangements
and the financial terms of such arrangements;
- the timing of, and the costs involved in, obtaining regulatory approvals for any of our current
or future product candidates;
- the number and characteristics of the product candidates we seek to develop or commercialize;
- the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product
candidates;
- the cost of commercialization activities if any of our current or future product candidates are
approved for sale, including marketing, sales and distribution costs;
- the expenses needed to attract and retain skilled personnel;
- the costs associated with being a public company;
- the amount of revenue, if any, received from commercial sales of our product candidates, should
any of our product candidates receive marketing approval; and
- the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible
patent claims, including litigation costs and the outcome of any such litigation.
If we raise additional capital by issuing equity securities,
the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution.
We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our
need for cash and that equity issuances are the most common type of fundraising for similarly situated companies, the risk of dilution
is particularly significant for our stockholders. In addition, debt financing may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends
and may be secured by all or a portion of our assets. For example, we granted to Lind Global Asset Management V, LLC (“Lind”),
one of the holders of the convertible promissory notes we issued in 2021 (the “Convertible Promissory Notes”), a first priority
lien on our assets and properties and the Convertible Promissory Notes include restrictive covenants and event of default provisions,
including restrictions on certain sales or other dispositions of company assets, restrictions on entering into certain variable-rate transactions
and a minimum cash requirement. In addition, although the Securities Purchase Agreement we entered into with Lind in November 2021 provides
that we may issue and sell to Lind additional convertible promissory notes, the issuances of such additional notes are subject to the
satisfaction of certain conditions and milestones, which we may not be able to satisfy or achieve. Our inability to raise capital
when needed may harm our business, financial condition and results of operations, and could cause our stock price to decline or require
that we wind down our operations altogether.
Our product candidates may cause undesirable side effects
that could delay or prevent their regulatory approval or commercialization or have other significant adverse implications on our
business, financial condition and results of operations.
Undesirable side effects observed in clinical trials or in supportive
preclinical studies with our product candidates could interrupt, delay or halt their development and could result in the denial of regulatory
approval by the FDA, the EMA or comparable foreign authorities for any or all targeted indications or adversely affect the marketability
of any such product candidates that receive regulatory approval. In turn, this could eliminate or limit our ability to commercialize our
product candidates.
Our product candidates may exhibit adverse effects in preclinical
toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements the FDA, the
EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.
Our product candidates may require a risk management program
that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-marketing observational
study, and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists or
physicians trained in the use of the drug, or could be limited to a more restricted patient population. Any risk management program required
for approval of our product candidates could potentially have an adverse effect on our business, financial condition and results of operations.
Undesirable side effects involving our product candidates may
have other significant adverse implications on our business, financial condition and results of operations. For example:
- we may be unable to obtain additional financing on acceptable terms, if at all;
- our collaborators may terminate any development agreements covering these product candidates;
- if any development agreements are terminated, we may determine not to further develop the affected
product candidates due to resource constraints and may not be able to establish additional collaborations for their further development
on acceptable terms, if at all;
- if we were to later continue the development of these product candidates and receive regulatory
approval, earlier findings may significantly limit their marketability and thus significantly lower our potential future revenues from
their commercialization;
- we may be subject to product liability or stockholder litigation; and
- we may be unable to attract and retain key employees.
In addition, if any of our product candidates receive marketing
approval and we or others later identify undesirable side effects caused by the product:
- regulatory authorities may withdraw their approval of the product, or we or our partners may decide
to cease marketing and sale of the product voluntarily;
- we may be required to change the way the product is administered, conduct additional clinical trials
or preclinical studies regarding the product, change the labeling of the product, or change the product's manufacturing facilities; and
- our reputation may suffer.
Any of these events could prevent us from achieving or maintaining
market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the product, which
in turn could delay or prevent us from generating significant revenues from the sale of the product.
Our efforts to discover product candidates beyond our current
product candidates may not succeed, and any product candidates we recommend for clinical development may not actually begin clinical
trials.
We intend to use our technology, including our licensed technology,
knowledge and expertise to develop novel drugs to address some of the world's most widespread and costly central nervous system, respiratory
and other disorders, including orphan indications. We intend to expand our existing pipeline of core assets by advancing drug compounds
from current ongoing discovery programs into clinical development. However, the process of researching and discovering drug compounds
is expensive, time-consuming and unpredictable. Data from our current preclinical programs may not support the clinical development of
our lead compounds or other compounds from these programs, and we may not identify any additional drug compounds suitable for recommendation
for clinical development. Moreover, any drug compounds we recommend for clinical development may not demonstrate, through preclinical
studies, indications of safety and potential efficacy that would support advancement into clinical trials. Such findings would potentially
impede our ability to maintain or expand our clinical development pipeline. Our ability to identify new drug compounds and advance them
into clinical development also depends upon our ability to fund our research and development operations, and we cannot be certain that
additional funding will be available on acceptable terms, or at all.
Delays in the commencement or completion of clinical trials
could result in increased costs to us and delay our ability to establish strategic collaborations.
Delays in the commencement or completion of clinical trials could
significantly impact our drug development costs. We do not know whether planned clinical trials will begin on time or be completed on
schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but not limited to, delays
related to:
- obtaining regulatory approval to commence one or more clinical trials;
- reaching agreement on acceptable terms with prospective third-party contract research organizations
("CROs") and clinical trial sites;
- manufacturing sufficient quantities of a product candidate or other materials necessary to conduct
clinical trials;
- obtaining institutional review board approval to conduct one or more clinical trials at a prospective
site;
- recruiting and enrolling patients to participate in one or more clinical trials; and
- the failure of our collaborators to adequately resource our product candidates due to their focus
on other programs or as a result of general market conditions.
In addition, once a clinical trial has begun, it may be suspended
or terminated by us, our collaborators, the institutional review boards or data safety monitoring boards charged with overseeing our clinical
trials, the FDA, the EMA or comparable foreign authorities due to a number of factors, including:
- failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
- inspection of the clinical trial operations or clinical trial site by the FDA, the EMA or comparable
foreign authorities resulting in the imposition of a clinical hold;
- unforeseen safety issues; or
- lack of adequate funding to continue the clinical trial.
If we experience delays in the completion, or termination, of
any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to commence
product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing
our clinical trials will increase our costs and slow down our product candidate development and approval process. Delays in completing
our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patent protection period
during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business,
financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement
or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
The COVID-19 pandemic, and any other pandemic, epidemic
or outbreak of an infectious disease may materially and adversely affect our business and operations.
On March 11, 2020, the World Health Organization declared COVID-19
a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect our operations and those of third
parties on which we rely, including by causing disruptions in the supply of our product candidates and the conduct of future clinical
trials. In addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays
of reviews and approvals, including with respect to our product candidates. Additionally, while the potential economic impact brought
by, and the duration of the COVID-19 pandemic are difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial
markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. In addition, the
loss of any of our employees as a result of COVID-19 or another pandemic, may have a material adverse effect on our operations. We are
actively monitoring the effect of the global situation on our financial condition, liquidity, operations, suppliers, industry and workforce.
While the spread of COVID-19 may eventually be contained or mitigated, we cannot predict the timing of the vaccine roll-out globally or
the continued efficacy of such vaccines, and we do not yet know how businesses or our partners will operate in a post COVID-19 environment. The
ultimate impact of the COVID-19 pandemic on our business, operations or the global economy as a whole remains highly uncertain, and a continued
and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, financial condition,
and operating results.
Results of earlier clinical trials may not be predictive
of the results of later-stage clinical trials.
The results of preclinical studies and early clinical trials
of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical
trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical
trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse
safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial results
may not be successful for these or other reasons.
This product candidate development risk is heightened by any
changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical
to early- to late-stage clinical trials towards approval and commercialization, it is customary that various aspects of the development
program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results.
While these types of changes are common and are intended to optimize the product candidates for late-stage clinical trials, approval and
commercialization, such changes carry the risk that they will not achieve these intended objectives. In addition, nonclinical studies
may be requested or required even after clinical trials have been commenced or completed.
Any of these changes could make the results of our planned clinical
trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform differently,
including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize
our ability to commence product sales and generate revenues.
If we experience delays in the enrollment of patients in
our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for
our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as
required by the FDA or other regulatory authorities. In addition, the COVID-19 pandemic may result in a reduction of patient enrollment,
a loss of patient enrollment and other delays affecting our clinical trials. Patient enrollment, a significant factor in the timing
of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and
patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any
new drugs that may be approved for the indications we are investigating.
If we fail to enroll and maintain the number of patients for
which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate
that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical
trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and
limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of our current or future
clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
We intend to rely on third parties to conduct our
preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual
duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or
commercialize our product candidates and our business, financial condition and results of operations could be substantially harmed.
We intend to rely upon third-party CROs, medical institutions,
clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and clinical programs. Nevertheless,
we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable
protocol, legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities.
We and our CROs and other vendors are required to comply with current requirements on good manufacturing practices ("cGMP"),
good clinical practices ("GCP") and good laboratory practice ("GLP"), which are a collection of laws and regulations
enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development. Regulatory
authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators,
preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply with applicable
regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable
foreign authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical
trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations.
Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory
approval processes.
We may not be able to enter into arrangements with CROs on commercially
reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available to us under our agreements
with such CROs, we will not be able to control whether or not they devote sufficient time and resources to our ongoing preclinical and
clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need
to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory
requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory
approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result,
our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially
and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.
Switching or adding additional CROs, medical institutions, clinical
investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural
transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability
to meet our desired clinical development timelines. There can be no assurance that we will not encounter similar challenges or delays
in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition or results
of operations.
Our product candidates are subject to extensive regulation
under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated delays or prevent
the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping,
advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA and
other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither we nor our collaborators are
permitted to market our product candidates until we or our collaborators receive approval of a new drug application ("NDA")
from the FDA or receive similar approvals abroad. The process of obtaining these approvals is expensive, often takes many years, and can
vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or regulations may
change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such
approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel discussions may make it more expensive
to develop and commercialize such product candidates. In addition, as a company, we have not previously filed NDAs with the FDA or filed
similar applications with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign
regulatory agency approval in a timely manner, if at all, for our product candidates for which development and commercialization is our
responsibility.
Despite the time and expense invested, regulatory approval is
never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit or deny approval of a product candidate for many
reasons, including:
- a product candidate may not be deemed safe or effective;
- agency officials of the FDA, the EMA or comparable foreign authorities may not find the data from
non-clinical or preclinical studies and clinical trials generated during development to be sufficient;
- the FDA, the EMA or comparable foreign authorities may not approve our third-party manufacturers'
processes or facilities;
- the FDA, the EMA or a comparable foreign authority may change its approval policies or adopt new
regulations; or
- our inability to obtain these approvals would prevent us from commercializing our product candidates.
We are pursuing the FDA 505(b)(2) NDA pathway for
our lead product candidate, SLS-002, which presents certain additional development and commercialization risks as compared to a conventional
505(b)(1) NDA for an innovator product candidate. We may pursue this pathway for other product candidates as well.
For our lead product candidate (SLS-002) we are pursuing development
in order to seek potential FDA approval under an abbreviated regulatory pathway called a 505(b)(2) NDA, which permits the filing of an
NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant and
for which the applicant has not obtained a right of reference. We may also pursue this pathway for other of our product candidates. Section
505(b)(2), if applicable to us for a particular product candidate, would allow an NDA we submit to the FDA to rely, in part, on data in
the public domain or the FDA's prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the
development program for a product candidate by potentially decreasing the amount of clinical data that we would need to generate in order
to obtain FDA approval.
Even if the FDA allows us to rely on the 505(b)(2) regulatory
pathway, there is no assurance that such marketing approval will be obtained in a timely manner, or at all. The FDA may require us to
perform additional nonclinical studies and clinical trials, and conduct other development work, to support any change from the reference
listed drug (including with respect to the route of administration and drug delivery method and device), which presents uncertainty about
the data that may ultimately be necessary and could be time-consuming and substantially delay our application for or potential receipt
of marketing approval.
Even if we are able to utilize the 505(b)(2) regulatory pathway,
a drug approved via this pathway may be subject to the same post-approval limitations, conditions and requirements as any other drug,
including, for example a Risk Evaluation and Mitigation Strategy ("REMS"), which we anticipate will be required for our lead
product candidate.
Also, as has been the experience of others in our industry, our
competitors may file citizens' petitions with the FDA to contest approval of our NDA, which may delay or even prevent the FDA from approving
any NDA that we submit under the 505(b)(2) regulatory pathway. If an FDA decision or action relative to our product candidate, or the
FDA's interpretation of Section 505(b)(2) more generally, is successfully challenged, it could result in delays or even prevent the FDA
from approving a 505(b)(2) application for such product candidate.
In addition, we may face Hatch-Waxman litigation in relation
to our NDAs submitted under the 505(b)(2) regulatory pathway, which may further delay or prevent the approval of our product candidate.
The pharmaceutical industry is highly competitive, and 505(b)(2) NDAs are subject to special requirements designed to protect the patent
rights of sponsors of previously approved drugs that are referenced in a 505(b)(2) NDA. If the previously approved drugs referenced in
an applicant's 505(b)(2) NDA are protected by patent(s) listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations
publication, or the Orange Book, the 505(b)(2) applicant is required to make a claim after filing its NDA that each such patent is invalid,
unenforceable or will not be infringed. The patent holder may thereafter bring suit for patent infringement, which will trigger a mandatory
30-month delay (or the shorter of dismissal of the lawsuit or expiration of the patent(s)) in approval of the 505(b)(2) NDA application.
If the FDA determines that our 505(b)(2) regulatory pathway is
not viable for SLS-002 or any other applicable product candidate for any reason, we would need to reconsider our plans and might not be
able to commercialize any such product candidate in a cost-efficient manner, or at all. If we were to pursue approval under the 505(b)(1)
NDA pathway, we would be subject to more extensive requirements and risks such as conducting additional clinical trials, providing additional
data and information or meeting additional standards for marketing approval. As a result, the time and financial resources required to
obtain marketing approval for our product candidates would likely increase substantially and further complications and risks associated
with our product candidates may arise. Also, new competing products may reach the market faster than ours, which may materially and adversely
affect our competitive position, business and prospects.
Even if our product candidates receive regulatory approval
in the U.S., we may never receive approval or commercialize our products outside of the U.S.
In order to market any products outside of the U.S., we must
establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures
vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain
approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries
may include all of the risks detailed above regarding FDA approval in the U.S. as well as other risks. Regulatory approval in one country
does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative
effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay seeking or obtaining
such approval would impair our ability to develop foreign markets for our product candidates.
Even if any of our product candidates receive regulatory
approval, our product candidates may still face future development and regulatory difficulties.
If any of our product candidates receive regulatory approval,
the FDA, the EMA or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing of the
product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition, regulatory agencies
subject a product, our manufacturer and the manufacturer's facilities to continual review and periodic inspections. If a regulatory agency
discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or problems with
the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our collaborators or us,
including requiring withdrawal of the product from the market. Our product candidates will also be subject to ongoing FDA, EMA or comparable
foreign authorities' requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety
and other post-market information on the drug. If our product candidates fail to comply with applicable regulatory requirements, a regulatory
agency may:
- issue warning letters or other notices of possible violations;
- impose civil or criminal penalties or fines or seek disgorgement of revenue or profits;
- suspend any ongoing clinical trials;
- refuse to approve pending applications or supplements to approved applications filed by us or our
collaborators;
- withdraw any regulatory approvals;
- impose restrictions on operations, including costly new manufacturing requirements, or shut down
our manufacturing operations; or
- seize or detain products or require a product recall.
The FDA, the EMA and comparable foreign authorities actively
enforce the laws and regulations prohibiting the promotion of off-label uses.
The FDA, the EMA and comparable foreign authorities strictly
regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular,
a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign authorities as reflected in the
product's approved labeling. If we receive marketing approval for our product candidates for our proposed indications, physicians may
nevertheless use our products for their patients in a manner that is inconsistent with the approved label, if the physicians personally
believe in their professional medical judgment that our products could be used in such manner. However, if we are found to have promoted
our products for any off-label uses, the federal government could levy civil, criminal or administrative penalties, and seek fines against
us. Such enforcement has become more common in the industry. The FDA, the EMA or comparable foreign authorities could also request that
we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional
conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we
could become subject to significant liability, which would materially adversely affect our business, financial condition and results of
operations.
If our competitors have product candidates that are approved
faster, marketed more effectively, are better tolerated, have a more favorable safety profile or are demonstrated to be more effective
than ours, our commercial opportunity may be reduced or eliminated.
The biopharmaceutical industry is characterized by rapidly advancing
technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience
and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including
commercial biopharmaceutical enterprises, academic institutions, government agencies and private and public research institutions. Any
product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become
available in the future.
Many of our competitors have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical studies, clinical trials, regulatory approvals and marketing
approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. Our competitors may succeed in developing technologies and therapies that are more
effective, better tolerated or less costly than any which we are developing, or that would render our product candidates obsolete and
noncompetitive. Even if we obtain regulatory approval for any of our product candidates, our competitors may succeed in obtaining regulatory
approvals for their products earlier than we do. We will also face competition from these third parties in recruiting and retaining qualified
scientific and management personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring
and in-licensing technologies and products complementary to our programs or advantageous to our business.
The key competitive factors affecting the success of each of
our product candidates, if approved, are likely to be its efficacy, safety, tolerability, frequency and route of administration, convenience
and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party
payors.
The pharmaceutical market for the treatment of major depressive
disorder includes selective serotonin reuptake inhibitors ("SSRIs"), serotonin and norepinephrine reuptake inhibitors ("SNRIs")
and atypical antipsychotics. A number of these marketed antidepressants will be generic, and would be key competitors to SLS-002. These
products include Forest Laboratory's Lexapro/Cipralex (escitalopram) and Viibryd (vilazodone), Pfizer, Inc.'s Zoloft (sertraline), Effexor
(venlafaxine) and Pristiq (desvenlafaxine), GlaxoSmithKline plc's Paxil/Seroxat (paroxetine), Eli Lilly and Company's Prozac (fluoxetine)
and Cymbalta (duloxetine), AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), among others.
Patients with treatment-resistant depression often require treatment
with several antidepressants, such as an SSRI or SNRI, combined with an "adjunct" therapy such as an antipsychotic compound,
such as AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), or mood stabilizers, such as
Janssen Pharmaceutica's Topamax (topiramate). In addition, Janssen's Spravato (intranasal esketamine), which has been approved for treatment-resistant
depression and for depressive systems in adults with major depressive disorder with suicidal thoughts or actions, targets the NMDA receptor
and is expected to have a faster onset of therapeutic effect as compared to currently available therapies.
Current treatments for Parkinson's Disease ("PD") are
intended to improve the symptoms of patients. The cornerstone of PD therapy is levodopa, as it is the most effective therapy for reducing
symptoms of PD. There are other drug therapies in development that will target the disease, such as gene and stem cell therapy and A2A
receptor agonists.
We, or any future collaborators, may not be able to obtain
orphan drug designation or orphan drug exclusivity for our product candidates.
Regulatory authorities in some jurisdictions, including the United
States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient
population of fewer than 200,000 individuals annually in the United States. In the United States and Europe, obtaining orphan drug approval
may allow us to obtain financial incentives, such as an extended period of exclusivity during which only we are allowed to market the
orphan drug. While we have received orphan drug designation for SLS-005 in Sanfilippo Syndrome and in spinocerebellar ataxia type 3 and
in oculopharyngeal muscular dystrophy and we plan to seek orphan drug designation from the FDA for SLS-008 for the treatment of a pediatric
indication, we, or any future collaborators, may not be granted orphan drug designations for our product candidates in the U.S. or in
other jurisdictions.
Even if we, or any future collaborators, obtain orphan drug designation
for a product candidate, we, or they, may not be able to obtain orphan drug exclusivity for that product candidate. Generally, a product
with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication
for which it has such designation, in which case the FDA or the EMA will be precluded from approving another marketing application for
the same drug for that indication for the applicable exclusivity period. The applicable exclusivity period is seven years in the United
States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for
orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity
may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable
to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we, or any future collaborators, obtain orphan drug exclusivity
for a product, that exclusivity may not effectively protect the product from competition because FDA has taken the position that, under
certain circumstances, another drug with the same active chemical and pharmacological characteristics, or moiety, can be approved for
the same condition. Specifically, the FDA's regulations provide that it can approve another drug with the same active moiety for the same
condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major
contribution to patient care.
The active ingredient of our lead product candidate, SLS-002,
ketamine hydrochloride, is recognized as having the potential for abuse, misuse and diversion and, as a result, is and will be subject
to extensive federal and state laws and regulations governing controlled substances and the entities involved in their research, manufacturing,
sale and distribution, and possession. In addition, we anticipate that if we obtain marketing approval for SLS-002 it will be the subject
of an FDA Risk Evaluation and Mitigation Strategy (REMS).
Ketamine is listed by the Drug Enforcement Administration ("DEA")
as a Schedule III controlled substance under the Controlled Substances Act. The DEA classifies substances as Schedule I, II,
III, IV or V controlled substances, with Schedule I controlled substances considered to present the highest risk of substance abuse
and Schedule V controlled substances the lowest risk. Scheduled controlled substances are subject to DEA regulations relating to
supply, procurement, manufacturing, storage,
distribution and physician prescription procedures.
In addition to federal scheduling, some drugs may be subject to state-level controlled substance laws and regulations and in some cases
more broadly applicable or more extensive requirements than those determined by the DEA and FDA. Federal and state-level controlled substance
laws impose a broad range of registration and licensure requirements along with requirements for systems and controls intended to provide
security and reduce the risk of diversion and misuse, and to identify suspicious activities.
Compliance with these laws can be expensive and time consuming.
Failure to follow these requirements can lead to significant civil and/or criminal penalties and possibly even lead to a revocation of
a DEA registration and state-level licenses.
If SLS-002 receives marketing approval from the FDA or other
regulatory authority, we may be required to implement REMS to address the potential for abuse and misuse of our product candidate. As
a result, our product candidate may only be available through a restricted or limited distribution system to which only certain prescribing
healthcare professionals may have access for their patients or healthcare professionals may be limited in their prescribing.
Furthermore, product candidates containing controlled substances
may generate public controversy. As a result, these products may be at risk of having their sale and distribution and marketing approvals
further restricted or in extreme cases withdrawn in the event that regulators were to assess that the benefits of a product no longer
outweigh emerging risks. Political pressures or adverse publicity could lead to delays in, and increased expenses for, and limit or restrict,
the commercialization of our product or product candidates.
We are subject to a multitude of manufacturing risks, any
of which could substantially increase our costs and limit supply of our product candidates.
The process of manufacturing our product candidates is complex,
highly regulated, and subject to several risks. For example, the process of manufacturing our product candidates is extremely susceptible
to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error.
Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced production yields,
product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or
in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended
period of time to investigate and remedy the contamination. In addition, the manufacturing facilities in which our product candidates
are made could be adversely affected by equipment failures, labor shortages, natural disasters, public health crises, pandemics and epidemics,
such as the COVID-19 pandemic, power failures and numerous other factors.
In addition, any adverse developments affecting manufacturing
operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls or other
interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other charges and expenses
for product candidates that fail to meet specifications, undertake costly remediation efforts or seek costlier manufacturing alternatives.
We rely completely on third parties to manufacture our
preclinical and clinical drug supplies, and our business, financial condition and results of operations could be harmed if those
third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the infrastructure
or capability internally to manufacture our preclinical and clinical drug supplies for use in our clinical trials, and we lack the resources
and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on our manufacturers to purchase
from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number
of suppliers for raw materials that we use to manufacture our product candidates, and there may be a need to identify alternate suppliers
to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials,
and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw
materials by our manufacturers. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a
product candidate to complete such clinical trial, any significant delay or discontinuity in the supply of a product candidate, or the
raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably
delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates, which could harm
our business, financial condition and results of operations.
Product candidates that are considered combination products
for FDA purposes, such as the SLS-002 drug-device combination product consisting of ketamine hydrocholoride and a USP aqueous spray solution
in a bi-dose nasal delivery device, may face additional challenges, risks and delays in the product development and regulatory approval
process.
SLS-002 is delivered by an intranasal delivery device and considered
a drug-device combination product (the device having been developed by a third party is subject to a license agreement). When evaluating
products that utilize a specific drug delivery system or device, the FDA will evaluate the characteristics of that delivery system and
its functionality, as well as the potential
for undesirable interactions between the drug and the delivery
system, including the potential to negatively impact the safety or effectiveness of the drug. The FDA review process can be more complicated
for combination products, and may result in delays, particularly if novel delivery systems are involved. Additionally, quality or design
concerns with the delivery system could delay or prevent regulatory approval and commercialization of our product candidates.
We and our contract manufacturers are subject to significant
regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to
meet regulatory requirements.
All entities involved in the preparation of therapeutics for
clinical trials or commercial sale, including our contract manufacturers for our product candidates, are subject to extensive regulation.
Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in
accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality
systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes
can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may
not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an
NDA or marketing authorization application ("MAA") on a timely basis and must adhere to GLP and cGMP regulations enforced by
the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of our contract manufacturers may
not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority
approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection
for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential
products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation
of our product candidates or any of our other potential products or the associated quality systems for compliance with the regulations
applicable to the activities being conducted. Although we plan to oversee the contract manufacturers, we cannot control the manufacturing
process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these
facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially
delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time following approval
of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a
failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent
of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming
for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales
or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business, financial condition and results of operations.
If we or any of our third-party manufacturers fail to maintain
regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including, among other things,
refusal to approve a pending application for a product candidate, withdrawal of an approval or suspension of production. As a result,
our business, financial condition and results of operations may be materially and adversely affected.
Additionally, if supply from one manufacturer is interrupted,
an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory filing,
which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied
upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired
clinical and commercial timelines.
These factors could cause us to incur higher costs and could
cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product candidates.
Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable
of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Any collaboration arrangement that we may enter into in
the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential
future product candidates.
We may seek collaboration arrangements with biopharmaceutical
companies for the development or commercialization of our current and potential future product candidates. To the extent that we decide
to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Moreover, collaboration
arrangements are complex and time consuming to negotiate, execute and implement. We may not be successful in our efforts to establish
and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, and the terms of the
arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product
candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party.
The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally
have significant discretion in determining the efforts and resources that they will apply to these collaborations.
Disagreements between parties to a collaboration arrangement
can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a mutually beneficial
manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed to expire by
the other party. Any such termination or expiration would adversely affect our business, financial condition and results of operations.
If we are unable to develop our own commercial organization
or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant revenues.
We do not have a sales and marketing organization, and we have
no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product candidates are approved
for commercialization, we may be required to develop our sales, marketing and distribution capabilities, or make arrangements with a third
party to perform sales and marketing services. Developing a sales force for any resulting product or any product resulting from any of
our other product candidates is expensive and time consuming and could delay any product launch. We may be unable to establish and manage
an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of generating
sufficient demand for our product candidates. To the extent that we enter into arrangements with collaborators or other third parties
to perform sales and marketing services, our product revenues are likely to be lower than if we marketed and sold our product candidates
independently. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may not be able
to generate significant revenues and may not become profitable.
The commercial success of our product candidates depends
upon their market acceptance among physicians, patients, healthcare payors and the medical community.
Even if our product candidates obtain regulatory approval, our
products, if any, may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of
market acceptance of any of our approved product candidates will depend on a number of factors, including:
- the effectiveness of our approved product candidates as compared to currently available products;
- patient willingness to adopt our approved product candidates in place of current therapies;
- our ability to provide acceptable evidence of safety and efficacy;
- relative convenience and ease of administration;
- the prevalence and severity of any adverse side effects;
- restrictions on use in combination with other products;
- availability of alternative treatments;
- pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements,
based on the profile of our product candidates and target markets;
- effectiveness of us or our partners' sales and marketing strategy;
- our ability to obtain sufficient third-party coverage or reimbursement; and
- potential product liability claims.
In addition, the potential market opportunity for our product
candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include several
key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. Independent sources
have not verified all of our assumptions. If any of these assumptions proves to be inaccurate, then the actual market for our product
candidates could be smaller than our estimates of the potential market opportunity. If the actual market for our product candidates is
smaller than we expect, our product revenue may be limited, it may be harder than expected to raise funds and it may be more difficult
for us to achieve or maintain profitability. If we fail to achieve market acceptance of our product candidates in the U.S. and abroad,
our revenue will be limited and it will be more difficult to achieve profitability.
If we fail to obtain and sustain an adequate level of reimbursement
for our potential products by third-party payors, potential future sales would be materially adversely affected.
There will be no viable commercial market for our product candidates,
if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures.
We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate we may develop.
Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue
and gross margins will be adversely affected.
Third-party payors, such as government or private
healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement
rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates
may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services.
There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private payors, managed care organizations,
group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement
levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices
charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare
products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might
establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly
higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative
to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our drugs, which would
significantly reduce the likelihood of our products gaining market acceptance.
We expect that private insurers will consider the efficacy, cost-effectiveness,
safety and tolerability of our potential products in determining whether to approve reimbursement for such products and at what level.
Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would
be materially adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a
timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries.
Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription
drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially
adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates
or other potential products.
Reimbursement systems in international markets vary significantly
by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot
be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject
to continuing governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months.
To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness
of our products to other available therapies.
If the prices for our potential products are reduced or if governmental
and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash flows and prospects
for profitability will suffer.
Current and future legislation may increase the difficulty
and cost of commercializing our product candidates and may affect the prices we may obtain if our product candidates are approved
for commercialization.
In the U.S. and some foreign jurisdictions, there have been a
number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay regulatory
approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our
product candidates for which we obtain regulatory approval.
In the U.S., the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 ("MMA") changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives
and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products.
While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment
limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in
a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the "PPACA"), was enacted. The PPACA was
intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare
fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health
industry and impose additional health policy reforms. The PPACA increased manufacturers' rebate liability under the Medicaid Drug Rebate
Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of "average manufacturer
price", which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation
also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products
that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services, which administers the Medicaid
Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such
as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA
imposed a significant annual fee on companies that manufacture
or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions
filled by beneficiaries in the Medicare Part D coverage gap, referred to as the "donut hole." Legislative and regulatory proposals
have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities
for pharmaceutical products.
There have been public announcements by members of the U.S. Congress
regarding plans to repeal and replace or amend and expand the PPACA and Medicare. For example, on December 22, 2017 the Tax Cuts and Jobs
Act of 2017 was signed into law, which, among other things, eliminated the individual mandate requiring most Americans (other than those
who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the
impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S.
Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent
product labeling and post-marketing approval testing and other requirements.
In addition to the PPACA, there will continue to be proposals
by legislators at both the federal and state levels, regulators and third-party payers to reduce costs while expanding individual healthcare
benefits. Certain of these changes could impose additional limitations on the prices we will be able to charge for our current and future
solutions or the amounts of reimbursement available for our current and future solutions from governmental agencies or third-party payers.
While in general it is difficult to predict specifically what effects the PPACA or any future healthcare reform legislation or policies
will have on our business, current and future healthcare reform legislation and policies could have a material adverse effect on our business
and financial condition.
In Europe, the United Kingdom withdrew from the European Union
on January 31, 2020 and began a transition period that ended on December 31, 2020. Although the ultimate effects of Brexit have yet to
be seen, Brexit has created additional uncertainties that may ultimately result in new regulatory costs and challenges for companies and
increased restrictions on imports and exports throughout Europe, which could adversely affect our ability to conduct and expand our operations
in Europe and which may have an adverse effect on our business, financial condition and results of operations. Additionally, Brexit may
increase the possibility that other countries may decide to leave the EU in the future.
Changes in government funding for the FDA and other government
agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug innovation, or
prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial condition
and results of operations.
The ability of the FDA to review and approve new products can
be affected by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, and statutory, regulatory
and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of
other agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
In December 2016, the 21st Century Cures Act
was signed into law. This new legislation is designed to advance medical innovation and empower the FDA with the authority to directly
hire positions related to drug and device development and review. However, government proposals to reduce or eliminate budgetary deficits
may include reduced allocations to the FDA and other related government agencies. These budgetary pressures may result in a reduced ability
by the FDA to perform their respective roles, including the related impact to academic institutions and research laboratories whose funding
is fully or partially dependent on both the level and timing of funding from government sources.
Disruptions at the FDA and other agencies may also slow the time
necessary for our product candidates to be reviewed or approved by necessary government agencies, which could adversely affect our business,
financial condition and results of operations.
We are subject to "fraud and abuse" and similar
laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm
our business, financial condition and results of operations.
In the U.S., we are subject to various federal and state healthcare
"fraud and abuse" laws, including anti-kickback laws, false claims laws and other laws intended, among other things, to reduce
fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any person, including
a prescription drug manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer or pay any remuneration
that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug, or other good
or service for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Although
we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it
is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our
practices may be challenged under the federal Anti-Kickback Statute.
The federal False Claims Act prohibits anyone from, among other
things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims
for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims
for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited
from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors, or knowingly and
willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for healthcare benefits, items or services to obtain money or property of any healthcare benefit
program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including penalties, fines or exclusion
or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government.
In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well
as under the false claims laws of several states.
Many states have adopted laws similar to the federal Anti-Kickback
Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors.
In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General
Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America's Code on Interactions
with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing
or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail
to comply with an applicable state law requirement, we could be subject to penalties.
Neither the government nor the courts have provided definitive
guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing
these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If we are found in violation
of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from
governmental funded federal or state healthcare programs and the curtailment or restructuring of our operations. If this occurs, our business,
financial condition and results of operations may be materially adversely affected.
If we face allegations of noncompliance with the law and
encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately approved
for commercialization could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations of law could
require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing
regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates that
are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business,
financial condition and results of operations will be adversely affected. Additionally, if we are unable to generate revenues from product
sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.
*If we fail to retain current members of our senior management
and scientific personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize
our product candidates.
Our success depends on our continued ability to attract, retain
and motivate highly qualified management and scientific personnel. As of April 29, 2022, we have 16 employees. Our organization will rely
primarily on outsourcing research, development and clinical trial activities, and manufacturing operations, as well as other functions
critical to our business. We believe this approach enhances our ability to focus on our core product opportunities, allocate resources
efficiently to different projects and allocate internal resources more effectively. We have filled several key open positions and are
currently recruiting for a few remaining positions. However, competition for qualified personnel is intense. We may not be successful
in attracting qualified personnel to fulfill our current or future needs and there is no guarantee that any of these individuals will
join us on a full-time employment basis, or at all. In the event we are unable to fill critical open employment positions, we may need
to delay our operational activities and goals, including the development of our product candidates, and may have difficulty in meeting
our obligations as a public company. In addition, we may experience employee turnover as a result of the ongoing “great resignation”
occurring throughout the U.S. economy, which has impacted job market dynamics. New hires require training and take time before they achieve
full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers
of qualified individuals. In the event we are unable to fill critical open employment positions, we may need to delay our operational
activities and goals, including the development of our product candidates, and may have difficulty in meeting our obligations as a public
company. We do not maintain "key person" insurance on any of our employees.
In addition, competitors and others are likely in the future
to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified
personnel in the future or delays in hiring such personnel, particularly senior management and other technical personnel, could materially
and adversely affect our business, financial condition and results of operations. In addition, the replacement of key personnel likely
would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives.
From time to time, our management seeks the advice and guidance
of certain scientific advisors and consultants regarding clinical and regulatory development programs and other customary matters. These
scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to us. In addition, our scientific advisors may have arrangements with other companies to assist
those companies in developing products or technologies that may compete with us.
We will need to increase the size of our organization and
may not successfully manage our growth.
We are a clinical-stage biopharmaceutical company with a small
number of planned employees, and our management system currently in place is not likely to be adequate to support our future growth plans.
Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees
and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional
senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant number
of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail to
expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could have a
material adverse effect on our business, financial condition and results of operations.
Our management's lack of public company experience could
put us at greater risk of incurring fines or regulatory actions for failure to comply with federal securities laws and could put
us at a competitive disadvantage, and could require our management to devote additional time and resources to ensure compliance
with applicable corporate governance requirements.
Our executive officers do not have prior experience as executive
officers in managing and operating a public company, which could have an adverse effect on their ability to quickly respond to problems
or adequately address issues and matters applicable to public companies. Any failure to comply with federal securities laws, rules or
regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, financial condition and
results of operations. Further, since our executive officers do not have prior experience as executive officers managing and operating
a public company, we may need to dedicate additional time and resources to comply with legally mandated corporate governance policies
relative to our competitors whose management teams have more public company experience.
We are exposed to product liability, non-clinical and clinical
liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability and other
liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. In addition,
the use in our clinical trials of pharmaceutical products and the subsequent sale of these products by us or our potential collaborators
may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us
could have a material adverse effect on our business, financial condition and results of operations.
We currently carry product liability insurance for our clinical
development activities. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated
adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and,
if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Our research and development activities involve the use
of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.
Our research and development activities involve the controlled
use of hazardous materials and chemicals, and we will need to develop additional safety procedures for the handling and disposing of hazardous
materials. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne
pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations
may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these
laws or regulations.
We rely significantly on information technology
and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm
our ability to operate our business effectively.
Despite the implementation of security measures, our internal
computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized
access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches
could cause interruptions in our operations, and could result in a material disruption of our drug development and clinical activities
and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of drug development
or clinical trial data 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 our development programs and the development
of our product candidates could be delayed.
Our employees and consultants may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee or consultant fraud or
other misconduct. Misconduct by our employees or consultants could include intentional failures to comply with FDA regulations, provide
accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and
regulations, 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, 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 commissions, customer incentive programs and other business arrangements. Employee and consultant misconduct also
could 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. It is not always possible to identify and deter such 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 be in compliance with such laws or regulations. If any such actions
are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material
adverse effect on our business, financial condition and results of operations, and result in the imposition of significant fines or other
sanctions against us.
Business disruptions such as natural disasters could seriously
harm our future revenues and financial condition and increase our costs and expenses.
We and our suppliers may experience a disruption in our and
their business as a result of natural disasters. A significant natural or man-made disaster, such as an earthquake, power outages,
hurricane, flood or fire, drought and other extreme weather events and changing weather patterns, which are increasing in frequency
due to the impacts of climate change, could severely damage or destroy our headquarters or facilities or the facilities of our
manufacturers or suppliers, which could have a material and adverse effect on our business, financial condition and results of
operations. In addition, terrorist acts or acts of war targeted at the U.S., and specifically the greater New York, New York region,
could cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse
effect on our business, financial condition and results of operations.
We may engage in strategic transactions that could impact
our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions, such
as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Additional
potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships,
joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring
or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges or disrupt our management
or business, which could adversely affect our business, financial condition and results of operations. For example, these transactions
may entail numerous operational and financial risks, including:
- exposure to unknown liabilities;
- disruption of our business and diversion of our management's time and attention in order to develop
acquired products, product candidates or technologies;
- incurrence of substantial debt or dilutive issuances of equity securities to pay for any of these
transactions;
- higher-than-expected transaction and integration costs;
- write-downs of assets or goodwill or impairment charges;
- increased amortization expenses;
- difficulty and cost in combining the operations and personnel of any acquired businesses or product
lines with our operations and personnel;
- impairment of relationships with key suppliers or customers of any acquired businesses or product
lines due to changes in management and ownership; and
- inability to retain key employees of any acquired businesses.
Accordingly, although there can be no assurance that we will
undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject
to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results of operations.
Compliance with global privacy and data security requirements
could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to
comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business,
financial condition or results of operations.
The regulatory framework for the collection, use, safeguarding,
sharing, transfer and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable
future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which
we must comply. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in
the European Union, including personal health data, is subject to the EU General Data Protection Regulation (the “GDPR”),
which took effect across all member states of the European Economic Area (the “EEA”) in May 2018. The GDPR is wide-ranging
in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health
and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals
regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing
notification of data breaches, and taking certain measures when engaging third-party processors. In addition, the GDPR also imposes strict
rules on the transfer of personal data to countries outside the European Union, including the United States and, as a result, increases
the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that
are considered to lack an adequate level of data protection, such as the United States. The GDPR also permits data protection authorities
to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR,
which can be up to 4% of global revenues or €20 million, whichever is greater, and it also confers a private right of action on data
subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for
damages resulting from violations of the GDPR. In addition, the GDPR provides that EU member states may make their own further laws and
regulations limiting the processing of personal data, including genetic, biometric or health data.
Similar actions are either in place or under way in the United
States. There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies
at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection
laws. The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for
consumers. New laws also are being considered at both the state and federal levels. For example, the California Consumer Privacy Act,
which went into effect on January 1, 2020, is creating similar risks and obligations as those created by the GDPR, though the California
Consumer Privacy Act does exempt certain clinical trial data. Many other states are considering similar legislation. A broad range of
legislative measures also have been introduced at the federal level. Accordingly, failure to comply with federal and state laws (both
those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and
penalties under such laws. There also is the threat of consumer class actions related to these laws and the overall protection of personal
data.
Given the breadth and depth of changes in data protection obligations,
preparing for and complying with these requirements is rigorous and time intensive and requires significant resources and a review of
our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants
that process or transfer personal data collected in the European Union. The GDPR and other changes in laws or regulations associated with
the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials,
could require us to change our business practices and put in place additional compliance mechanisms, may interrupt or delay our development,
regulatory and commercialization activities and increase our cost of doing business, and could lead to government enforcement actions,
private litigation and significant fines and penalties against us and could have a material adverse effect on our business, financial
condition or results of operations. Similarly, failure to comply with federal and state laws regarding privacy and security of personal
information could expose us to fines and penalties under such laws. Even if we are not determined to have violated these laws, government
investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could
harm our reputation and our business.
We are subject to certain U.S. and foreign anti-corruption,
anti-money laundering, export control, sanctions, and other trade laws and regulations. If we fail to comply with these laws, we could
be subject to civil or criminal liabilities, other remedial measures and legal expenses, be precluded from developing, manufacturing and
selling certain products outside the United States or be required to develop and implement costly compliance programs, which could adversely
affect our business, results of operations and financial condition.
Our operations are subject to anti-corruption laws, including
the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act 2010 (the “Bribery Act”) and other anti-corruption
laws that apply in countries where we do business and may do business in the future. The FCPA, the Bribery Act and these other laws generally
prohibit us, our officers, and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government
officials or other persons to obtain or retain business or gain some other business advantage. Compliance with the FCPA, in particular,
is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular
challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other
hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have
been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
We may in the future operate in jurisdictions that pose a high
risk of potential FCPA or Bribery Act violations, and we may participate in collaborations and relationships with third parties whose
actions could potentially subject us to liability under the FCPA, the Bribery Act or local anti-corruption laws. In addition, we cannot
predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner
in which existing laws might be administered or interpreted. If we expand our operations outside of the United States, we will need to
dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate.
We are also subject to other laws and regulations governing our
international operations, including regulations administered by the governments of the United States, the United Kingdom and authorities
in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements
and currency exchange regulations (collectively referred to as “Trade Control Laws”). In addition, various laws, regulations
and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals,
of information classified for national security purposes, as well as certain products and technical data relating to those products. If
we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and
these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States,
which could limit our growth potential and increase our development costs.
There is no assurance that we will be completely effective in
ensuring our compliance with all applicable anti-corruption laws, including the FCPA, the Bribery Act or other legal requirements, including
Trade Control Laws. If we are not in compliance with the FCPA, the Bribery Act and other anti-corruption laws or Trade Control Laws, we
may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could
have an adverse impact on our business, financial condition, results of operations and liquidity. The Securities and Exchange Commission
also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Any
investigation of any potential violations of the FCPA, the Bribery Act, other anti-corruption laws or Trade Control Laws by U.S., United
Kingdom or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.
Governments outside the United States tend to impose strict
price controls, which may adversely affect our revenue, if any.
In some countries, particularly member states of the European
Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure
by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic
and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has
been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced
and high-priced member states, can further reduce prices. In some countries, we, or our future collaborators, may be required to conduct
a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available therapies in order
to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further
pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of any product
candidate approved for marketing is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business
could be materially harmed.
*Investors’ expectations of our performance relating
to environmental, social and governance factors may impose additional costs and expose us to new risks.
There is an increasing focus from certain investors, employees,
regulators and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance, or
ESG, factors. Some investors and investor advocacy groups may use these factors to guide investment strategies and, in some cases, investors
may choose not to invest in our company if they believe our policies relating to corporate responsibility are inadequate. Third-party
providers of corporate responsibility ratings and reports on companies have increased to meet growing investor demand for measurement
of corporate responsibility performance, and a variety of organizations currently measure the performance of companies on such ESG topics,
and the results of these assessments are widely publicized. Investors, particularly institutional investors, use these ratings to benchmark
companies against their peers and if we are perceived as lagging with respect to ESG initiatives, certain investors may engage with us
to improve ESG disclosures or performance and may also make voting decisions, or take other actions, to hold us and our board of directors
accountable. In addition, the criteria by which our corporate responsibility practices are assessed may change, which could result in
greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. If we elect not to or are unable
to satisfy such new criteria, investors may conclude that our policies with respect to corporate responsibility are inadequate.
We may face reputational damage in the event our corporate responsibility
initiatives or objectives do not meet the standards set by our investors, stockholders, lawmakers, listing exchanges or other constituencies,
or if we are unable to achieve an acceptable ESG or sustainability rating from third-party rating services. A low ESG or sustainability
rating by a third-party rating service could also result in the exclusion of our common stock from consideration by certain investors
who may elect to invest with our competition instead. Ongoing focus on corporate responsibility matters by investors and other parties
as described above may impose additional costs or expose us to new risks. Any failure or perceived failure by us in this regard could
have a material adverse effect on our reputation and on our business, share price, financial condition, or results of operations, including
the sustainability of our business over time.
In addition, the SEC has announced proposed rules that, among
other matters, will establish a framework for reporting of climate-related risks. To the extent the proposed rules impose additional reporting
obligations, we could face increased costs. Separately, the SEC has also announced that it is scrutinizing existing climate-change related
disclosures in public filings, increasing the potential for enforcement if the SEC were to allege our existing climate disclosures are
misleading or deficient.
Risks Related to Our Intellectual Property
We may not be successful in obtaining or maintaining necessary
rights to our product candidates through acquisitions and in-licenses.
Because several of our programs require the use of proprietary
rights held by third parties, the growth of our business will likely depend in part on our ability to maintain and exploit these proprietary
rights. In addition, we may need to acquire or in-license additional intellectual property in the future. We may be unable to acquire
or in-license any compositions, methods of use, processes or other intellectual property rights from third parties that we identify as
necessary for our product candidates. We face competition with regard to acquiring and in-licensing third-party intellectual property
rights, including from a number of more established companies. These established companies may have a competitive advantage over us due
to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive
us to be a competitor may be unwilling to assign or license intellectual property rights to us. We also may be unable to acquire or in-license
third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
We may enter into collaboration agreements with U.S. and foreign
academic institutions to accelerate development of our current or future preclinical product candidates. Typically, these agreements include
an option for the company to negotiate a license to the institution's intellectual property rights resulting from the collaboration. Even
with such an option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us.
If we are unable to license rights from a collaborating institution, the institution may offer the intellectual property rights to other
parties, potentially blocking our ability to pursue our desired program.
If we are unable to successfully obtain required third-party
intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of the related
program and our business, financial condition and results of operations could be materially and adversely affected.
If we fail to comply with our obligations in the agreements
under which we in-license intellectual property and other rights from third parties or otherwise experience disruptions to our business
relationships with our licensors, we could lose intellectual property rights that are important to our business.
Our license agreement with Ligand Pharmaceuticals
Incorporated, Neurogen Corporation and CyDex Pharmaceuticals, Inc. (the "Ligand License Agreement"), our license agreement
with the Regents of the University of California (the "UC Regents License Agreement"), our license agreement with Duke
University (the "Duke License Agreement) and our license agreement with iX Biopharma Ltd. (the “iX License
Agreement”, together with the Ligand License Agreement, the UC Regents License Agreement and the Duke License Agreement, the
“License Agreements”) are important to our business and we expect to enter into additional license agreements in the
future. The License Agreements impose, and we expect that future license agreements will impose, various milestone payments,
royalties and other obligations on us. If we fail to comply with our obligations under these agreements, or if we file for
bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor
may have the right to terminate the license, in which event we would not be able to develop or market products covered by the
license. Additionally, the milestone and other payments associated with these licenses could materially and adversely affect our
business, financial condition and results of operations.
Pursuant to the terms of the Ligand License Agreement, the licensors
each have the right to terminate the Ligand License Agreement with respect to the programs licensed by such licensor under certain circumstances,
including, but not limited to: (i) if we do not pay an amount that is not disputed in good faith, (ii) if we willfully breach the Ligand
License Agreement in a manner for which legal remedies would not be expected to make such licensor whole, or (iii) if we file or have
filed against us a petition in bankruptcy or make an assignment for the benefit of creditors. In the event the Ligand License Agreement
is terminated by a licensor, all licenses granted to us by such licensor will terminate immediately. Further, pursuant to the terms of
the UC Regents License Agreement, the licensor has the right to terminate the UC Regents License Agreement or reduce our license to a
nonexclusive license if we fail to achieve certain milestones within a specified timeframe. Similarly, pursuant to the terms of the Duke
License Agreement and the iX License Agreement, each licensor has the right to terminate the Duke License Agreement or the iX License
Agreement, as applicable, if we fail to achieve certain milestones within a specified timeframe.
In some cases, patent prosecution of our licensed technology
may be controlled solely by the licensor. If our licensor fails to obtain and maintain patent or other protection for the proprietary
intellectual property we in-license, then we could lose our rights to the intellectual property or our exclusivity with respect to those
rights, and our competitors could market competing products using the intellectual property. In certain cases, we may control the prosecution
of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur
significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves
complex legal, business and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including,
but not limited to:
- the scope of rights granted under the license agreement and other interpretation-related issues;
- the extent to which our technology and processes infringe on intellectual property of the licensor
that is not subject to the licensing agreement;
- the sublicensing of patent and other rights;
- our diligence obligations under the license agreement and what activities satisfy those diligence
obligations;
- the ownership of inventions and know-how resulting from the joint creation or use of intellectual
property by us, our licensors and our collaborators; and
- the priority of invention of patented technology.
If disputes over intellectual property and other rights that
we have in-licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable
to successfully develop and commercialize the affected product candidates. If we fail to comply with any such obligations to our licensor,
such licensor may terminate its licenses to us, in which case we would not be able to market products covered by these licenses. The loss
of our licenses would have a material adverse effect on our business.
*We are required to make certain cash payments and may be
required to pay milestones and royalties pursuant to certain commercial agreements, which could adversely affect the overall profitability
for us of any products that we may seek to commercialize.
Under the terms of the Ligand License Agreement, we may be obligated
to pay the licensor under the Ligand License Agreement up to an aggregate of approximately $126.7 million in development, regulatory and
sales milestones. Similarly, under the terms of the iX License Agreement, we may be obligated to pay the licensor under the iX License
Agreement up to an aggregate of approximately $239 million in development, regulatory and sales milestones. We will also be required to
pay royalties on future worldwide net product sales. We will also be required to pay up to an aggregate of approximately $17 million in
development and regulatory milestones and royalties on any net sales of SLS-005 pursuant to our asset purchase agreement with Bioblast
Pharma Ltd. These cash, milestone and royalty payments could adversely affect the overall profitability for us of any products that we
may seek to commercialize.
We may not be able to protect our proprietary or licensed
technology in the marketplace.
We depend on our ability to protect our proprietary or licensed
technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees
and third parties, all of which offer only limited protection. Our success depends in large part on our ability and any licensor's or
licensee's ability to obtain and maintain patent protection in the U.S. and other countries with respect to our proprietary or licensed
technology and products. We currently in-license some of our intellectual property rights to develop our product candidates and may in-license
additional intellectual property rights in the future. We cannot be certain that patent enforcement activities by our current or future
licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents
or other intellectual property rights. We also cannot be certain that our current or future licensors will allocate sufficient resources
or prioritize their or our enforcement of such patents. Even if we are not a party to these legal actions, an adverse outcome could prevent
us from continuing to license intellectual property that we may need to operate our business, which would have a material adverse effect
on our business, financial condition and results of operations.
Although we believe we will be able to obtain, through prosecution
of patent applications covering our owned technology and technology licensed from others, adequate patent protection for our proprietary
drug technology, including those related to our in-licensed intellectual property, if we are compelled to spend significant time and money
protecting or enforcing our licensed patents and future patents we may own, designing around patents held by others or licensing or acquiring,
potentially for large fees, patents or other proprietary rights held by others, our business, financial condition and results of operations
may be materially and adversely affected. If we are unable to effectively protect the intellectual property that we own or in-license,
other companies may be able to offer the same or similar products for sale, which could materially adversely affect our business, financial
condition and results of operations. The patents of others from whom we may license technology, and any future patents we may own, may
be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing the same or similar
products or limit the length of term of patent protection that we may have for our products.
Obtaining and maintaining patent protection depends on
compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies,
and our patent protection for licensed patents, pending patent applications and potential future patent applications and patents could
be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various
other governmental fees on patents and/or patent applications will be due to be paid to the U.S. Patent and Trademark Office ("USPTO")
and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable patent and/or patent
application. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment
of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result
in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
If this occurs with respect to our in-licensed patents or patent applications we may file in the future, our competitors might be able
to use our technologies, which would have a material adverse effect on our business, financial condition and results of operations.
The patent positions of pharmaceutical products are often complex
and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S. and many jurisdictions outside of the U.S. is not consistent.
For example, in many jurisdictions, the support standards for pharmaceutical patents are becoming increasingly strict. Some countries
prohibit method of treatment claims in patents. Changes in either the patent laws or interpretations of patent laws in the U.S. and other
countries may diminish the value of our licensed or owned intellectual property or create uncertainty. In addition, publication of information
related to our current product candidates and potential products may prevent us from obtaining or enforcing patents relating to these
product candidates and potential products, including without limitation composition-of-matter patents, which are generally believed to
offer the strongest patent protection.
Patents that we currently license and patents that we may own
or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a number of reasons,
including, without limitation, the following:
- the patents may not be broad or strong enough to prevent competition from other products that are
identical or similar to our product candidates;
- there can be no assurance that the term of a patent can be extended under the provisions of patent
term extensions afforded by U.S. law or similar provisions in foreign countries, where available;
- the issued patents and patents that we may obtain or license in the future may not prevent generic
entry into the market for our product candidates;
- we, or third parties from whom we in-license or may license patents, may be required to disclaim
part of the term of one or more patents;
- there may be prior art of which we are not aware that may affect the validity or enforceability
of a patent claim;
- there may be prior art of which we are aware, which we do not believe affects the validity or enforceability
of a patent claim, but which, nonetheless, ultimately may be found to affect the validity or enforceability of a patent claim;
- there may be other patents issued to others that will affect our freedom to operate;
- if the patents are challenged, a court could determine that they are invalid or unenforceable;
- there might be a significant change in the law that governs patentability, validity and infringement
of our licensed patents or any future patents we may own that adversely affects the scope of our patent rights;
- a court could determine that a competitor's technology or product does not infringe our licensed
patents or any future patents we may own; and
- the patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations
or could be subject to compulsory licensing.
If we encounter delays in our development or clinical trials,
the period of time during which we could market our potential products under patent protection would be reduced.
Our competitors may be able to circumvent our licensed patents
or future patents we may own by developing similar or alternative technologies or products in a non-infringing manner. Our competitors
may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA in which our competitors
claim that our licensed patents or any future patents we may own are invalid, unenforceable or not infringed. Alternatively, our competitors
may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need
to defend or assert our licensed patents or any future patents we may own, including by filing lawsuits alleging patent infringement.
In any of these types of proceedings, a court or other agency with jurisdiction may find our licensed patents or any future patents we
may own invalid or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late
to obtain patent protection. Even if we own or in-license valid and enforceable patents, these patents still may not provide protection
against competing products or processes sufficient to achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship,
scope, ownership, priority, validity or enforceability. In this regard, third parties may challenge our licensed patents or any future
patents we may own in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom
to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to
stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection
of our technology and potential products. In addition, given the amount of time required for the development, testing and regulatory review
of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are
commercialized.
We may infringe the intellectual property rights of others,
which may prevent or delay our drug development efforts and prevent us from commercializing or increase the costs of commercializing
our products.
Our commercial success depends significantly on our ability to
operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents
of which we are not aware that our current or potential future product candidates infringe. There also could be patents that we believe
we do not infringe, but that we may ultimately be found to infringe.
Moreover, patent applications are in some cases maintained in
secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially
later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years
to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our product
candidates or potential products infringe. For example, pending applications may exist that claim or can be amended to claim subject matter
that our product candidates or potential products infringe. Competitors may file continuing patent applications claiming priority to already
issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent
family and attempt to cover our product candidates.
Third parties may assert that we are employing their proprietary
technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly and
could adversely affect our business, financial condition and results of operations and divert the attention of managerial and scientific
personnel. If we are sued for patent infringement, we would need to demonstrate that our product candidates, potential products or methods
either do not infringe the claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving
invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome
the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs
and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have
a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
If a court holds that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these
patents may be able to block our ability to commercialize our products unless we acquire or obtain a license under the applicable patents
or until the patents expire.
We may not be able to enter into licensing arrangements or make
other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result
in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able
to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could
be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding
or litigation, we could be found liable for monetary damages, including treble damages and attorneys' fees, if we are found to have willfully
infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of
our business operations, which could materially and adversely affect our business, financial condition and results of operations. Any
claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material and
adverse effect on our business, financial condition and results of operations. In addition, any uncertainties resulting from the initiation
and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Any claims or lawsuits relating to infringement of intellectual
property rights brought by or against us will be costly and time consuming and may adversely affect our business, financial condition
and results of operations.
We may be required to initiate litigation to enforce or defend
our licensed and owned intellectual property. Lawsuits to protect our intellectual property rights can be very time consuming and costly.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biopharmaceutical industry
generally. Such litigation or proceedings could substantially increase our operating expenses and reduce the resources available for development
activities or any future sales, marketing or distribution activities.
In any infringement litigation, any award of monetary damages
we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover,
there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which
typically last for years before they are resolved. Further, any claims we assert against a perceived infringer could provoke these parties
to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to sustain the costs
of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from
the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete
in the marketplace.
In addition, our licensed patents and patent applications, and
patents and patent applications that we may apply for, own or license in the future, could face other challenges, such as interference
proceedings, opposition proceedings, re-examination proceedings and other forms of post-grant review. Any of these challenges, if successful,
could result in the invalidation of, or in a narrowing of the scope of, any of our licensed patents and patent applications and patents
and patent applications that we may apply for, own or license in the future subject to challenge. Any of these challenges, regardless
of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel's
time and attention.
Changes in U.S. patent law could diminish the value of
patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success
is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry
involves both technological and legal complexity and is costly, time-consuming and inherently uncertain. For example, the U.S. previously
enacted and is currently implementing wide-ranging patent reform legislation. Specifically, on September 16, 2011, the Leahy-Smith America
Invents Act (the "Leahy-Smith Act") was signed into law and included a number of significant changes to U.S. patent law, and
many of the provisions became effective in March 2013. However, it may take the courts years to interpret the provisions of the Leahy-Smith
Act, and the implementation of the statute could increase the uncertainties and costs surrounding the prosecution of our licensed and
future patent applications and the enforcement or defense of our licensed and future patents, all of which could have a material adverse
effect on our business, financial condition and results of operations.
In addition, the U.S. Supreme Court has ruled on several patent
cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent
owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination
of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. 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 patents that we might obtain in the future.
We may not be able to protect our intellectual property
rights throughout the world.
Filing, prosecuting and defending patents on product candidates
throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions where
we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products
to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that in the U.S. These
products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims
or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
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 licensed patents and future patents we may own, or marketing of competing
products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights
to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and
defending our licensed and owned intellectual property both in the U.S. and abroad. For example, China currently affords less protection
to a company's intellectual property than some other jurisdictions. As such, the lack of strong patent and other intellectual property
protection in China may significantly increase our vulnerability regarding unauthorized disclosure or use of our intellectual property
and undermine our competitive position. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result
in substantial cost and divert our efforts and attention from other aspects of our business.
We may be unable to adequately prevent disclosure of trade
secrets and other proprietary information.
In order to protect our proprietary and licensed technology and
processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific
collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential
information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others
may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could
adversely affect our competitive business position.
If our trademarks and trade names are not adequately protected,
then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We intend to use registered or unregistered trademarks or trade
names to brand and market ourselves and our products. Our trademarks or trade names may be challenged, infringed, circumvented or declared
generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which
we need to build name recognition among potential partners or customers in our markets of interest, and it may be difficult and costly
to register, maintain and/or protect our rights to these trademarks and trade names in jurisdictions in and outside of the United States.
At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly
leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other
registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the
long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete
effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks,
trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion
of resources and could adversely affect our financial condition or results of operations.
We may be subject to claims that our employees, consultants
or independent contractors have wrongfully used or disclosed confidential information of third parties.
We expect to employ individuals who were previously employed
at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that we
or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of
our employees' former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee
of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction
to our management and other employees. To date, none of our employees have been subject to such claims.
We may be subject to claims challenging the inventorship
of our licensed patents, any future patents we may own and other intellectual property.
Although we are not currently experiencing any claims challenging
the inventorship of our licensed patents or our licensed or owned intellectual property, we may in the future be subject to claims that
former employees, collaborators or other third parties have an interest in our licensed patents or other licensed or owned intellectual
property as an inventor or co-inventor. For example, we may have inventorship disputes arising from conflicting obligations of consultants
or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims
challenging inventorship. If we fail in defending any such 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, financial condition and results of operations. 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.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation extending the terms of our licensed patents and any future patents we may own, our business,
financial condition and results of operations may be materially and adversely affected.
Depending upon the timing, duration and specifics of FDA regulatory
approval for our product candidates, one or more of our licensed U.S. patents or future U.S. patents that we may license or own 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 a patent restoration term of up to five years as compensation for patent
term lost during drug development and the FDA regulatory review process. This period is generally one-half the time between the effective
date of an investigational new drug application ("IND") (falling after issuance of the patent), and the submission date of an
NDA, plus the time between the submission date of an NDA and the approval of that application. Patent term restorations, however, cannot
extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.
The application for patent term extension is subject to approval
by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension.
We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration
of relevant patents or otherwise failing 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 extension or restoration or the term of any
such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened
and our competitors may obtain earlier approval of competing products, and our ability to generate revenues could be materially adversely
affected.
Risks Related to Owning Our Common Stock
*The market price of our common stock has been and will
likely continue to be volatile.
The trading price of our common stock has been and is likely
to continue to be volatile. For example, from January 3, 2022 to March 31, 2022, our closing stock price ranged from $0.84 to $1.71 per
share. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
- results from, and any delays in, planned clinical trials for our product candidates, or any other
future product candidates, and the results of trials of competitors or those of other companies in our market sector;
- any delay in filing an NDA for any of our product candidates and any adverse development or perceived
adverse development with respect to the FDA's review of that NDA;
- significant lawsuits, including patent or stockholder litigation;
- inability to obtain additional funding;
- failure to successfully develop and commercialize our product candidates;
- changes in laws or regulations applicable to our product candidates;
- inability to obtain adequate product supply for our product candidates, or the inability to do
so at acceptable prices;
- unanticipated serious safety concerns related to any of our product candidates;
- adverse regulatory decisions;
- introduction of new products or technologies by our competitors;
- failure to meet or exceed drug development or financial projections we provide to the public;
- failure to meet or exceed the estimates and projections of the investment community;
- the perception of the biopharmaceutical industry by the public, legislatures, regulators and the
investment community;
- announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments
by us or our competitors;
- disputes or other developments relating to proprietary rights, including patents, litigation matters
and our ability to obtain patent protection for our licensed and owned technologies;
- additions or departures of key scientific or management personnel;
- changes in the market valuations of similar companies;
- general economic and market conditions and overall fluctuations in the U.S. equity market;
- public health crises, pandemics and epidemics, such as the COVID-19 pandemic;
- sales of our common stock by us or our stockholders in the future; and
- the trading volume of our common stock.
In addition, the stock market in general, and small biopharmaceutical
companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock,
regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may
cause our stock price to decline rapidly and unexpectedly.
*If we fail to comply with the continued listing requirements
of the Nasdaq Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital
markets could be negatively impacted.
We must continue to satisfy the Nasdaq Capital Market's continued
listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share for 30 consecutive business
days. If a company fails for 30 consecutive business days to meet the $1.00 minimum closing bid price requirement, The Nasdaq Stock Market
LLC ("Nasdaq") will send a deficiency notice to the company, advising that it has been afforded a "compliance period"
of 180 calendar days to regain compliance with the applicable requirements.
A delisting of our common stock from the Nasdaq Capital Market
could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common
stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us,
or at all, and may result in the potential loss of confidence by investors and employees.
On April 22, 2022, we received written notice from Nasdaq indicating
that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement
for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A),
we were provided an initial period of 180 calendar days, or until October 19, 2022, to regain compliance. The written notice states that
the Nasdaq Staff will provide written notification that we have achieved compliance with Rule 5550(a)(2) if at any time before October
19, 2022, the bid price of our common stock closes at $1.00 per share or more for a minimum of ten consecutive business days. There is
no guarantee that we will regain compliance by October 19, 2022.
In addition, we have previously received similar notices from
Nasdaq that our bid price of our common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq
Capital Market under Nasdaq Listing Rule 5550(a)(2). Even though we regained compliance with the Nasdaq Capital Market's minimum market
value of listed securities requirement and minimum closing bid price requirement, there is no guarantee that we will remain in compliance
with such listing requirements or other listing requirements in the future. Any failure to maintain compliance with continued listing
requirements of the Nasdaq Capital Market could result in delisting of our common stock from the Nasdaq Capital Market and negatively
impact our company and holders of our common stock, including by reducing the willingness of investors to hold our common stock because
of the resulting decreased price, liquidity and trading of our common stock, limited availability of price quotations and reduced news
and analyst coverage. Delisting may adversely impact the perception of our financial condition, cause reputational harm with investors,
our employees and parties conducting business with us and limit our access to debt and equity financing.
We will incur significant costs as a result of operating
as a public company and our management will be required to devote substantial time to new compliance initiatives.
The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the "Dodd-Frank Act") as well as rules subsequently implemented by the SEC and Nasdaq have
imposed various requirements on public companies. There are significant corporate governance and executive compensation related provisions
in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current
political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations
and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannot currently anticipate) the manner
in which we operate our business. Our management and other personnel will need to devote a substantial amount of time to these compliance
initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities
more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us
to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of
such insurance coverage.
As a publicly traded company, we will incur legal, accounting
and other expenses associated with the SEC reporting requirements applicable to a company whose securities are registered under the Exchange
Act, as well as corporate governance requirements, including those under the Sarbanes-Oxley Act, the Dodd-Frank Act and other rules implemented
by the SEC and Nasdaq. The expenses incurred by public companies generally to meet SEC reporting, finance and accounting and corporate
governance requirements have been increasing in recent years as a result of changes in rules and regulations and the adoption of new rules
and regulations applicable to public companies.
*Sales of a substantial number of shares of our common
stock in the public market by our existing stockholders, future issuances of our common stock or rights to purchase our common stock,
could cause our stock price to fall.
Sales of a substantial number of shares of our common stock by
our existing stockholders in the public market, or the perception that these sales might occur, could depress the market price of our
common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict
the effect that such sales may have on the prevailing market price of our common stock. As of March 31, 2022, we have outstanding warrants
to purchase an aggregate of approximately 2.6 million shares of our common stock, which, if exercised, would further increase the number
of shares of our common stock outstanding and the number of shares eligible for resale in the public market. As
of March 31, 2022, 18,900,558 shares of our common stock were reserved for issuance under
our equity incentive plans, of which 10,299,170 shares of our common stock were subject to options outstanding at such date at a weighted-average
exercise price of $2.27 per share, 5,518,648 shares of our common stock were reserved for future issuance pursuant to our Amended
and Restated 2012 Stock Long Term Incentive Plan, 646,465 shares of our common stock were reserved for future issuance pursuant to our
2019 Inducement Plan and 2,436,275 shares of our common stock were reserved for issuance pursuant to our 2020 Employee Stock Purchase
Plan. To the extent outstanding options are exercised, our existing stockholders may incur dilution. Furthermore, at any time following
nine-months from the date of issuance of the Convertible Promissory Notes, from time to time and before the maturity date of such Convertible
Promissory Note, each holder thereof will have the option to convert any portion of the then-outstanding principal amount of such holder’s
Convertible Promissory Note into shares of our common stock at a price per share of $6.00, subject to adjustment for stock splits, reverse
stock splits, stock dividends and similar transactions. We may also elect to make amortization payments on the Convertible Promissory
Notes in shares of our common stock. Any issuances of shares of
our common stock pursuant to the Convertible Promissory Notes will result
in dilution to our then-existing stockholders and increase the number of shares eligible for resale in the public market. Sales of substantial
numbers of such shares in the public market could depress the market price of our common stock. In addition, pursuant to the asset purchase
agreement, as amended, with Phoenixus AG f/k/a Vyera Pharmaceuticals AG and Turing Pharmaceuticals AG (“Vyera”), we will (i)
issue to Vyera on or before July 11, 2022 500,000 shares of common stock; and (ii) issue to Vyera on or before January 11, 2023 an additional
number of shares of common stock equal to $1.0 million divided by the volume weighted average closing price of our common stock for the
ten consecutive trading days ending on the fifth trading day prior to the applicable date of issuance of the shares of common stock. Such
issuances of shares of our common stock to Vyera will result in dilution to our then-existing stockholders.
The Financing Warrants contain price-based adjustment provisions
which, if triggered, may cause substantial additional dilution to our stockholders.
On October 16, 2018, we entered into a Securities Purchase Agreement
with the investors listed on the Schedule of Buyers attached thereto, as amended, pursuant to which, among other things, we issued warrants
to purchase shares of our common stock (the "Financing Warrants").
The outstanding Financing Warrants contain price-based adjustment
provisions, pursuant to which the exercise price of the Financing Warrants may be adjusted downward in the event of certain dilutive issuances
by us.
If the Financing Warrants are exercised, additional shares of
our common stock will be issued, which will result in dilution to our then-existing stockholders and increase the number of shares eligible
for resale in the public market. As of March 31, 2022, the Financing Warrants were exercisable for approximately 0.3 million shares of
our common stock at an exercise price of $0.2957 per share of common stock. Sales of substantial numbers of such shares in the public
market could depress the market price of our common stock.
Anti-takeover provisions in our governing documents and
under Nevada law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove
our management.
Provisions in our articles of incorporation and bylaws may delay
or prevent an acquisition or a change in management. These provisions include a classified board of directors and the ability of the board
of directors to issue preferred stock without stockholder approval. Although we believe these provisions collectively will provide for
an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even
if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by
our stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board
of directors, which is responsible for appointing the members of management.
Certain provisions of Nevada corporate law deter hostile takeovers.
Specifically, Nevada Revised Statutes ("NRS") 78.411 through 78.444 prohibit a publicly held Nevada corporation from engaging
in a "combination" with an "interested stockholder" for a period of two years following the date the person first
became an interested stockholder, unless (with certain exceptions) the "combination" or the transaction by which the person
became an interested stockholder is approved in a prescribed manner. Generally, a "combination" includes a merger, asset or
stock sale, or certain other transactions resulting in a financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, beneficially owns or within two years prior to becoming an
"interested stockholder" did own, 10% or more of a corporation's voting power. While these statutes permit a corporation to
opt out of these protective provisions in its articles of incorporation, our articles of incorporation do not include any such opt-out
provision.
Nevada's "acquisition of controlling interest" statutes,
NRS 78.378 through 78.3793, contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These
"control share" laws provide generally that any person that acquires a "controlling interest" in certain Nevada corporations
may be denied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights.
These statutes provide that a person acquires a "controlling interest" whenever a person acquires shares of a subject corporation
that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less than
one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in
the election of directors. Once an acquirer crosses one of these thresholds, shares that it acquired in the transaction taking it over
the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling
interest become "control shares" to which the voting restrictions described above apply. While these statutes permit a corporation
to opt out of these protective provisions in its articles of incorporation or bylaws, our articles of incorporation and bylaws do not
include any such opt-out provision.
Further, NRS 78.139 also provides that directors may resist a
change or potential change in control of the corporation if the board of directors determines that the change or potential change is opposed
to or not in the best interest of the corporation upon consideration of any relevant facts, circumstances, contingencies or constituencies
pursuant to NRS 78.138(4).
Our net operating loss carryforwards and certain other
tax attributes may be subject to limitations. The net operating loss carryforwards and certain other tax attributes of us may
also be subject to limitations as a result of certain prior ownership changes.
In general, a corporation that undergoes an "ownership change"
as defined in Section 382 of the United States Internal Revenue Code of 1986, as amended, is subject to limitations on its ability to
utilize its pre-change net operating loss carryforwards to offset future taxable income. In general, an ownership change occurs if the
aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more of a corporation's
common stock, applying certain look-through and aggregation rules, increases by more than 50 percentage points over such stockholders'
lowest percentage ownership during the testing period, generally three years. We may have experienced ownership changes in the past and
may experience ownership changes in the future. It is possible that our net operating loss carryforwards and certain other tax attributes
may also be subject to limitation as a result of ownership changes in the past. Consequently, even if we achieve profitability, we may
not be able to utilize a material portion of our net operating loss carryforwards and certain other tax attributes, which could have a
material adverse effect on cash flow and results of operations.
We are a “smaller reporting company” and the
reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are a smaller reporting company, as defined in Rule 12b-2
under the Exchange Act, and we will remain a smaller reporting company until the fiscal year following the determination that our voting
and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter,
or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common
stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Smaller reporting
companies are permitted to rely on exemptions from certain disclosure requirements that are applicable to other public companies, including
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting,
reduced disclosure obligations regarding executive compensation and not being required to provide disclosures regarding quantitative and
qualitative disclosures about market risk in our Annual Reports on Form 10-K.
We have elected to take advantage of certain of these exemptions
in the past and may continue to choose to take advantage of some, but not all, of them in the future. We cannot predict whether investors
will find our common stock less attractive if we rely on certain or all of 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, which may result in additional stock price volatility.
We may never pay dividends on our common stock so any returns would
be limited to the appreciation of our stock.
We currently anticipate that we will retain future earnings for
the development, operation and expansion of our business and do not anticipate we will declare or pay any cash dividends for the foreseeable
future. Any return to stockholders will therefore be limited to the appreciation of their stock.
General Risk Factors
An active trading market for our common stock may not be
sustained, and you may not be able to resell your common stock at a desired market price.
If no active trading market for our common stock is sustained,
you may be unable to sell your shares when you wish to sell them or at a price that you consider attractive or satisfactory. The lack
of an active market may also adversely affect our ability to raise capital by selling securities in the future or impair our ability to
acquire or in-license other product candidates, businesses or technologies using our shares as consideration.
Our internal control over financial reporting may not meet
the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act, could have a material adverse effect on our business and share
price.
Our management is required to report on the effectiveness of
our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal
control over financial reporting are complex and require significant documentation, testing and possible remediation.
In connection with the implementation of the necessary procedures
and practices related to internal control over financial reporting, we may identify deficiencies or material weaknesses that we may not
be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404.
In addition, we may encounter problems or delays in completing the implementation of any requested improvements and, when required, receiving
a favorable attestation in connection with the attestation provided by our independent registered public accounting firm. Failure to achieve
and maintain an effective internal control environment could have a material adverse effect on our business, financial condition and results
of operations and could limit our ability to report our financial results accurately and in a timely manner.
If securities or industry analysts do not publish research,
or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on
the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover
us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition,
if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts
cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock
price and trading volume to decline.
*The impact of the Russian invasion of Ukraine on the global
economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.
The short and long-term implications of Russia’s invasion
of Ukraine are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the
subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global
economy in general, on our business and operations and on the businesses and operations of our suppliers and other third parties with
which we conduct business. For example, a prolonged conflict may result in increased inflation, escalating energy prices and constrained
availability, and thus increasing costs, of raw materials. We will continue to monitor this fluid situation and develop contingency plans
as necessary to address any disruptions to our business operations as they develop. To the extent the war in Ukraine may adversely affect
our business as discussed above, it may also have the effect of heightening many of the other risks described herein. Such risks include,
but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our technology infrastructure,
including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; disruptions
in global supply chains; and constraints, volatility, or disruption in the capital markets, any of which could negatively affect our business
and financial condition.