Item 1A. Risk Factors
Investing
in our common stock is subject to a number of risks and uncertainties. You should carefully consider the risk factors described
under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31,
2019, in other reports we file with the SEC, and below.
Risks
Related to Our Business
Because
we have a limited operating history to evaluate our Company, the likelihood of our success must be considered in light of the
problems, expenses, difficulties, complications and delays frequently encountered by an early-stage company.
Since
we have a limited operating history in our current business of technology and biotechnology development, it will make it difficult
for investors and securities analysts to evaluate our business and prospects. You must consider our prospects in light
of the risks, expenses and difficulties we face as an early stage company with a limited operating history. Investors
should evaluate an investment in our securities in light of the uncertainties encountered by early stage companies in an intensely
competitive industry. There can be no assurance that our efforts will be successful or that we will be able to become
profitable.
Our
cancer treatment business is pre-revenue, pre-development and subject to the risks of an early stage biotechnology company.
Since
the Company’s primary focus for the foreseeable future will likely be our cancer treatment business, shareholders should
understand that we are primarily an early stage biotechnology company with no history of revenue-generating operations, and our
only assets consist of our proprietary drug and the know-how of our officers. Therefore we are subject to all the risks and uncertainties
inherent in a new business, in particular new businesses engaged in the early detection of certain cancers. DHA-dFdC is
in its early stages of development, and we still must establish and implement many important functions necessary to commercialize
the biotechnology.
Accordingly,
you should consider the Company’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered
by companies in their pre-revenue and pre-development generating stages, particularly those in the biotechnology field. Shareholders
should carefully consider the risks and uncertainties that a business with no operating history will face. In particular, shareholders
should consider that there is a significant risk that we will not be able to:
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demonstrate
the effectiveness of DHA-dFdC;
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implement
or execute our current business plan, or that our current business plan is sound;
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raise
sufficient funds in the capital markets or otherwise to fully effectuate our business
plan;
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maintain
our management team;
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conduct
the required clinical studies;
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determine
that the processes and technologies that we have developed or will develop are commercially
viable; and/or
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attract,
enter into or maintain contracts with potential commercial partners such as licensors
of technology and suppliers.
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Any
of the foregoing risks may adversely affect the Company and result in the failure of our business. In addition, we expect
to encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. At some point, we will
need to transition from a company with a research and development focus to a company capable of supporting commercial activities.
We may not be able to reach such achievements, which would have a material adverse effect on our Company.
We
continue to incur operating losses and may not achieve profitability.
Our
loss from operations for the three months ended March 31, 2020 and 2019 was $2.4 million and $0.7 million, respectively. Our net
loss for the three months ended March 31, 2020 and 2019 was $8.3 million and $1.1 million, respectively. Our accumulated deficit
was $152.6 million at March 31, 2020. Our ability to become profitable depends upon our ability to generate revenue from biotechnology
products. We do not know when, or if, we will generate any revenue from such biotechnology products. Even though our revenue may
increase, we expect to incur significant additional losses while we grow and expand our business. We cannot predict if and when
we will achieve profitability. Our failure to achieve and sustain profitability could negatively impact the market price of our
common stock.
We
expect to need additional capital to fund our growing operations and if we are unable to obtain sufficient capital, we may be
forced to limit the scope of our operations.
We
expect that for our business to grow we will need additional working capital. If adequate additional debt and/or equity
financing is not available on reasonable terms or at all, we may not be able to continue to expand our business or pay our outstanding
obligations, and we will have to modify our business plans accordingly. These factors would have a material adverse
effect on our future operating results and our financial condition.
If
we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease
our activities and dissolve the Company. In such an event, we will need to satisfy various creditors and other claimants,
severance, lease termination and other dissolution-related obligations and we may not have sufficient funds to pay to our stockholders.
If
we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report
our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
Effective
internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent
fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley
Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In
order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where
appropriate, enhance our policies, procedures and internal controls. If we fail to maintain the adequacy of our internal
controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence
in the accuracy and completeness of our financial reports. We cannot assure you that in the future we will be able to fully
comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial
reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed
and our stock price may decline.
Our
assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting
resulted in our conclusion that, as of March 31, 2020, our internal control over financial reporting was not effective, due to
our lack of segregation of duties, and lack of controls in place to ensure that all material transactions and developments impacting
the financial statements are reflected. We can provide no assurance as to conclusions of management with respect to the effectiveness
of our internal control over financial reporting in the future.
Our independent auditors have expressed
substantial doubt about our ability to continue as a going concern.
Due to our net losses, negative cash
flow and negative working capital, in their report on our audited financial statements for the years ended December 31, 2019 and
2018, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as
a going concern.
We
may seek to internally develop additional new inventions and intellectual property, which would take time and be costly. Moreover,
the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in
such activities.
Part
of our business may include the internal development of new inventions or intellectual property that we will seek to monetize. For
example, in December 2019, we acquired substantially all of the assets of CBM, including the acquisition of certain licensing
rights with respect to patents and other intellectual property related to pioneering drug compounds that were developed at the
University of Wake Forest and the University of Texas at Austin, in the areas of acute myeloid leukemia (AML), acute lymphoblastic
leukemia (ALL), acral lentiginous melanoma and pancreatic cancer (collectively, the “University Developments”). Should
we choose to assist in the development of the University Developments and/or internally develop any other inventions or intellectual
property, such aspect of our business will require significant capital and will take time to achieve. Such activities
may also distract our management team from its present business initiatives, which could have a material and adverse effect on
our business. There is also the risk that our initiatives in this regard would not yield any viable new inventions or technology,
which would lead to a loss of our investments in time and resources in such activities.
Our
ability to raise additional capital may be adversely affected by certain of our agreements.
Our
ability to raise additional capital for use in our operating activities may be adversely impacted by the terms of a securities
purchase agreement, dated as of July 15, 2015 (the “Securities Purchase Agreement”), between us and the investors
who purchased securities in our July 2015 offering of our common stock and warrants for the purchase of our common stock. The
Securities Purchase Agreement provides that, until the warrants issued thereunder are no longer outstanding, we will not effect
or enter into a variable rate transaction, which includes issuances of securities whose prices or conversion prices may vary with
the trading prices of or quotations for the shares of our common Stock at any time after the initial issuance of such securities,
as well as the entry into agreements where our stock would be issued at a future-determined price. These warrants may remain outstanding
as late as January 22, 2021, when the warrants expire in accordance with their terms. These restrictions may have an adverse impact
on our ability to raise additional capital, or to use our cash to make certain payments that we are contractually obligated to
make.
We
may also identify targets with patent or other intellectual property assets that cost more than we are prepared to spend with
our own capital resources. We may incur significant costs to organize and negotiate a structured acquisition that does
not ultimately result in an acquisition of any patent assets or, if consummated, proves to be unprofitable for us. Acquisitions
involving issuance of our securities could be dilutive to existing stockholders and could be at prices lower than those prices
reflected in the trading markets. These higher costs could adversely affect our operating results and, if we incur
losses, the value of our securities will decline. The integration of acquired assets may place a significant burden on management
and our internal resources. The diversion of management attention and any difficulties encountered in the integration
process could harm our business.
As
we are targeting technology companies in the development stage, their patents and technologies are in the early stages of adoption. Demand
for some of these technologies will likely be untested and may be subject to fluctuation based upon the rate at which our licensees
or others adopt our patents and technologies in their products and services. As a result, there can be no assurance
as to whether technologies we acquire or develop will have value that can be realized through licensing or other activities.
We
are exploring and evaluating strategic alternatives and there can be no assurance that we will be successful in identifying, or
completing any strategic alternative or that any such strategic alternative will yield additional value for shareholders.
Our
management and board of directors (“Board of Directors”) has commenced a review of strategic alternatives which could
result in, among other things, a sale, a merger, consolidation or business combination, asset divestiture, partnering or other
collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions, or continuing to operate
with our current business plan and strategy. There can be no assurance that the exploration of strategic alternatives will result
in the identification or consummation of any transaction. In addition, we may incur substantial expenses associated with identifying
and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive
to our business operations and if we are unable to effectively manage the process, our business, financial condition and results
of operations could be adversely affected. We also cannot assure you that any potential transaction or other strategic alternative,
if identified, evaluated and consummated, will provide greater value to our shareholders than that reflected in the current stock
price. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including, among
other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing
to potential buyers on reasonable terms.
We
may be unsuccessful at integrating future acquisitions.
If
we find appropriate opportunities in the future, we may acquire businesses to further the Company’s strategic business objectives. For example, in December 2019, we acquired substantially all of the assets of CBM, including
the acquisition of certain licensing rights with respect to patents and other intellectual property related to pioneering drug
compounds that were developed at the University of Wake Forest and the University of Texas at Austin, in the areas of acute myeloid
leukemia (AML), acute lymphoblastic leukemia (ALL), acral lentiginous melanoma and pancreatic cancer. There can be no guarantee
that we will be able to successfully integrate the business or assets of CBM into the Company.
As
we acquire businesses or substantial stakes in certain businesses, the process of integration may produce unforeseen operating
difficulties and expenditures, fail to result in expected synergies or other benefits and absorb significant attention of our
management that would otherwise be available for the ongoing development of our business. In addition, in the event of any future
acquisitions, we may record a portion of the assets we acquire as goodwill, other indefinite-lived intangible assets or finite-lived
intangible assets. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on
an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The
recoverability of goodwill and indefinite-lived intangible assets is dependent on our ability to generate sufficient future earnings
and cash flows. Changes in estimates, circumstances or conditions, resulting from both internal and external factors, could have
a significant impact on our fair valuation determination, which could then have a material adverse effect on our business, financial
condition and results of operations. We cannot guarantee that we will be able to identify suitable acquisition opportunities,
consummate any pending or future acquisitions or that we will realize any anticipated benefits from any such acquisitions.
Our
pre-CBM acquisition stockholders have a reduced ownership and voting interest after the acquisition of CBM’s assets and
exercise less influence over our management and policies than they did prior to the acquisition.
Our
pre-acquisition stockholders had the right to vote in the election of our Board of Directors on other matters affecting us. As
a result of the CBM Purchase Agreement, because of the issuance of shares of common stock to the CBM shareholders, our pre-acquisition
stockholders hold a percentage ownership of the Company that is much smaller than the pre-acquisition stockholder’s previous
percentage ownership. Because of this, our pre-acquisition stockholders have less influence over the management and policies of
the Company than they now have after the consummation of the acquisition of CBM’s assets.
Any
failure to maintain or protect our patent assets or other intellectual property rights could significantly impair our return on
investment from such assets and harm our brand, our business and our operating results.
Our
ability to operate our new line of business and compete in the intellectual property market largely depends on the superiority,
uniqueness and value of our acquired patent assets and other intellectual property. To protect our proprietary rights,
we will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees
and third parties, and protective contractual provisions. No assurances can be given that any of the measures we undertake
to protect and maintain our assets will have any measure of success.
We
are required to spend significant time and resources to maintain the effectiveness of our assets by paying maintenance fees and
making filings with the USPTO. We may acquire patent assets, including patent applications, which require us to spend
resources to prosecute the applications with the USPTO prior to issuance of patents. Further, there is a material risk
that patent related claims (such as, for example, infringement claims (and/or claims for indemnification resulting therefrom),
unenforceability claims, or invalidity claims) will be asserted or prosecuted against us, and such assertions or prosecutions
could materially and adversely affect our business.
Despite
our efforts to protect our intellectual property rights, any of the following or similar occurrences may reduce the value of our
intellectual property:
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our
applications for patents, trademarks and copyrights may not be granted and, if granted, may be challenged or invalidated;
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issued
trademarks, copyrights, or patents may not provide us with any competitive advantages when compared to potentially infringing
other properties;
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our
efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;
or
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our
efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or
superior to those we acquire and/or prosecute.
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Moreover,
we may not be able to effectively protect our intellectual property rights in certain foreign countries where we may do business
or enforce our patents against infringers in foreign countries. If we fail to maintain, defend or prosecute our patent assets
properly, the value of those assets would be reduced or eliminated, and our business would be harmed.
We
may be at risk for delay in technology development and other economic repercussions as a result of the COVID-19 pandemic.
We
may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope
of the COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken
in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required
to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions
taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
Additionally,
New York, where our U.S. operations are based, is currently significantly affected by COVID-19, which led to measures taken by
the New York government trying to contain the spread of COVID-19, such as shelter in place, closure of schools and travel restrictions.
Additional travel and other restrictions may be put in place to further control the outbreak in U.S. Accordingly, our operation
and business have been and will continue to be adversely affected as the results of the COVID-19 pandemic.
The
extent to which COVID-19 negatively impacts our business is highly uncertain and cannot be accurately predicted. We believe that
the coronavirus outbreak and the measures taken to control it may have a significant negative impact on not only our business,
but economic activities globally. The magnitude of this negative effect on the continuity of our business operations in the U.S.
remains uncertain. These uncertainties impede our ability to conduct our daily operations and could materially and adversely affect
our business, financial condition and results of operations, and as a result affect our stock price and create more volatility.
Risks
Related to the Product Development, Regulatory Approval, Manufacturing and Commercialization
We
are early in our development efforts and currently have no clinical-stage product candidates. If we are unable to clinically develop
and ultimately commercialize DHA-dFdC or other product candidates, or experience significant delays in doing so, our business
will be materially harmed.
We
are early in our development efforts and have no clinical-stage product candidates as of the date of this prospectus. We have
the exclusive U.S. rights to develop DHA-dFdC for the treatment of cancer in the licensed field. We are presently planning on
filing an IND for DHA-dFdC, and we hope to begin human testing for this indication in 2021, although no assurance can be given
that we will be able to achieve this goal.
Therefore,
our ability to generate product or royalty revenues, which we do not expect will occur for several years, if ever, will depend
heavily on our ability to develop and eventually commercialize our product candidate. The positive development of our product
candidate will depend on several factors, including the following:
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positive
commencement and completion of clinical trials;
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successful
preparation of regulatory filings and receipt of marketing approvals from applicable regulatory authorities;
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obtaining
and maintaining patent and trade secret protection and potential regulatory exclusivity for our product candidate and protecting
our rights in our intellectual property portfolio;
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launching
commercial sales of our product, if and when approved for one or more indications, whether alone or in collaboration with
others;
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acceptance
of the product for one or more indications, if and when approved, by patients, the medical community and third-party payors;
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protection
from generic substitution based upon our own or licensed intellectual property rights;
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effectively
competing with other therapies;
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obtaining
and maintaining adequate reimbursement from healthcare payors; and
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maintaining
a continued acceptable safety profile of our product following approval, if any.
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If
we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to clinically develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.
If
we are unable to convince physicians as to the benefits of DHA-dFdC as a therapy for cancer, if and when it is approved, we may
incur delays or additional expense in our attempt to establish market acceptance.
Use
of DHA-dFdC as a cancer therapy will require physicians to be informed regarding the intended benefits of the product for a new
indication. The time and cost of such an educational process may be substantial. Inability to carry out this physician education
process may adversely affect market acceptance of DHA-dFdC as a therapy for cancer. We may be unable to timely educate physicians
in sufficient numbers regarding our intended application of DHA-dFdC to achieve our marketing plans or to achieve product acceptance.
Any delay in physician education or acceptance may materially delay or reduce demand for our product candidate. In addition, we
may expend significant funds toward physician education before any acceptance or demand for DHA-dFdC as a therapy for cancer is
created, if at all.
Clinical
drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience
delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidate.
The
risk of failure for product candidates in clinical development is high. It is impossible to predict when our sole product candidate,
DHA-dFdC for the treatment of cancer, will prove effective and safe in humans or will receive regulatory approval for the treatment
of any disease, the indication for which is licensed to us. Before obtaining marketing approval from regulatory authorities for
the sale of DHA-dFdC as a cancer therapy, we must conduct one or more clinical trials to demonstrate the safety and efficacy of
our product candidate in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete
and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Moreover, the outcome
of early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial
do not necessarily predict final results. In addition, preclinical and clinical data are often susceptible to varying interpretations
and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have
nonetheless failed to obtain marketing approval of their products.
We
may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to
receive marketing approval or commercialize our product candidate, including:
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regulators
or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical
trial at a prospective trial site;
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we
may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols
with prospective trial sites;
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clinical
trials of our product candidate may produce negative or inconclusive results, and we may decide, or regulators may require
us, to conduct additional clinical trials or abandon product development programs, which would be time consuming and costly;
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the
number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in
these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate
than we anticipate;
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we
may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the
participants are being exposed to unacceptable health risks;
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regulators
or institutional review boards may require that we or our investigators suspend or terminate clinical research for various
reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable
health risks;
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the
cost of clinical trials may be greater than we anticipate;
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the
supply or quality of materials necessary to conduct clinical trials of our product candidate may be insufficient or inadequate;
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our
product candidate may have undesirable side effects or other unexpected characteristics, causing us or our investigators,
regulators or institutional review boards to suspend or terminate the trials; and
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interactions
with other drugs.
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If
we are required to conduct additional clinical trials or other testing of our product candidate beyond those that we currently
contemplate, if we are unable to complete clinical trials of our product candidates or other testing, if the results of these
trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
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be
delayed in obtaining marketing approval for our product candidate for one or more indications;
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not
obtain marketing approval at all for one or more indications;
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obtain
approval for indications or patient populations that are not as broad as intended or desired (particularly, in our case, for
different types of cancer);
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obtain
approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be
subject to additional post-marketing testing requirements; or
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have
the product removed from the market after obtaining marketing approval.
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Our
product development costs will also increase if we experience delays in testing or marketing approvals. We do not know which,
if any, of our clinical trials will need to be restructured or will be completed on schedule, or at all. Significant preclinical
or clinical trial delays also could shorten any periods during which we may have the right to commercialize our product candidate
or allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidate
and may harm our business and results of operations.
If
we experience delays or difficulties in the enrollment of patients in any future clinical trials, our receipt of necessary regulatory
approvals could be delayed or prevented.
We
may not be able to initiate or continue future clinical trials for DHA-dFdC or our present or future 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 similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials
for product candidates that treat the same indications as our product candidate, and patients who would otherwise be eligible
for our future clinical trials may instead enroll in clinical trials of our competitors’ product candidates.
Patient
enrollment is affected by other factors including:
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the
severity of the disease under investigation;
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the
eligibility criteria for the study in question;
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the
perceived risks and benefits of the product candidate under study;
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the
patient referral practices of physicians;
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the
ability to monitor patients adequately during and after treatment; and
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the
proximity and availability of clinical trial sites for prospective patients.
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Our
inability to enroll a sufficient number of patients for any future clinical trials would result in significant delays and could
require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased
development costs for our product candidate, which would cause the value of our company to decline and otherwise materially and
adversely affect our company.
If
serious adverse or unacceptable side effects are identified during the development of our product candidate, we may need to abandon
or limit such development, which would adversely affect our company.
If
clinical testing of our product candidates results in undesirable side effects or demonstrates characteristics that are unexpected,
we may need to abandon such development or limit such development to more narrow uses or subpopulations in which the undesirable
side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many
compounds that initially showed promise in early stage testing for treating cancer have later been found to cause side effects
that prevented further development of the compound.
For
the foreseeable future, we expect to expend our limited resources primarily to pursue a particular product candidate, leaving
us unable to capitalize on other product candidates or indications that may be more profitable or for which there is a greater
likelihood of clinical and commercial development.
Because
we have limited financial and managerial resources, we will focus for the foreseeable future primarily on the clinical development
of DHA-dFdC for the treatment of prostate cancer. As a result, we may forego or be unable to pursue opportunities with other product
candidates or for indications other than those we intend to pursue that later prove to have greater commercial potential. Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Our spending on research and development programs related to DHA-dFdC for the treatment of cancer may not yield any commercially
viable therapies. Because of this concentration of our efforts, our business will be particularly subject to significant risk
of failure of our one current product candidate.
We
expect to rely on collaborations with third parties for key aspects of our business. If we are unable to secure or maintain any
of these collaborations, or if these collaborations do not achieve their goals, our business would be adversely affected.
We
presently have very limited capabilities for drug development and do not yet have any capability for manufacturing, sales, marketing
or distribution. Accordingly, we expect to enter into collaborations with other companies that we believe can provide such capabilities.
These collaborations may also provide us with important funding for our development programs.
There
is a risk that we may not be able to maintain our current collaboration or to enter into additional collaborations on acceptable
terms or at all, which would leave us unable to progress our business plan. We will face significant competition in seeking appropriate
collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s
evaluation of a number of factors. If we are unable to maintain or reach agreements with suitable collaborators on a timely basis,
on acceptable terms, or at all, we may have to curtail the development of our product candidate, reduce or delay its development
program, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our own expense.
Moreover,
even if we are able to maintain and/or enter into such collaborations, such collaborations may pose a number of risks, including
the following:
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collaborators
may not perform their obligations as expected;
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disagreements
with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development,
might cause delays or termination of the research, development or commercialization of our product candidate, might lead to
additional responsibilities for us with respect to such product candidate, or might result in litigation or arbitration, any
of which would be time-consuming and expensive;
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collaborators
could independently develop or be associated with products that compete directly or indirectly with our product candidate;
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collaborators
could have significant discretion in determining the efforts and resources that they will apply to our arrangements with them;
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should
our product candidate achieve regulatory approval, a collaborator with marketing and distribution rights to our product candidate
may not commit sufficient resources to the marketing and distribution of such product;
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collaborators
may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way
as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose
us to potential litigation;
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collaborators
may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
and
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collaborations
may be terminated for the convenience of the collaborator and, if terminated, we could be required to either find alternative
collaborators (which we may be unable to do) or raise additional capital to pursue further development or commercialization
of our product candidate on our own.
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Our
business could be materially harmed if any of the foregoing or similar risks comes to pass with respect to our key collaborations.
Even
if any of our product candidates receive marketing approval for any indication, they may fail to achieve the degree of market
acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
Even
if DHA-dFdC for the treatment of cancer receives marketing approval for any indication, it may nonetheless fail to gain sufficient
market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current cancer
treatments such as chemotherapy, immunotherapy and radiation therapy are well established in the medical community, and doctors
may continue to rely on these treatments. If our product candidate does not achieve an adequate level of acceptance, we may not
generate significant product revenues and we may not become profitable. The degree of market acceptance of DHA-dFdC for the treatment
of cancer, if approved for commercial sale, will depend on a number of factors, including:
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the
efficacy and potential advantages compared to alternative treatments;
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our
ability to offer our products for sale at competitive prices;
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the
convenience and ease of administration compared to alternative treatments;
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the
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the
strength of marketing and distribution support;
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the
availability of third-party coverage and adequate reimbursement;
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the
prevalence and severity of any side effects; and
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any
restrictions on the use of our product together with other medications.
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If
we are unable to establish sales, marketing and distribution capabilities, we may not be able to commercialize our product candidate
if and when it is approved.
We
currently do not have a sales or marketing infrastructure. To achieve any level of commercial success for any product for which
we have obtained marketing approval, we will need to establish a sales and marketing organization or outsource sales and marketing
functions to third parties, and achieve the following:
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successful
preparation of regulatory filings and receipt of marketing approvals from applicable regulatory authorities;
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obtaining
and maintaining patent and trade secret protection and potential regulatory exclusivity for our product candidate and protecting
our rights in our intellectual property portfolio;
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launching
commercial sales of our product, if and when approved for one or more indications, whether alone or in collaboration with
others;
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acceptance
of the product for one or more indications, if and when approved, by patients, the medical community and third-party payors;
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protection
from generic substitution based upon our own or licensed intellectual property rights;
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effectively
competing with other therapies;
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obtaining
and maintaining adequate reimbursement from healthcare payors; and
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maintaining
a continued acceptable safety profile of our product following approval, if any.
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If
we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to clinically develop and commercialize DHA-dFdC as a therapy for cancer, which would materially harm our business.
In
addition, given our current limited financial resources, we are currently focusing our efforts on one key cancer indication, namely
prostate cancer. We are thus faced with the risk that DHA-dFdC could be ineffective in addressing this particular cancer indication,
and if our efforts to demonstrate the efficacy of DHA-dFdC in prostate cancer are not positive, we may lack the resources to expand
our efforts into other cancer indications.
We
face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully
than we do.
The
development and commercialization of new drug products is highly competitive. We face competition with respect to our current
product candidate and will face competition with respect to any product candidates that we may seek to develop or commercialize
in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.
There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing
the development of products for the treatment of cancer. Potential competitors also include academic institutions, government
agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative
arrangements for research, development, manufacturing and commercialization.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop.
Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for
ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Many
of the companies against which we are competing or against which we may compete in the future have significantly greater financial
resources and expertise in research and development, manufacturing, conducting clinical trials, obtaining regulatory approvals
and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result
in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may
also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary
for, our programs, and we may be unable to effectively compete with these companies for these or other reasons.
Even
if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-party
reimbursement practices or healthcare reform initiatives, which would harm our business.
The
regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country
to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional
costs and cause delays in obtaining approvals.
Our
ability to commercialize any product candidate also will depend in part on the extent to which coverage and adequate reimbursement
for our product candidate will be available from government health administration authorities, private health insurers and other
organizations. Government authorities and third party payors, such as private health insurers and health maintenance organizations,
decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry
and elsewhere is cost containment. Government authorities and third party payors have attempted to control costs by limiting coverage
and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies
provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage
and reimbursement may not be available for any product that we commercialize and, even if these are available, the level of reimbursement
may not be satisfactory. Reimbursement may affect the demand for, or the price of, any product candidate for which we obtain marketing
approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive
pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage
and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to commercialize
any product candidate for which we obtain marketing approval.
In
addition, there may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited
than the purposes for which the drug is approved by the FDA. Moreover, eligibility for reimbursement does not imply that a drug
will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution.
Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement
levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs
may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors. Third-party payors
often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to
promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products
that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize
products and our overall financial condition.
Product
liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that
we may develop.
We
face an inherent risk of product liability exposure related to the testing of DHA-dFdC in human clinical trials and will face
an even greater risk if we commercially sell any products that we may develop. If we cannot defend ourselves against claims that
our product candidate or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome,
liability claims may result in:
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decreased
demand for any product candidates or products that we may develop;
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damage
to our reputation and significant negative media attention;
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withdrawal
of clinical trial participants;
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significant
costs to defend the related litigation;
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substantial
monetary awards to trial participants or patients;
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loss
of revenue;
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reduced
resources of our management to pursue our business strategy; and
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the
inability to commercialize any products that we may develop.
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We
currently do not have product liability insurance coverage, which leaves us exposed to any product-related liabilities that we
may incur. We may be unable to obtain insurance on reasonable terms or at all. Insurance coverage is increasingly expensive. We
may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may
arise.
If
we fail to comply with healthcare regulations, we could face substantial enforcement actions, including civil and criminal penalties
and our business, operations and financial condition could be adversely affected.
We
could be subject to healthcare fraud and abuse laws and patient privacy laws of both the federal government and the states in
which we conduct our business. The laws include:
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the
federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing
remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing
or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and
Medicaid programs;
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federal
false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be
presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, and which
may apply to entities like us which provide coding and billing information to customers;
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the
federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare
benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating
to the privacy, security and transmission of individually identifiable health information;
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the
FDCA which among other things, strictly regulates drug manufacturing and product marketing, prohibits manufacturers from marketing
drug products for off-label use and regulates the distribution of drug sample; and
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security
of health information in certain circumstances, many of which differ from each other in significant ways and often are not
preempted by federal laws, thus complicating compliance efforts.
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If
our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us,
we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of
our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability
to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution
for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even
if we successfully defend against it, could cause us to incur significant legal expenses and divert management’s attention
from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security
and fraud laws may prove costly.
Members
of our management team lack experience in the pharmaceutical field.
Members
of our management team lack experience in the pharmaceutical field. This lack of experience may impair our ability to commercialize
our pharmaceutical products and attain profitability. We will need to hire or engage managerial personnel with relevant experience
in the pharmaceutical field; however, there can be no assurance that such personnel will be available to us or, that once engaged,
will be retained by us. Failure to establish and maintain an effective management team with experience in the pharmaceutical field
and commercialization of pharmaceuticals products would have a material adverse effect on our business and results of operations.
The
marketing approval process of the FDA is lengthy, time consuming and inherently unpredictable, and if were ultimately are unable
to obtain marketing approval for the product candidates we intend to develop, our business will be substantially harmed.
None
of the product candidates we intend to develop have gained marketing approval in the U.S. and we cannot guarantee that we will
ever have marketable products. Our business is substantially dependent on our ability to complete the development of, obtain marketing
approval for, and successfully commercialize our product candidates in a timely manner. We cannot commercialize our product candidates
in the United States without first obtaining approval from the FDA to market each product candidate. Our product candidates could
fail to receive marketing approval for many reasons.
In
addition, the process of seeking regulatory clearance or approval to market the product candidates we intend to develop is expensive
and time consuming and, notwithstanding the effort and expense incurred, clearance or approval is never guaranteed. If we are
not successful in obtaining timely clearance or approval of our product candidates from the FDA, we may never be able to generate
significant revenue and may be forced to cease operations. The FDA process is costly, lengthy and uncertain. Any FDA application
filed by the Company will have to be supported by extensive data, including, but not limited to, technical, preclinical, clinical
trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the product
for its intended use.
Obtaining
clearances or approvals from the FDA and from the regulatory agencies in other countries is an expensive and time consuming process
and is uncertain as to outcome. The FDA and other agencies could ask us to supplement our submissions, collect non-clinical data,
conduct additional clinical trials or engage in other time-consuming actions, or it could simply deny our applications. In addition,
even if we obtain an FDA approval or pre-market approvals in other countries, the approval could be revoked or other restrictions
imposed if post-market data demonstrates safety issues or lack of effectiveness. We cannot predict with certainty how, or when,
the FDA will act. If we are unable to obtain the necessary regulatory approvals, our financial condition and cash flow may be
adversely affected, and our ability to grow domestically and internationally may be limited. Additionally, even if cleared or
approved, the Company’s products may not be approved for the specific indications that are most necessary or desirable for
successful commercialization or profitability.
Modifications
to our products may require new FDA approvals.
Once
a particular product receives FDA approval or clearance, expanded uses or uses in new indications of our products may require
additional human clinical trials and new regulatory approvals or clearances, including additional IND and FDA submissions and
premarket approvals before we can begin clinical development, and/or prior to marketing and sales. If the FDA requires new clearances
or approvals for a particular use or indication, we may be required to conduct additional clinical studies, which would require
additional expenditures and harm our operating results. If the products are already being used for these new indications, we may
also be subject to significant enforcement actions. Conducting clinical trials and obtaining clearances and approvals can be a
time consuming process, and delays in obtaining required future clearances or approvals could adversely affect our ability to
introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
Additional
delays to the completion of clinical studies may result from modifications being made to the protocol during the clinical trial,
if such modifications are warranted and/or required by the occurrences in the given trial.
Each
modification to the protocol during a clinical trial has to be submitted to the FDA. This could result in the delay or halt of
a clinical trial while the modification is evaluated. In addition, depending on the quantity and nature of the changes made, the
FDA could take the position that the data generated by the clinical trial is not poolable because the same protocol was not used
throughout the trial. This might require the enrollment of additional subjects, which could result in the extension of the clinical
trial and the FDA delaying clearance or approval of a product. Any such delay could have a material adverse effect on our business
and results of operations.
There
can be no assurance that the data generated from our clinical trials using modified protocols will be acceptable to FDA.
There
can be no assurance that the data generated using modified protocols will be acceptable to the FDA or that if future modifications
during the trial are necessary, that any such modifications will be acceptable to the FDA. If the FDA believes that its prior
approval is required for a particular modification, it can delay or halt a clinical trial while it evaluates additional information
regarding the change.
Serious
injury or death resulting from a failure of one of our drug candidates during current or future clinical trials could also result
in the FDA delaying our clinical trials or denying or delaying clearance or approval of a product.
Even
though an adverse event may not be the result of the failure of our drug candidate, the FDA or an Internal Review Board (“IRB”)
could delay or halt a clinical trial for an indefinite period of time while an adverse event is reviewed, and likely would do
so in the event of multiple such events.
Any
delay or termination of our current or future clinical trials as a result of the risks summarized above, including delays in obtaining
or maintaining required approvals from IRBs, delays in patient enrollment, the failure of patients to continue to participate
in a clinical trial, and delays or termination of clinical trials as a result of protocol modifications or adverse events during
the trials, may cause an increase in costs and delays in the filing of any product submissions with the FDA, delay the approval
and commercialization of our products or result in the failure of the clinical trial, which could adversely affect our business,
operating results and prospects.
The
future results of our current or future clinical trials may not support our product candidate claims or may result in the discovery
of unexpected adverse side effects.
Even
if our clinical trials are completed as planned, we cannot be certain that their results will support our drug candidate claims
or that the FDA or foreign authorities will agree with our conclusions regarding them. Success in preclinical studies and early
clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the later trials will
replicate the results of prior trials and preclinical studies. The clinical trial process may fail to demonstrate that our drug
candidates are safe and effective for the proposed indicated uses. If the FDA concludes that the clinical trials for DHA-dFdC,
or any other product for which we might seek clearance, has failed to demonstrate safety and effectiveness, we would not receive
FDA clearance to market that product in the United States for the indications sought.
In
addition, such an outcome could cause us to abandon the product candidate and might delay development of others. Any delay or
termination of our clinical trials will delay the filing of any product submissions with the FDA and, ultimately, our ability
to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical trials will
experience adverse side effects that are not currently part of the product candidate’s profile.
Current
and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product
candidates and affect the prices we may obtain for such product candidates.
In
the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or
regulate post-approval activities and affect our ability to profitably sell our product candidates. Legislative and regulatory
proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. We do not know 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 testing and other requirements.
In
the United States, the Medicare Modernization Act (“MMA”) changed the way Medicare covers and pays for pharmaceutical
products. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be
additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could
decrease the coverage and price that we receive for our product candidates and could seriously harm our business.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010
(collectively, the “Health Care Reform Law”) is a sweeping law intended to broaden access to health insurance, reduce
or constrain the growth of healthcare spending, enhance remedies against 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 Health Care Reform Law remains subject to legislative efforts to repeal, modify or delay the implementation of the
law. However, if the Health Care Reform Law is repealed or modified, or if implementation of certain aspects of the Health Care
Reform Law are delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects,
operating results or financial condition.
In
addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted.
We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected
value of certain development projects and reduce or eliminate our profitability.
Upon
commercialization of our products, we may be dependent on third parties to market, distribute and sell our products.
Our
ability to receive revenues may be dependent upon the sales and marketing efforts of any future co-marketing partners and third-party
distributors. At this time, we have not entered into an agreement with any commercialization partner and only plan to do so after
the successful completion of Phase 1 clinical trials and prior to commercialization. If we fail to reach an agreement with any
commercialization partner, or upon reaching such an agreement that partner fails to sell a large volume of our products, it may
have a negative impact on our business, financial condition and results of operations.
Adverse
events involving our products may lead the FDA to delay or deny clearance for our products or result in product recalls that could
harm our reputation, business and financial results.
Once
a product receives FDA clearance or approval, the agency has the authority to require the recall of commercialized products in
the event of adverse side effects, material deficiencies or defects in design or manufacture. The authority to require a recall
must be based on an FDA finding that there is a reasonable probability that the product would cause serious injury or death. Manufacturers
may, under their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary
recall by us or one of our distributors could occur as a result of adverse side effects, impurities or other product contamination,
manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert
managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires
that certain classifications of recalls be reported to FDA within ten working days after the recall is initiated. Companies are
required to maintain certain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls
involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations,
they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers
and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they
were conducted.
Risks
Related to Ownership of Our Common Stock
We
face evolving regulation of corporate governance and public disclosure that may result in additional expenses and continuing uncertainty.
As
a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, or SOX, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market and other applicable
securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective
disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial
amount of time towards maintaining compliance with these requirements. These rules, regulations and standards are subject to varying
interpretations, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory
and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated
by ongoing revisions to disclosure and governance practices. We intend to invest the resources necessary to comply
with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses
and a diversion of management time and attention from revenue-generating activities to compliance activities. If our
efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing
bodies, regulatory authorities may initiate legal proceedings against us, which could be costly and time-consuming, and our reputation
and business may be harmed.
Our
common stock may be delisted from The Nasdaq Capital Market if we fail to comply with continued listing standards.
Our
common stock is currently traded on The Nasdaq Capital Market under the symbol “AIKI”. If we fail to meet
any of the continued listing standards of The Nasdaq Capital Market, our common stock could be delisted from The Nasdaq Capital
Market. These continued listing standards include specifically enumerated criteria, such as:
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a
$1.00 minimum closing bid price;
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stockholders’
equity of $2.5 million;
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500,000
shares of publicly-held common stock with a market value of at least $1 million;
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300
round-lot stockholders; and
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compliance
with Nasdaq’s corporate governance requirements, as well as additional or more stringent criteria that may be
applied in the exercise of Nasdaq’s discretionary authority.
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On
April 28, 2020, we received a staff deficiency notice from Nasdaq informing the Company that its common stock failed to comply
with the $1.00 minimum bid price required for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2).
Nasdaq’s letter advised the Company that, based upon the closing bid price during the period from March 16, 2020 to April
27, 2020, the Company no longer meets this test.
Given
the current extraordinary market conditions, Nasdaq has determined to toll the compliance periods for the bid price and market
value of publicly held shares requirements through June 30, 2020. Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company
has been provided with a compliance period of 180 calendar days, or until December 28, 2020, to regain compliance with the minimum
bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00
per share for a minimum of 10 consecutive business days prior to December 28, 2020.
There
can be no assurance that we will be able to maintain compliance and remain in compliance in the future. In particular, our share
price may continue to decline for a number of reasons, including many that are beyond our control. If we fail to comply with Nasdaq’s
continued listing standards, we may be delisted and our common stock will trade, if at all, only on the over-the-counter market,
such as the OTC Bulletin Board or OTCQX market, and then only if one or more registered broker-dealer market makers comply with
quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit
liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all.
Further, delisting of our common stock would likely result in our common stock becoming a “penny stock” under the
Exchange Act.
Our
share price may be volatile and there may not be an active trading market for our common stock.
There
can be no assurance that the market price of our common stock will not decline below its present market price or that there will
be an active trading market for our common stock. The market prices of technology or technology related companies have been
and are likely to continue to be highly volatile. Fluctuations in our operating results and general market conditions for
technology or technology related stocks could have a significant impact on the volatility of our common stock price. We have
experienced significant volatility in the price of our common stock. From January 1, 2019 through December 31, 2019,
the share price of our common stock (on a split-adjusted basis) ranged from a high of $3.92 to a low of $1.05. The reason for
the volatility in our stock is not well understood and may continue. Factors that may have contributed to such volatility
include, but are not limited to:
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developments
regarding regulatory filings;
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our
funding requirements and the terms of our financing arrangements;
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technological
innovations;
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introduction
of new technologies by us or our competitors;
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material
changes in existing litigation;
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changes
in the enforceability or other matters surrounding our patent portfolios;
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government
regulations and laws;
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public
sentiment relating to our industry;
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developments
in patent or other proprietary rights;
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the
number of shares issued and outstanding;
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the
number of shares trading on an average trading day;
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performance
of companies in the non-performing entity space generally;
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announcements
regarding other participants in the technology and technology related industries, including our competitors;
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block
sales of our shares by stockholders to whom we have sold stock in private placements, or the cessation of transfer restrictions
with respect to those shares; and
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market
speculation regarding any of the foregoing.
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We
could fail in future financing efforts or be delisted from The Nasdaq Capital Market if we fail to receive stockholder approval
when needed.
We
are required under the Nasdaq rules to obtain stockholder approval for any issuance of additional equity securities that would
comprise more than 20% of the total shares of our common stock outstanding before the issuance of such securities sold in an offering
that is not deemed to be a “public offering” by Nasdaq. Funding of our operations and acquisitions of assets may require
issuance of additional equity securities that would comprise more than 20% of the total shares of our common stock outstanding,
but we might not be successful in obtaining the required stockholder approval for such an issuance. If we are unable to obtain
financing due to stockholder approval difficulties, such failure may have a material adverse effect on our ability to continue
operations.
Our
shares of common stock are thinly traded and, as a result, stockholders may be unable to sell at or near ask prices, or at all,
if they need to sell shares to raise money or otherwise desire to liquidate their shares.
Our
common stock has been “thinly-traded” meaning that the number of persons interested in purchasing our common stock
at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of
factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional
investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention
of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or
recommend the purchase of our shares until such time as we become more seasoned and viable. Our trading volumes are further adversely
affected by the 1-for-19 reverse stock split that was effective as of March 4, 2016. In addition, we believe that due to the limited
number of shares of our common stock outstanding, an options market has not been established for our common stock, limiting the
ability of market participants to hedge or otherwise undertake trading strategies available for larger companies with broader
shareholder bases which prevents institutions and others from acquiring or trading in our securities. Consequently, there may
be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer
which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect
on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common shares
will develop or be sustained, or that current trading levels will be sustained.