Item 1. Business
Overview
Citius Pharmaceuticals, Inc., headquartered in Cranford, New
Jersey, is a specialty pharmaceutical company dedicated to the development and commercialization of critical care products targeting
important medical needs with a focus on anti-infective products in adjunct cancer care and unique prescription products. Our goal
is to achieve leading market positions by providing therapeutic products that address unmet medical needs yet have a lower development
risk than usually is associated with new chemical entities. New formulations of previously approved drugs with substantial existing
safety and efficacy data are a core focus. We seek to reduce development and clinical risks associated with drug development, yet
still focus on innovative applications. Our strategy centers on products that have intellectual property and regulatory exclusivity
protection, while providing competitive advantages over other existing therapeutic approaches.
The Company was founded as Citius Pharmaceuticals, LLC, a Massachusetts
limited liability company, on January 23, 2007. On September 12, 2014, Citius Pharmaceuticals, LLC entered into a Share Exchange
and Reorganization Agreement, with Citius Pharmaceuticals, Inc. (formerly Trail One, Inc.), a publicly traded company incorporated
under the laws of the State of Nevada. Citius Pharmaceuticals, LLC became a wholly-owned subsidiary of Citius Pharmaceuticals,
Inc. (“Citius”). On March 30, 2016, Citius acquired Leonard-Meron Biosciences, Inc. (“LMB”) as a wholly-owned
subsidiary. LMB was a pharmaceutical company focused on the development and commercialization of critical care products with a
concentration on anti-infectives.
Since its inception, the Company has devoted substantially all
of its efforts to business planning, acquiring our proprietary technology, research and development, recruiting management and
technical staff, and raising capital. We are developing three proprietary products: Mino-Lok, an antibiotic lock solution used
to treat patients with catheter-related bloodstream infections by salvaging the infected catheter; Mino-Wrap, a liquifying gel-based
wrap for reduction tissue expander infections following breast reconstructive surgeries; and Halo-Lido, a corticosteroid-lidocaine
topical formulation that is intended to provide anti-inflammatory and anesthetic relief to persons suffering from hemorrhoids.
We believe these unique markets for our products are large, growing, and underserved by the current prescription products or procedures.
Citius is subject to a number of risks common to companies in
the pharmaceutical industry including, but not limited to, risks related to the development by Citius or its competitors of research
and development stage products, market acceptance of its products, competition from larger companies, dependence on key personnel,
dependence on key suppliers and strategic partners, the Company’s ability to obtain additional financing and the Company’s
compliance with governmental and other regulations.
Mino-Lok®
Overview
Mino-Lok is a patented solution containing minocycline, disodium
ethylenediaminetetraacetic acid (edetate), and ethyl alcohol, all of which act synergistically to treat and salvage infected central
venous catheters (“CVCs”) in patients with catheter related bloodstream infections (“CRBSIs”). Mino-Lok
breaks down biofilm barriers formed by bacterial colonies, eradicates the bacteria, and provides anti-clotting properties to maintain
patency in CVCs.
The administration of Mino-Lok consists of filling the lumen
of the catheter with 0.8 ml to 2.0 ml of Mino-Lok solution. The catheter is then “locked”, meaning that the solution
remains in the catheter without flowing into the vein. The lock is maintained for a dwell-time of two hours while the catheter
is not in use. If the catheter has multiple lumens, all lumens may be locked with the Mino-Lok solution either simultaneously
or sequentially. If patients are receiving continuous infusion therapy, the catheters alternate between being locked with the
Mino-Lok solution and delivering therapy. The Mino-Lok therapy is two hours per day for at least five days, usually with two additional
locks in the subsequent two weeks. After locking the catheter for two hours, the Mino-Lok solution is aspirated, and the catheter
is flushed with normal saline. At that time, either the infusion will be continued, or will be locked with the standard-of-care
lock solution until further use of the catheter is required. In a clinical study conducted by MD Anderson Cancer Center (“MDACC”),
there were no serum levels of either minocycline or edetate detected in the sera of several patients who underwent daily catheter
lock solution with minocycline and edetate (“M-EDTA”) at the concentration level proposed in Mino-Lok treatment. Thus,
it has been demonstrated that the amount of either minocycline or edetate that leaks into the serum is very low or none at all.
Phase 2b Results
From April 2013 to July 2014, 30 patients with CVC-related bloodstream
infection were enrolled at MDACC in a prospective Phase 2b study. Patients received Mino-Lok therapy for two hours once daily for
a minimum of five days within the first week, followed by two additional locks within the next two weeks. Patients were followed
for one month post-lock therapy. Demographic information, clinical characteristics, laboratory data, therapy, as well as adverse
events and outcome were collected for each patient. Median age at diagnosis was 56 years (range: 21-73 years). In all patients,
prior to the use of lock therapy, systemic treatment with a culture-directed, first-line intravenous antibiotic was started. Microbiological
eradication was achieved at the end of therapy in all cases. None of the patients experienced any serious adverse event related
to the lock therapy.
The active arm, which is the Mino-Lok treated group of patients,
was then compared to 60 patients in a matched cohort that experienced removal and replacement of their CVCs within the same contemporaneous
timeframe. The patients were matched for cancer type, infecting organism, and level of neutropenia. All patients were cancer patients
and treated at the MDACC. The efficacy of Mino-Lok therapy was 100% in salvaging CVCs, demonstrating equal effectiveness to removing
the infected CVC and replacing with a new catheter.
The main purpose of the study was to show that Mino-Lok therapy
was at least as effective as the removal and replacement of CVCs when CRBSIs are present, and that the safety was better, that
is, the complications of removing an infected catheter and replacing with a new one could be avoided. In addition to having a 100%
efficacy rate with all CVCs being salvaged, Mino-Lok therapy had no significant adverse events (“SAEs”), compared to
an 18% SAE rate in the matched cohort where patients had the infected CVCs removed and replaced with a fresh catheter. There were
no overall complication rates in the Mino-Lok arm group compared to 11 patients with events (18%) in the control group. These events
included bacterial relapse (5%) at four weeks post-intervention, and a number of complications associated with mechanical manipulation
in the removal or replacement procedure for the catheter (10%) or development of deep seated infections such as septic thrombophlebitis
and osteomyelitis (8%). As footnoted, six patients had more than one complication in the control arm group.
Parameter
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Mino-Lok® Arm
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|
|
Control Arm
|
|
|
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N
|
|
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(%)
|
|
|
N
|
|
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(%)%
|
|
Patients
|
|
|
30
|
|
|
|
(100
|
)%
|
|
|
60
|
|
|
|
(100
|
)%
|
Cancer type
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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- Hematologic
|
|
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20
|
|
|
|
(67
|
)
|
|
|
48
|
|
|
|
(80
|
)
|
- Solid tumor
|
|
|
10
|
|
|
|
(33
|
)
|
|
|
12
|
|
|
|
(20
|
)
|
ICU Admission
|
|
|
4
|
|
|
|
(13
|
)
|
|
|
4
|
|
|
|
(7
|
)
|
Mech.Ventilator
|
|
|
3
|
|
|
|
(10
|
)
|
|
|
0
|
|
|
|
(0
|
)
|
Bacteremia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Gram+
|
|
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17
|
|
|
|
(57
|
)*
|
|
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32
|
|
|
|
(53
|
)
|
- Gram-
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|
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14
|
|
|
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(47
|
)*
|
|
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28
|
|
|
|
(47
|
)
|
Neutropenia (<500)
|
|
|
19
|
|
|
|
(63
|
)
|
|
|
36
|
|
|
|
(60
|
)
|
Microbiologic Eradication
|
|
|
30
|
|
|
|
(100
|
)
|
|
|
60
|
|
|
|
(100
|
)
|
- Relapse
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|
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0
|
|
|
|
(0
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)
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|
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3
|
|
|
|
(5
|
)
|
Complications
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|
|
0
|
|
|
|
(0
|
)
|
|
|
8
|
|
|
|
(13
|
)
|
SAEs related R&R
|
|
|
0
|
|
|
|
(0
|
)
|
|
|
6
|
|
|
|
(10
|
)
|
Overall Complication Rate
|
|
|
0
|
|
|
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(0
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)%
|
|
|
11
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**
|
|
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(18
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)%
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* 1 Polymicrobial patient had a Gram+ and a Gram- organism cultured
** 6 Patients had > 1 complication
Source: Dr. Issam Raad, Antimicrobial
Agents and Chemotherapy, June 2016, Vol. 60 No. 6, Page 3429
Phase 3 Initiation
In November 2016, the Company initiated site recruitment for
Phase 3 clinical trials. From initiation through first quarter 2017, the Company received input from several sites related to the
control arm as being less than standard-of-care for some of the respective institutions. The Company worked closely with the U.S.
Food and Drug Administration (“FDA”) with respect to the design of the Phase 3 trial, and received feedback on August
17, 2017. The FDA stated that they recognized that there is an unmet medical need in salvaging infected catheters and agreed that
an open label, superiority design would address the Company’s concerns and would be acceptable to meet the requirements of
a new drug application. The Company amended the Phase 3 study design to remove the saline and heparin placebo control arm and to
use an active control arm that conforms with today’s current standard-of-care. Patient enrollment commenced in February 2018.
The Mino-Lok Phase 3 Trial was originally planned to enroll
700 patients in 50 participating institutions, all located in the U.S. There will be interim analyses at both the 50% and 75% points
of the trial as measured by the number of patients treated. As of November 30, 2019, there are 30 active sites currently enrolling
patients including such academic centers as MDACC, Henry Ford Health Center, Georgetown University Medical Center, University of
Chicago, and others. There are five additional well renowned medical centers in startup mode. There are no other remaining sites
in feasibility.
In September 2019, the Company announced that the FDA agreed
to a new primary efficacy endpoint of “time to catheter failure” in comparing Mino-Lok to the antibiotic lock control
arm. This change in the trial design reduced the required patient sample size of the trial from 700 subjects to approximately 144
available subjects to achieve the pre-specified 92 catheter failure events needed to conclude the trial. Additionally, the Company
submitted a response to the FDA that it will implement this change in the primary endpoint and expected it to result in less than
150 subjects needed in its Phase 3 trial, which the FDA is reviewing.
In October 2019, the FDA agreed that the patient sample size
of approximately 144 patients was acceptable.
In October 2019, the Company announced that the Phase 3 trial
had reached the 40% completion triggering an interim futility analysis.
Fast Track Designation
In October 2017, the Company received official notice from FDA
that the investigational program for Mino-Lok was granted “Fast Track” status. Fast Track is a designation that expedites
FDA review to facilitate development of drugs which treat a serious or life-threatening condition and fill an unmet medical need.
A drug that receives Fast Track designation is eligible for the following:
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●
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More frequent meetings with FDA to discuss the drug’s development plan and ensure collection of appropriate data needed to support drug approval;
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●
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More frequent written correspondence from FDA about the design of the clinical trials;
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●
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Priority review to shorten the FDA review process for a new drug from ten months to six months; and,
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●
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Rolling review, which means Citius can submit completed sections of its New Drug Application (“NDA”) for review by FDA, rather than waiting until every section of the application is completed before the entire application can be reviewed.
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Mino-Lok International Study
In October 2017, data from an international study on Mino-Lok
was presented at the Infectious Disease Conference, (“ID Week”), in San Diego, California. The 44 patient study was
conducted in Brazil, Lebanon, and Japan and showed Mino-Lok therapy was an effective intervention to salvage long-term, infected
CVCs in CRBSIs in patients who had cancer with limited vascular access. This study showed 95% effectiveness for Mino-Lok therapy
in achieving microbiological eradication of the CVCs as compared to 83% for the control. The single failure in the Mino-Lok arm
was due to a patient with Burkholderia cepacia that was resistant to all antibiotics tested.
Stability Patent Application for Mino-Lok
In October 2018, the U.S. Patent and Trademark Office (“USPTO”)
issued U.S. Patent No. 10,086,114, entitled “Antimicrobial Solutions with Enhanced Stability.” The new invention overcomes
limitations in mixing antimicrobial solutions in which components have precipitated because of physical and/or chemical factors,
thus limiting the stability of the post-mix solutions. The scientists and technologists at MDACC have been able to improve the
stability of the post-mixed solutions through adjustments of the post-mixed pH of the solution. This may allow for longer storage
time of the ready-to-use solution. Citius holds the exclusive worldwide license which provides access to this patented technology
for development and commercialization of Mino-Lok.
On October 9, 2019, the European Patent Office (“EPO”)
granted European Patent No. 3370794, entitled “Antimicrobial Solutions with Enhanced Stability.” The grant of this
European patent strengthens the intellectual property protection for Mino-Lok through November of 2036. The new invention overcomes
limitations in mixing antimicrobial solutions, in which components have precipitated because of physical and/or chemical factors,
thus limiting the stability of the post-mix solutions. The scientists and technologists at MDACC have been able to improve the
stability of the post-mixed solutions through adjustments of the post-mixed pH of the solution. This may allow for longer storage
time of the ready-to-use solution.
Market Opportunity
In spite of best clinical practice, catheters contribute to
approximately 70% of blood stream infections that occur in the intensive care unit, or are associated with hemodialysis or cancer
patients (approximately 470,000 per year). Bacteria enter the catheter either from the skin or intraluminally through the catheter
hub. Once in the catheter, bacteria tend to form a protective biofilm on the interior surface of the catheter that is resistant
to most antimicrobial solutions. The most frequently used maintenance flush, heparin, actually stimulates biofilm formation. Heparin
is widely used as a prophylactic lock solution, in spite of the evidence that it contributes to the promotion of biofilm formation.
The formation of bacterial biofilm usually precedes CRBSIs.
The standard-of-care (“SOC”) in the management of
CRBSI patients consists of removing the infected CVC and replacing it with a new catheter at a different vascular access site.
However, in cancer and hemodialysis patients with long-term surgically implantable silicone catheters, removal of the CVC and reinsertion
of a new one at a different site might be difficult, or even impossible, because of the unavailability of other accessible vascular
sites and the need to maintain infusion therapy. Furthermore, critically ill patients with short-term catheters often have underlying
coagulopathy, which makes reinsertion of a new CVC at a different site, in the setting of CRBSIs, risky in terms of mechanical
complications, such as pneumothorax, misplacement, or arterial puncture. Studies have also revealed that CRBSI patients may be
associated with serious complications, including septic thrombosis, endocarditis and disseminated infection, particularly if caused
by Staphylococcus aureus or Candida species. Furthermore, catheter retention in patients with CRBSIs is associated
with a higher risk of relapse and poor response to antimicrobial therapy.
According to Maki et al., published in the Mayo Clinic Proceedings
in 2006, there are approximately 250,000 CRBSIs annually in the U.S. Subsequent to this study, our estimates have ranged upwards
to over 450,000 central line associated blood stream infections (“CLABSIs”) annually (see analysis in the table below).
CRBSIs are associated with a 12% to 35% mortality rate and an attributable cost of $35,000 to $56,000 per episode.
We estimate that the potential market for Mino-Lok in the U.S.
to be approximately $500 million to $1 billion as shown in the table below based on a target price of up to $300 per dose of each
salvage flush treatment.
|
|
Short-Term
CVC
|
|
|
Long-Term
CVC
|
|
|
Total
|
|
No. of Catheters
|
|
|
3 million
|
|
|
|
4 million
|
|
|
|
7 million
|
|
Avg. Duration (Days)
|
|
|
12
|
|
|
|
100
|
|
|
|
N/A
|
|
Catheter Days
|
|
|
36 million
|
|
|
|
400 million
|
|
|
|
436 million
|
|
Infection Rate
|
|
|
2/1,000 days
|
|
|
|
1/1,000 days
|
|
|
|
N/A
|
|
Catheters Infected
|
|
|
72,000
|
|
|
|
400,000
|
|
|
|
472,000
|
|
Flushes/Catheter
|
|
|
5
|
|
|
|
7
|
|
|
|
6.7
|
|
Total Salvage Flushes
|
|
|
360,000
|
|
|
|
2,800,000
|
|
|
|
3,160,000
|
|
Sources: Ann Intern Med 2000; 132:391-402,
Clev Clin J Med 2011; 78(1):10-17, JAVA 2007; 12(1):17-27, J Inf Nurs 2004;27(4):245-250, Joint Commission website Monograph,
CLABSI and Internal Estimates.
Under various plausible pricing scenarios, we believe that Mino-Lok
would be cost saving to the healthcare system given that the removal of an infected CVC and replacement of a new catheter in a
different venous access site is estimated by us to cost between $8,000 and $10,000. Furthermore, there are potential additional
medical benefits, a reduction in patient discomfort and avoidance of serious adverse events with the Mino-Lok approach since the
catheter remains in place and is not subject to manipulation. We believe there will be an economic argument to enhance the adoption
of Mino-Lok by infection control committees at acute care institutions.
In January of 2017, the Company commissioned a primary market
research study with MEDACore, a subsidiary of Leerink, a healthcare focused network with more than 35,000 healthcare professionals,
including key opinion leaders, experienced practitioners and other healthcare professionals throughout North America, Europe, Asia
and other locations around the world. This network includes approximately 55 clinical specialties, 21 basic sciences and 20 business
specialties. As part of this market research project, the Company commissioned a third party survey of 31 physicians to qualify
the need for catheter salvage in patients with infected, indwelling central venous lines, especially when the catheter is a tunneled
or an implanted port. There were 19 infectious disease experts and 12 intensivists surveyed who all agreed that salvage would be
preferable to catheter exchange to avoid catheter misplacements, blood clots, or vessel punctures that can potentially occur during
reinsertion. Most were also concerned that viable venous access may not be available in patients who were vitally dependent on
a central line.
Mino-Wrap
Overview
On January 2, 2019, we entered into a patent and technology
license agreement with the Board of Regents of the University of Texas System on behalf of the MDACC, whereby we in-licensed exclusive
worldwide rights to the patented technology for any and all uses relating to breast implants, specifically the Mino-Wrap technology. This
includes rights to U.S. Patent No. 9,849,217, which was issued on December 16, 2017. We intend to develop Mino-Wrap as a liquefying,
gel-based wrap containing minocycline and rifampin for the reduction of infections associated with breast implants following breast
reconstructive surgeries. We are required to use commercially reasonable efforts to commercialize Mino-Wrap under several
regulatory scenarios and achieve milestones associated with these regulatory options leading to an approval from the FDA. Mino-Wrap
will require pre-clinical development prior to any regulatory pathway. In July 2019, we announced that we intend to pursue the
FDA’s Investigational New Drug (“IND”) regulatory pathway for the development of Mino-Wrap.
Market Opportunity
Breast cancer is the most frequent cancer in women worldwide
representing 25% of all cancer diagnoses with the exception of non-melanoma skin cancer. In the United States, the overall rate
of mastectomies, combining single and double mastectomies, has increased 36% from 2005 to 2013. Additionally, the incidence of
post-mastectomy breast reconstruction, following breast cancer treatment, has been increasing on an annual basis.
In 2017, the American Society of Plastic Surgeons reported that
over 105,000 women in the United States underwent a post-mastectomy breast reconstructive procedure. Approximately 30% of the breast
reconstruction occurs simultaneously with mastectomy, with most reconstructions occurring weeks later.
The current standard of care in post-mastectomy breast reconstructive
is the use of a Tissue Expander (“TE”), which is a temporary implant that is placed below the pectoralis muscle within
the mastectomy space. Once a sufficiently large soft tissue envelope has been created, the TE is then replaced by a permanent breast
implant. Approximately 80% of the time, a TE is used in breast reconstructions.
The rate of infection following a mastectomy with a TE is 2.4
to 24% with an estimated mean of 12-14%. Once the implant becomes infected, the patient is usually hospitalized requiring approximate
2 weeks of IV and/or oral antimicrobials. In addition, the TE is removed, leading to a delay of lifesaving chemo-radiation therapy,
and a more complex reconstruction in the future.
Currently, preventive measures are used to decrease the rate
of TE infections with include a systemic perioperative antimicrobial agent with the perioperative immersion of the implant or irrigation
of the surgical pocket with an antimicrobial solution prior to insertion of the device. This is also administered with immediate
postoperative oral antimicrobials.
Based on the in vitro preclinical laboratory work, Mino-Wrap
appears to have the characteristics necessary for advancement in the protection of human implants from subsequent infection.
Halo-Lido
Overview
Halo-Lido is a topical formulation of halobetasol propionate,
a corticosteroid and lidocaine that is intended for the treatment of hemorrhoids. To our knowledge, there are currently no FDA-approved
prescription drug products for the treatment of hemorrhoids. Some physicians are known to prescribe topical steroids for the treatment
of hemorrhoids. In addition, there are various topical combination prescription products containing halobetasol propionate along
with lidocaine or pramoxine, each a topical anesthetic, that are prescribed by physicians for the treatment of hemorrhoids. These
products contain drugs that were in use prior to the start of the Drug Efficacy Study Implementation (“DESI”) program
and are commonly referred to as DESI drugs. However, none of these single-agent or combination prescription products have been
clinically evaluated for safety and efficacy and approved by the FDA for the treatment of hemorrhoids. Further, many hemorrhoid
patients use over the counter (“OTC”) products as their first line therapy. OTC products contain any one of several
active ingredients including glycerin, phenylephrine, pramoxine, white petrolatum, shark liver oil and/or witch hazel, for symptomatic
relief.
Development of Hemorrhoids Drugs
Hemorrhoids are a common gastrointestinal disorder, characterized
by anal itching, pain, swelling, tenderness, bleeding and difficulty defecating. In the U.S., hemorrhoids affect nearly 5% of the
population, with approximately 10 million persons annually admitting to having symptoms of hemorrhoidal disease. Of these persons,
approximately one third visit a physician for evaluation and treatment of their hemorrhoids. The data also indicate that for both
sexes a peak of prevalence occurs from age 45 to 65 years with a subsequent decrease after age 65 years. Caucasian populations
are affected significantly more frequently than African Americans, and increased prevalence rates are associated with higher socioeconomic
status in men but not women. Development of hemorrhoids before age 20 is unusual. In addition, between 50% and 90% of the general
U.S., Canadian and European population will experience hemorrhoidal disease at least once in life. Although hemorrhoids and other
anorectal diseases are not life-threatening, individual patients can suffer from agonizing symptoms which can limit social activities
and have a negative impact on the quality of life.
Hemorrhoids are defined as internal or external according to
their position relative to the dentate line. Classification is important for selecting the optimal treatment for an individual
patient. Accordingly, physicians use the following grading system referred to as the Goligher’s classification of internal
hemorrhoids:
Grade I
|
Hemorrhoids not prolapsed but bleeding.
|
|
|
Grade II
|
Hemorrhoids prolapse and reduce spontaneously with or without bleeding.
|
|
|
Grade III
|
Prolapsed hemorrhoids that require reduction manually.
|
|
|
Grade IV
|
Prolapsed and cannot be reduced including both internal and external hemorrhoids that are confluent from skin tag to inner anal canal.
|
Development Activities to Date
In the fall of 2015, we completed dosing patients in a double-blind
dose ranging placebo controlled Phase 2a study where six different formulations containing hydrocortisone and lidocaine in various
strengths were tested against the vehicle control. The objectives of this study were to: (1) demonstrate the safety and efficacy
of the formulations when applied twice daily for two weeks in subjects with Grade I or II hemorrhoids, and (2) assess the potential
contribution of lidocaine hydrochloride and hydrocortisone acetate, alone or in combination for the treatment of symptoms of Goligher’s
Classification Grade I or II hemorrhoids.
Symptom improvement was observed based on a global score of
disease severity (“GSDS”), and based on some of the individual signs and symptoms of hemorrhoids, specifically itching
and overall pain and discomfort. Within the first few days of treatment, the combination products (containing both hydrocortisone
and lidocaine) were directionally favorable versus the placebo and their respective individual active treatment groups (e.g., hydrocortisone
or lidocaine alone) in achieving ‘almost symptom free’ or ’symptom free’ status according to the GSDS scale.
These differences suggest the possibility of a benefit for the combination product formulation.
Overall, results from adverse event reporting support the safety
profile of all test articles evaluated in this study and demonstrate similar safety profiles as compared to the vehicle. The safety
findings were unremarkable. There was a low occurrence of adverse events and a similar rate of treatment related adverse events
across all treatment groups. The majority of adverse events were mild and only one was severe. None of the adverse events were
an SAE and the majority of adverse events were recovered/resolved at the end of the study. There were only two subjects who were
discontinued from the study due to adverse events.
In addition to the safety and dose-ranging information, information
was obtained relating to the use of the GSDS as an assessment tool for measuring the effectiveness of the test articles. Individual
signs and symptoms were also assessed but can vary from patient to patient. Therefore, the goal of the GSDS was to provide an assessment
tool that could be used for all patients regardless of which signs and symptoms they are experiencing. The GSDS proved to be a
more effective tool for assessing the severity of the disease and the effectiveness of the drug when compared to the assessment
of the individual signs and symptoms. Citius believes that we can continue to develop this assessment tool as well as other patient
reported outcome endpoints for use in the next trials and in the pivotal trial.
Information was also obtained about the formulation of the drug
and the vehicle. As a result of this study, we believe that the performance of the active arms of the study relative to the vehicle
can be improved by re-formulating our topical preparation. Therefore, we have initiated work on vehicle formulation and evaluation
of higher potency steroids.
In June and July 2016, we engaged the Dominion Group, a leading
provider of healthcare and pharmaceutical marketing research services. The primary market research was conducted to understand
the symptoms that are most bothersome to patients better in order to develop meaningful endpoints for the clinical trials. We also
learned about the factors that drive patients to seek medical attention for hemorrhoids in an effort to understand the disease
impact on quality of life. The results of this survey are able to help us develop patient reported outcome evaluation tools. These
tools can be used in clinical trials to evaluate the patients’ conditions and to assess the performance of the test articles.
In March 2018, we announced that we had selected a higher potency
corticosteroid in our steroid/anesthetic topical formulation program for the treatment of hemorrhoids. The original topical preparation,
which we referred to as Hydro-Lido or CITI-001, which was used in the Phase 2a study, was a combination of hydrocortisone acetate
and lidocaine hydrochloride. The new formulation, CITI-002, which we refer to as Halo-Lido, will combine lidocaine with the higher
potency corticosteroid halobetasol propionate for symptomatic relief of the pain and discomfort of hemorrhoids.
We held a Type C meeting with the FDA in December 2017 to discuss
the results of the Phase 2a study and to obtain the FDA’s view on development plans to support the potential formulation
change for the planned Phase 2b study. We also requested the FDA’s feedback on our Phase 2b study design, including target
patient population, inclusion/exclusion criteria, and efficacy endpoints. The pre-clinical and clinical development programs for
CITI-002 are planned to be similar to those conducted for the development of CITI-001 to support the design for a planned Phase
3 clinical trial.
Market Opportunity
The current market for OTC and topical prescription (“Rx”)
products for the symptomatic treatment of hemorrhoids is highly fragmented, and includes approximately 20 million units of OTC
and over 4 million prescriptions. None of the Rx products have received FDA approval and are only available due to the DESI program,
which started decades ago after enactment of the 1962 Kefauver-Harris Drug Amendments. These DESI products have no FDA reviewed
evidence of efficacy or safety, and may be subject to withdrawal if an approved product were to be introduced. Several topical
combination prescription products for the treatment of hemorrhoids are available containing hydrocortisone in strengths ranging
from 0.5% to 3.0%, combined with lidocaine in strengths ranging from 1.0% to 3.0%. The various topical formulations include creams,
ointments, gels, lotions, enemas, pads, and suppositories. The most commonly prescribed topical combination gel is sold as a branded
generic product and contains 2.5% hydrocortisone and 3.0% lidocaine.
We believe there are currently no FDA-approved prescription
drug products for the treatment of hemorrhoids. Although there are numerous Rx and OTC products commonly used to treat hemorrhoids,
none possess proven safety and efficacy data generated from rigorously conducted clinical trials. We believe that a novel topical
formulation of halobetasol propionate and lidocaine designed to provide anti-inflammatory and anesthetic relief and which has an
FDA-approved label specifically claiming the treatment of hemorrhoids will become an important treatment option for physicians
who want to provide their patients with a therapy that has demonstrated safety and efficacy in treating this uncomfortable and
often recurring disease. We believe that our Halo-Lido product represents an attractive, low-risk product opportunity with meaningful
upside potential.
Market Exclusivity
We believe that we will be the first company to conduct rigorous
clinical trials and receive FDA approval of a topical corticosteroid-lidocaine combination product for the treatment of hemorrhoids.
If we receive FDA approval, we will qualify for three years of market exclusivity for our dosage strength and formulation. In addition,
we will also be the only product on the market specifically proven to be safe and effective for the treatment of hemorrhoids. Generally,
if a company conducts clinical trials and receives FDA approval of a product for which there are similar, but non FDA-approved,
prescription products on the market, the manufacturers of the unapproved but marketed products are required to withdraw them from
the market. However, the FDA has significant latitude in determining how to enforce its regulatory powers in these circumstances.
We have not had any communication with the FDA regarding this matter and cannot predict what action, if any, the FDA will take
with respect to the unapproved products.
We believe that should Halo-Lido receive FDA approval and demonstrate,
proven safety and efficacy data, and if Halo-Lido obtains three years of market exclusivity based on our dosage strength and formulation,
we are likely to have a meaningful advantage in our pursuit of achieving a significant position in the market for topical combination
prescription products for the treatment of hemorrhoids.
Sales and Marketing
We are primarily focused on identifying opportunities within
the critical care and cancer care market segments. In our product acquisition criteria, we concentrate on markets that are highly
influenced by key opinion leaders, commonly referred to as KOLs, and in which products are prescribed by a relatively small number
of physicians, yet provide opportunities for growth and market share. This strategy allows for a manageable commercialization effort
for our Company in terms of resources and capital. We also seek to provide cost-effective therapies that would be endorsed by payers,
patients, and providers. We believe that we will be able to commercialize products within the scope of these criteria ourselves,
and that we can create marketing synergies by having a common narrow audience for our marketing efforts (“several products
in the bag for the same customer”).
For our product candidates that fall out of the narrow scope
criteria, we have identified pharmaceutical companies with large sales forces, experienced sales and marketing management teams,
direct-to-consumer capabilities, significantly larger resources than ours, and non-competing product portfolios that we believe
would make excellent sales and marketing partners for us. We intend to license our mass audience, non-specialty product candidates
to such companies for sales and marketing.
Intellectual Property
We rely on a combination of patent, trade secret, copyright,
and trademark laws, as well as confidentiality, licensing and other agreements, to establish and protect our proprietary rights.
Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current
product candidates and any future product candidates both in the U.S. and abroad. However, patent protection may not provide us
with complete protection against competitors who seek to circumvent our patents. To help protect our proprietary know-how that
is not patentable, and for inventions for which patents may be difficult to enforce, we currently rely and will in the future rely
on trade secret protection and confidentiality agreements to protect our interests.
Mino-Lok Intellectual Property
In May 2014, our subsidiary LMB entered into a patent and technology
license agreement with Novel Anti-Infective Therapeutics, Inc. (“NAT”), who licensed the intellectual property from
MDACC, to develop and commercialize Mino-Lok on an exclusive, worldwide (except for South America), sub-licensable basis. LMB incurred
a one-time license fee in May 2014. On March 20, 2017, LMB entered into an amendment to the license agreement that expanded the
licensed territory to include South America, providing LMB with worldwide rights. We are obligated to pay annual maintenance fees
that increase annually until reaching a designated amount, which we must pay until the first sale of product. We also must pay
up to an aggregate of approximately $1.1 million in milestone payments, depending on the achievement of various regulatory and
commercial milestones. Under the terms of the license agreement, we also must pay a royalty equal to mid-single digit percentages
to low-double digit percentages of net sales, depending on the level of sales in that year, and subject to downward adjustment
to lower- to mid-single digit percentages in the event there is no valid patent for the product in the country of sale at the time
of sale. After the first sale of product, we will owe an annual minimum royalty payment that will increase annually until reaching
a designated amount, which we must pay duration of the term. We will be responsible for all patent expenses for the term of the
agreement although MDACC is responsible for filing, prosecution and maintenance of all patents.
Unless earlier terminated by NAT based on the failure to achieve
certain development or commercial milestones, the license agreement remains in effect until the date that all patents licensed
under the agreement have expired and all patent applications within the licensed patent rights have been cancelled, withdrawn or
expressly abandoned. NAT may terminate the license agreement at any time after four years in any country if we have not commercialized
or are not actively attempting to commercialize a product in such country. The license agreement will terminate in the event we
breach any of our payment or reporting obligations or NAT breaches any of its obligations under the agreement. NAT will have the
right to terminate the agreement if we bring or participate in an action to challenge NAT’s ownership of any of the licensed
patent rights. We may terminate the license agreement upon 180 days’ notice. The license agreement may also be terminated
upon our and NAT’s mutual consent.
Mino-Lok is covered in relation to the composition by issued
U.S. patent No. 7,601,731, entitled “Antimicrobial Flush Solutions,” which was issued on October 13, 2009. Mino-Lok
is further covered in relation to its method of use by issued U.S. Patent No. 9,078,441, which was issued on July 14, 2015. The
patents provide intellectual property protection until June 7, 2024. There are corresponding patents granted in Europe and Canada
(European Patent No. EP 1644024, and Canadian Patent No. 2528522).
Stability Patent Application for Mino-Lok
In October 2018, the U.S. Patent and Trademark Office (“USPTO”)
issued U.S. Patent No. 10,086,114 (the “114 patent”), entitled “Antimicrobial Solutions with Enhanced Stability.”
On October 9, 2019, the European Patent Office (“EPO”) granted European Patent No. 3370794, which corresponds to the
‘114 patent. The grant of these patents strengthens the intellectual property protection for Mino-Lok through November 2036.
While the original patents for Mino-Lok (discussed above) cover the basic composition, the new invention overcomes limitations
in mixing antimicrobial solutions in which components have precipitated because of physical and/or chemical factors, thus limiting
the stability of the post-mix solutions. The scientists and technologists at MDACC have been able to improve the stability of the
post-mixed solutions through adjustments of the post-mixed pH of the solution. This may allow for longer storage time of the ready-to-use
solution. As such, the patents claiming the enhanced stability may effectively extend patent protection for Mino-Lok beyond the
2024 expiration of the original patents since it is expected that the compositions providing enhanced stability would be preferred
over any non-stabilized versions that a competitor may introduce after June 7, 2024. Citius holds the exclusive worldwide license
which provides access to this patented technology for development and commercialization of Mino-Lok.
Mino-Lok has received a Qualified Infectious Disease Product
(“QIDP”) designation. The QIDP designation provides New Drug Applications an additional five years of market exclusivity,
which together with the potential three years of exclusivity for the new strength and formulation of Mino-Lok, would result in
a combined total of eight years of market exclusivity regardless of patent protection.
Mino-Wrap Intellectual Property
In January 2019, we entered into a patent and technology license
agreement with MDACC to develop and commercialize Mino-Wrap on an exclusive worldwide basis, with no rights to sub-license. We
paid a one-time upfront licensing fee upon execution of the agreement. Under the agreement, we are required to use commercially
reasonable efforts to commercialize Mino-Wrap under several regulatory scenarios and achieve milestones that are associated with
these regulatory options leading to an approval from the FDA. We are obligated to pay annual maintenance fees that increase annually
until reaching a designated amount, which we must pay until the first sale of product. We also must pay up to an aggregate of $2.1
million in milestone payments, depending on the achievement of various regulatory and commercial milestones. Under the terms of
the license agreement, we also must pay a royalty equal to mid- to upper-single digit percentages of net sales, depending on the
level of sales in that year, and subject to downward adjustment to lower- to mid-single digit percentages in the event there is
no valid patent for the product in the United States at the time of sale. After the first sale of product, we will owe an annual
minimum royalty payment that will increase annually for the duration of the term. We will be responsible for all patent expenses
incurred by MDACC for the term of the agreement although MDACC is responsible for filing, prosecution and maintenance of all patents.
The term of the license agreement will end on the later of the
expiration of all licensed patents, or the fifteenth anniversary of the agreement. MDACC may terminate the license agreement at
any time after four years in any country if we have not commercialized or are not actively attempting to commercialize a product
in such country. The license agreement will terminate in the event we breach any of our payment or reporting obligations or MDACC
breaches any of its obligations under the agreement. MDACC will have the right to terminate the agreement if we bring or participate
in an action to challenge MDACC’s ownership of any of the licensed patent rights. We may terminate the license agreement
upon 180 days’ notice. The license agreement may also be terminated upon our and MDACC’s mutual consent.
In December 2017, the USPTO issued U.S. Patent No. 9,849,217,
entitled “Antimicrobial Wraps for Medical Implants.” The new invention overcomes limitations in breast reconstruction
utilizing tissue expanders and implants following mastectomies by providing, in certain aspects, biodegradable antimicrobial film
that may be wrapped around a medical implant such as a breast implant prior to the insertion into a subject such as a human patient.
The scientists and technologists at MDACC have developed a biodegradable covering for a medical implant comprising a highly plasticized
gelatin and at least one drug to reduce infection. Citius holds the exclusive worldwide license which provides access to this patented
technology for development and commercialization of Mino-Wrap.
Halo-Lido Intellectual Property
We are developing Halo-Lido to have a unique combination of
excipients as well as unique concentrations of the active ingredients. The goal is to have a product that is optimized for stability
and activity. Once the formulation development is completed and data is obtained, we intend to apply for a patent on this new topical
formulation.
We seek to achieve approval for Halo-Lido by utilizing the FDA’s
505(b)(2) pathway. This pathway allows an applicant to file an NDA that contains full reports of investigations of safety and effectiveness,
but where at least some of the information required for approval comes from prior studies not conducted by or for the applicant
and for which the applicant has not obtained a right of reference to such prior third-party studies. This pathway would provide
three years of market exclusivity.
Competition
We operate in a highly competitive and regulated industry which
is subject to rapid and frequent changes. We face significant competition from organizations that are pursuing drugs that would
compete with the drug candidates that we are developing and the same or similar products that target the same conditions we intend
to treat. Due to our limited resources, we may not be able to compete successfully against these organizations, which include many
large, well-financed and experienced pharmaceutical and biotechnology companies, as well as academic and research institutions
and government agencies.
Mino-Lok Competition
Currently, the only alternative to Mino-Lok in the treatment
of infected CVCs in CRBSI/CLABSI patients of which we are aware, is the SOC of removing the culprit CVC and replacing a new CVC
at a different vascular site. Citius is not aware of any Investigational New Drug Applications (“INDs”) for a salvage
antibiotic lock solution and does not expect any to be forthcoming due to the difficulty of meeting the necessary criteria to be
effective and practical.
At this time, there are no pharmacologic agents approved in
the U.S. for the prevention or treatment of CRBSIs or CLABSIs in central venous catheters. Citius is aware that there are several
agents in development for prevention but none for salvage. The most prominent of these appear to be Neutrolin from CorMedix Inc.
and B-Lock from Great Lakes Pharmaceuticals, Inc. (“GLP”).
Neutrolin® (CorMedix Inc.)
Neutrolin is a formulation of Taurolidine 1.35%, Citrate 3.5%,
and Heparin 1000 units/mL. Neutrolin is an anti-microbial catheter lock solution being developed by CorMedix to prevent CRBSIs
and to prevent clotting. In January 2015, the FDA granted Fast Track and Qualified Infectious Disease Product (“QIDP”)
designations for Neutrolin. In December 2015, CorMedix initiated its Phase 3 clinical trial in hemodialysis patients in the United
States. The clinical trial named Catheter Lock Solution Investigational Trial, or LOCK-IT-100 is a prospective, multicenter, randomized,
double-blind, placebo-controlled, active control trial designed to show efficacy and safety of Neutrolin in preventing CRBSIs in
subjects receiving hemodialysis therapy. On April 20, 2017, CorMedix provided an update on the LOCK-IT-100 trial. CorMedix had
enrolled 368 patients to date and completed a safety review by an independent Data and Safety Monitoring Board (“DSMB”)
of the first 279 patients. The DSMB concluded that it was safe to continue the trial as designed; however, CorMedix initiated discussions
with the FDA to make some protocol changes to include one or more interim efficacy analyses. According to CorMedix, the FDA accepted
the CorMedix proposal.
On June 20, 2018, CorMedix announced that it had completed its
review and source-verification of the data required for the interim analysis of the Phase 3 LOCK-IT-100 study for Neutrolin. The
data was then locked and transferred to the independent biostatistician for un-blinding and analysis, who then provided the results
to the DSMB for its review.
On July 25, 2018 CorMedix announced that the DSMB had completed
its review of the interim analysis of the data from the currently ongoing Phase 3 LOCK-IT-100 study for Neutrolin. Because the
pre-specified level of statistical significance was reached and efficacy had been demonstrated, the DSMB recommended the study
be terminated early. No safety concerns were reported by the DSMB based on the interim analysis. CorMedix is expected to submit
the results of the interim analysis to the FDA for its review.
B-Lock™ (Great Lakes Pharmaceuticals, Inc.)
B-Lock is a triple combination of trimethoprim, EDTA and ethanol
from Great Lakes Pharmaceuticals, Inc. (“GLP”). On July 24, 2012, GLP announced the initiation of a clinical study
of B-Lock. We are unaware as to the progress or results of these studies. In addition, we are not aware of any IND being filed
in the U.S. for B-Lock, nor are we aware of any clinical studies to support salvage of infected catheters in bacteremic patients.
Neither of these lock solutions have been shown to be effective
in salvaging catheters in bacteremic patients as Mino-Lok is intended to do, and Citius does not expect that either would be pursued
for this indication.
There has been no further public information available on GLP.
GLP’s web site and phone number are no longer active and the Company believes that they have ceased operations.
Mino-Wrap Competition
The primary competition for Mino-Wrap would be the existing
standard-of-care which includes a systemic perioperative antimicrobial agent with the perioperative immersion of the implant or
irrigation of the surgical pocket with an antimicrobial solution prior to insertion of the tissue expander device. This is also
administered with immediate postoperative oral antimicrobials.
Halo-Lido Competition
The primary competition in the hemorrhoid market is non-prescription
over the counter products. If approved by the FDA, Halo-Lido will be the only prescription product for the treatment of hemorrhoids.
Supply and Manufacturing
We do not currently have and we do not intend to set up our
own manufacturing facilities. We expect to use approved contract manufacturers for manufacturing our product candidates in all
stages of development after we file for FDA approval. Each of our domestic and foreign contract manufacturing establishments, including
any contract manufacturers we may decide to use, must be listed in the NDA and must be registered with the FDA. Also, the FDA imposes
substantial annual fees on manufacturers of branded products.
In general, our suppliers purchase raw materials and supplies
on the open market. Substantially all such materials are obtainable from a number of sources so that the loss of any one source
of supply would not have a material adverse effect on us.
If we elect to conduct product development and manufacturing,
we will be subject to regulation under various federal and state laws, including the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Controlled Substances Act and
other present and potential future federal, state or local regulations.
We have contracted with proven suppliers and manufacturers for
active pharmaceutical ingredient, development and packaging. We are confident that all materials meet or will meet specifications
discussed at the chemistry, manufacturing and controls meeting with the FDA.
Regulation
United States Government Regulation
The research, development, testing, manufacture, labeling, promotion,
advertising, distribution and marketing, among other things, of our product candidates are extensively regulated by governmental
authorities in the United States and other countries. All of our current product candidates are considered drugs rather than medical
devices. Consequently, we intend to submit and NDA to the FDA for each of Mino-Lok, Halo-Lido and Mino-Wrap.
In the United States, the FDA regulates drugs under the Federal
Food, Drug, and Cosmetic Act and the agency’s implementing regulations. If we fail to comply with the applicable United States
requirements at any time during the product development process, clinical testing, and the approval process or after approval,
we may become subject to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve
pending applications, license suspension or revocation, withdrawal of an approval, warning letters, adverse publicity, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal
prosecution. Any agency enforcement action could have a material adverse effect on our company and its operations.
Before any of our drug product candidates may be marketed in
the United States, it must be approved by the FDA. The steps required before a drug may be approved for marketing in the United
States generally include:
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preclinical laboratory and animal tests, and formulation studies;
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the submission to the FDA of an Investigational New Drug (“IND”)
application for human clinical testing that must become effective before human clinical trials may begin;
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adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product candidate for each indication for which approval is sought;
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the submission to the FDA of an NDA and FDA’s acceptance of
the NDA for filing;
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satisfactory completion of an FDA inspection of the manufacturing
facilities at which the product is to be produced to assess compliance with the FDA’s Good Manufacturing Practices (GMP);
and
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FDA review and approval of the NDA.
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Foreign Regulation
We and any of our collaborative partners may be subject to widely
varying foreign regulations, which may be different from those of the FDA, governing clinical trials, manufacture, product registration
and approval and pharmaceutical sales. Whether or not FDA approval has been obtained, we or our collaboration partners must obtain
a separate approval for a product by the comparable regulatory authorities of foreign countries prior to the commencement of product
marketing in such countries. In certain countries, regulatory authorities also establish pricing and reimbursement criteria. The
approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. In
addition, under current United States law, there are restrictions on the export of products not approved by the FDA, depending
on the country involved and the status of the product in that country.
International sales of medical devices manufactured in the U.S.
that are not approved by the FDA for use in the U.S., or are banned or deviate from lawful performance standards, are subject to
FDA export requirements. Exported devices are subject to the regulatory requirements of each country to which the device is exported.
Some countries do not have medical device regulations, but in most foreign countries, medical devices are regulated. Frequently,
regulatory approval may first be obtained in a foreign country prior to application in the U.S. to take advantage of differing
regulatory requirements. Most countries outside of the U.S. require that product approvals be recertified on a regular basis, generally
every five years. The recertification process requires that we evaluate any device changes and any new regulations or standards
relevant to the device and conduct appropriate testing to document continued compliance. Where recertification applications are
required, they must be approved in order to continue selling those products in those countries.
In the European Union, in order for a product to be marketed
and sold, it is required to comply with the Medical Devices Directive and obtain CE Mark certification. The CE Mark certification
encompasses an extensive review of the applicant’s quality management system which is inspected by a notified body’s
auditor as part of a stage 1 and 2 International Organization for Standardization (“ISO”) 13485:2016 audit, in accordance
with worldwide recognized ISO standards and applicable European Medical Devices Directives for quality management systems for medical
device manufacturers. Once the quality management system and design dossier has been successfully audited by a notified body and
reviewed and approved by a competent authority, a CE certificate for the medical device will be issued. Applicants are also required
to comply with other foreign regulations such as the requirement to obtain Ministry of Health, Labor and Welfare approval before
a new product can be launched in Japan. The time required to obtain these foreign approvals to market our products may vary from
U.S. approvals, and requirements for these approvals may differ from those required by the FDA.
Medical device laws and regulations are in effect in many of
the countries in which we may do business outside the United States. These laws and regulations range from comprehensive device
approval requirements for our medical device product to requests for product data or certifications. The number and scope of these
requirements are increasing. We may not be able to obtain regulatory approvals in such countries and may be required to incur significant
costs in obtaining or maintaining its foreign regulatory approvals. In addition, the export of certain of our products which have
not yet been cleared for domestic commercial distribution may be subject to FDA export restrictions. Any failure to obtain product
approvals in a timely fashion or to comply with state or foreign medical device laws and regulations may have a serious adverse
effect on our business, financial condition or results of operations.
Employees
As of September 30, 2019, we had 9 employees and various consultants
providing support. Through our consulting and collaboration arrangements, and including our Scientific Advisory Board, we have
access to more than 30 additional professionals, who possess significant expertise in business development, legal, accounting,
regulatory affairs, clinical operations and manufacturing. We also rely upon a network of consultants to support our clinical studies
and manufacturing efforts.
Executive Officers of Citius
Myron Holubiak, President, Chief Executive Officer
and Director – Mr. Holubiak, 72, was appointed President, Chief Executive Officer and Director in March 2016. He previously
served as a Director of Citius since October 2015 and was the founder and Chief Executive Officer and President of Leonard-Meron
Biosciences, Inc., an acquired subsidiary of Citius, from March 2013 until March 2016.
Leonard Mazur, Executive Chairman and Secretary
– Mr. Mazur, 74, has been a member of the Board since September 2014. Mr. Mazur previously served as Chief Executive Officer,
President, and Chief Operating Officer from September 2014 until March 2016.
Jaime Bartushak, Chief Financial Officer and Principal
Financial Officer – Mr. Bartushak, 52, was appointed as Chief Financial Officer in November 2017. Previously, he was one
of the founders and Chief Financial Officer of Leonard-Meron Biosciences, Inc., an acquired subsidiary of Citius.
Other Information
We make available, free of charge through our website, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as
is reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet site that
contains these reports at www.sec.gov.
Our website address is http://www.citiuspharma.com.
The information contained in, or that can be accessed through, our website is not part of this report.
Item 1A. Risk Factors
This report contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those discussed in this report. Factors that could cause
or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any
documents incorporated in this report by reference.
If any of the following risks, or other risks not presently
known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition,
results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock
could decline, and stockholders may lose all or part of their investment.
Risks related to our Business and our
Industry
We have a history of net losses and expect to incur losses
for the foreseeable future. We may never generate revenues or, if we are able to generate revenues, achieve profitability.
We were formed in 2007 and since our inception have incurred
a net loss in each of our previous operating years. Our ability to become profitable depends upon our ability to obtain marketing
approval for and generate revenues from sales of our product candidates. We have been focused on product development, have not
received approval for any of our product candidates, and have not generated any revenues to date. We have incurred losses in each
period of our operations, and we expect to continue to incur losses for the foreseeable future. These losses are likely to continue
to adversely affect our working capital, total assets and shareholders’ equity. The process of developing our product candidates
requires significant clinical, development and laboratory testing and clinical trials. In addition, commercialization of our product
candidates will require that we obtain necessary regulatory approvals and establish sales, marketing and manufacturing capabilities,
either through internal hiring or through contractual relationships with others. We expect to incur substantial losses for the
foreseeable future as a result of anticipated increases in our research and development costs, including costs associated with
conducting preclinical testing and clinical trials, and regulatory compliance activities. We incurred net losses of $15,562,144,
$12,536,638 and $10,384,953 for the years ended September 30, 2019, 2018 and 2017, respectively. At September 30, 2019, we had
stockholders’ equity of $24,378,672 and an accumulated deficit of $55,819,982. Our net cash used in operating activities
was $12,437,751, $11,318,138 and $7,971,205 for the years ended September 30, 2019, 2018 and 2017, respectively.
Our ability to generate revenues and achieve profitability will
depend on numerous factors, including success in:
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developing and testing product candidates;
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receiving regulatory approvals for our product candidates;
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commercializing our product candidates;
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manufacturing commercial quantities of our product candidates at acceptable cost levels;
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obtaining medical insurance coverage for any approved product candidate; and
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establishing a favorable competitive position for our product candidates.
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Many of these factors will depend on circumstances beyond our
control. We cannot assure you that any of our product candidates will be approved by the FDA or any foreign regulatory body or
obtain medical insurance coverage, that we will successfully bring any approved product to market or, if so, that we will ever
become profitable.
There is substantial doubt about our ability to continue
as a going concern.
Currently, we do not have sufficient capital to continue our
operations after the first six months of fiscal 2020. You should not rely on our consolidated balance sheet as an indication of
the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to
shareholders, in the event of liquidation.
Our audited consolidated financial statements included in this
report have been prepared assuming that we will continue as a going concern and do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result
if we do not continue as a going concern. We have concluded that substantial doubt about our ability to continue as a going concern
exists and our auditors have made reference to this in their audit report on our audited consolidated financial statements for
the year ended September 30, 2019.
We need to secure additional financing in the near future
to complete the development of our current product candidates and support our operations.
We anticipate that we will incur operating losses for the foreseeable
future. We have received gross proceeds of approximately $47.9 million from our public and private placement offerings through
September 30, 2019. Additionally, in connection with the acquisition of LMB our Executive Chairman, Leonard Mazur, made an equity
investment of $3.0 million in March 2016. Mr. Mazur has also loaned us $4,710,000 pursuant to convertible promissory notes. On
August 8, 2017, these notes and accrued interest of $76,240 were converted into 1,547,067 shares of common stock at a price of
$3.09 per share as part of an underwritten public offering which closed on the same date.
The amount and timing of our future funding requirements will
depend on many factors, including, but not limited to:
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the rate of progress and cost of our trials and other product development programs for our current product candidates;
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the costs and timing of obtaining licenses for additional product candidates or acquiring other complementary technologies;
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the timing of any regulatory approvals of any of our product candidates;
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the costs of establishing or contracting for sales, marketing and distribution capabilities for our product candidates; and
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the status, terms and timing of any collaborative, licensing, co-promotion or other arrangements.
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We will need to access the capital markets in the future for
additional capital for research and development and for operations. Traditionally, pharmaceutical companies have funded their research
and development expenditures through raising capital in the equity markets. Declines and uncertainties in these markets over the
past several years have severely restricted raising new capital and have affected companies’ ability to continue to expand
or fund existing research and development efforts. If these economic conditions continue or become worse, our future cost of equity
or debt capital and access to the capital markets could be adversely affected. If we are not successful in securing additional
financing, we may be required to significantly delay, reduce the scope of or eliminate one or more of our research or development
programs, downsize our general and administrative infrastructure, or seek alternative measures to avoid insolvency, including arrangements
with collaborative partners or others that may require us to relinquish rights to certain of our technologies or product candidates.
We are a late-stage development company with an unproven
business strategy and may never achieve commercialization of our therapeutic product candidates or profitability.
We have no approved products. All of our current product candidates
are in the pre-clinical or clinical stage. We rely on third parties to conduct the research and development activities for our
product candidates. Further, we have no sales or marketing capability at this time. Even if we decide to use collaborative partners
to assist us in the commercialization of our product candidates, our product commercialization capabilities are unproven. Our success
will depend upon our ability to develop such capabilities on our own or to enter into collaboration agreements on favorable terms
and to select an appropriate commercialization strategy for each product candidate that we choose to pursue, whether on our own
or in collaboration. If we are not successful in implementing our strategy to commercialize our product candidates, we may never
achieve, maintain or increase profitability. Our ability to successfully commercialize any of our product candidates will depend,
among other things, on our ability to:
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successfully complete pre-clinical and clinical trials for our product candidates;
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receive marketing approvals from the FDA and similar foreign regulatory authorities for our product candidates;
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establish commercial manufacturing arrangements with third-party manufacturers for our product candidates;
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produce, through a validated process, sufficiently large quantities of our drug compound(s) to permit successful commercialization of our product candidates;
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build and maintain strong sales, distribution and marketing capabilities sufficient to launch commercial sales of any approved products or establish collaborations with third parties for such commercialization;
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secure acceptance of any approved products from physicians, health care payers, patients and the medical community; and
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manage our spending as costs and expenses increase due to clinical trials, regulatory applications and development and commercialization activities.
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There are no guarantees that we will be successful in completing
these tasks. If we are unable to successfully complete these tasks, we may not be able to commercialize any of our product candidates
in a timely manner, or at all, in which case we may be unable to generate sufficient revenues to sustain and grow our business.
If we experience unanticipated delays or problems, our development costs could substantially increase and our business, financial
condition and results of operations will be adversely affected.
We have a limited operating history upon which to evaluate
our ability to successfully commercialize our product candidates.
We are a clinical stage company and our success is dependent
upon our ability to obtain regulatory approval for and commercialize our products and we have not demonstrated an ability to perform
the functions necessary for the approval or successful commercialization of any product candidates. While various members of our
executive management and key employees have significant prior experience in pharmaceutical development, as a company we have to
date not successfully completed any late stage clinical trials nor undertaken any commercialization activities. Our operations
have been limited primarily to businesses planning, acquiring our proprietary technology, research and development, recruiting
management and technical staff, and raising capital. These operations provide a limited basis for you to assess our ability to
successfully commercialize our product candidates and the advisability of investing in our securities.
We may choose not to continue developing any of our product
candidates at any time during development, which would reduce or eliminate our potential return on investment for those product
candidates.
At any time, we may decide to discontinue the development of
any of our product candidates for a variety of reasons, including inadequate financial resources, the appearance of new technologies
that render our product candidate obsolete, competition from a competing product or changes in or failure to comply with applicable
regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return
on our investment and we will have missed the opportunity to allocate those resources to potentially more productive uses.
As an example, on July 1, 2016, we announced that we were discontinuing
the development of Suprenza, which was our first commercial product candidate, for strategic reasons and not due to safety or regulatory
concerns, in order to focus our management and cash resources on the Phase 3 development of Mino-Lok and the Phase 2b development
of Halo-Lido. The resources expended on Suprenza therefore did not provide us any benefit.
We face significant risks in our product candidate development
efforts.
Our business depends on the successful development and commercialization
of our product candidates. We are not permitted to market any of our product candidates in the United States until we receive approval
of an NDA from the FDA, or in any foreign jurisdiction until we receive the requisite approvals from such jurisdiction. The process
of developing new drugs and/or therapeutic products is inherently complex, unpredictable, time-consuming, expensive and uncertain.
We must make long-term investments and commit significant resources before knowing whether our development programs will result
in products that will receive regulatory approval and achieve market acceptance. Product candidates that appear to be promising
at all stages of development may not reach the market for a number of reasons that may not be predictable based on results and
data of the clinical program. Product candidates may be found ineffective or may cause harmful side effects during clinical trials,
may take longer to progress through clinical trials than had been anticipated, may not be able to achieve the pre-defined clinical
endpoints due to statistical anomalies even though clinical benefit may have been achieved, may fail to receive necessary regulatory
approvals, may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality, or may
fail to achieve market acceptance.
We cannot predict whether or when we will obtain regulatory
approval to commercialize our product candidates that are under development and we cannot, therefore, predict the timing of any
future revenues from these product candidates, if any. The FDA has substantial discretion in the drug approval process, including
the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the FDA:
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could determine that we cannot rely on Section 505(b)(2) for Mino-Lok or Halo-Lido or any future product candidates;
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could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to demonstrate the safety and effectiveness of any of our product candidates for any indication;
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may not find the data from clinical trials sufficient to support the submission of an NDA or to obtain marketing approval in the United States, including any findings that the clinical and other benefits of our product candidates outweigh their safety risks;
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may disagree with our trial design or our interpretation of data from preclinical studies or clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our trials;
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may determine that we have identified the wrong reference listed drug or drugs or that approval of a Section 505(b)(2) application for any of our product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or drugs;
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may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for the manufacture of our product candidates;
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may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials;
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may change its approval policies or adopt new regulations that could adversely impact our product candidate development programs; or
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may not approve the labeling claims
that we believe are necessary or desirable for the successful commercialization of our product candidates, or may require labeling
claims that impair the potential market acceptance of our product candidates.
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These same risks are generally applicable to the regulatory
process in foreign countries. Any failure to obtain regulatory approval of our product candidates would significantly limit our
ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable
could reduce our potential revenues.
While our business strategy generally is to focus on the
development of late stage product candidates to lessen the development risk, there is still significant risk to successfully developing
a product candidate.
Our goal in pursuing late stage therapeutic product candidates
with what we believe is a promising pre-clinical and early clinical stage track record is to avoid the risk of failure at the pre-clinical
and early clinical stages. However, there is still significant risk to obtaining regulatory approval and successfully commercializing
any late stage product candidate that we pursue. All of the risks inherent in drug development of initial stage product candidates
also apply to late stage candidates. We cannot assure you that our business strategy will be successful.
The results of pre-clinical studies and completed clinical
trials are not necessarily predictive of future results, and our current product candidates may not have favorable results in later
studies or trials.
Pre-clinical studies and Phase 1 and Phase 2 clinical trials
are not primarily designed to test the efficacy of a product candidate in the general population, but rather to test initial safety,
to study pharmacokinetics and pharmacodynamics, to study limited efficacy in a small number of study patients in a selected disease
population, and to identify and attempt to understand the product candidate’s side effects at various doses and dosing schedules.
Success in pre-clinical studies or completed clinical trials does not ensure that later studies or trials, including continuing
pre-clinical studies and large-scale clinical trials, will be successful nor does it predict future results. Favorable results
in early studies or trials may not be repeated in later studies or trials, and product candidates in later stage trials may fail
to show acceptable safety and efficacy despite having progressed through earlier trials. In addition, the placebo rate in larger
studies may be higher than expected.
We may be required to demonstrate through large, long-term outcome
trials that our product candidates are safe and effective for use in a broad population prior to obtaining regulatory approval.
There is typically a high rate of attrition from the failure
of product candidates proceeding through clinical trials. In addition, certain subjects in our clinical trials may respond positively
to placebo treatment - these subjects are commonly known as “placebo responders” - making it more difficult to demonstrate
efficacy of the trial drug compared to placebo. This effect is likely to be observed in the treatment of hemorrhoids, which could
negatively impact the development program for Halo-Lido.
If any of our product candidates fail to demonstrate sufficient
safety and efficacy in any clinical trial, we will experience potentially significant delays and cost increases in, or may decide
to abandon development of that product candidate. If we abandon or are delayed, or experience increased costs, in our development
efforts related to any of our product candidates, we may not have sufficient resources to continue or complete development of that
product candidate or any other product candidates. We may not be able to generate any revenues, continue our operations and clinical
studies, or become profitable. Our reputation in the industry and in the investment community would likely be significantly damaged.
Further, it might not be possible for us to raise funds in the public or private markets, and our stock price would likely decrease
significantly.
If we are unable to file for approval of Mino-Lok or Halo-Lido
under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or if we are required to generate additional data related to
safety and efficacy in order to obtain approval of Mino-Lok or Halo-Lido under Section 505(b)(2), we may be unable to meet our
anticipated development and commercialization timelines.
Our current plans for filing NDAs for our product candidates
include efforts to minimize the data we will be required to generate in order to obtain marketing approval for certain of our product
candidates and therefore possibly reduce the time and cost of development of a product candidate and obtain a shortened review
period for the application. The timeline for filing and review of our planned NDA for each of Mino-Lok and Halo-Lido is based upon
our plan to submit each such NDA under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, wherein we will rely in part
on data generated by third parties and that is in the public domain or elsewhere. Depending on the data that may be required by
the FDA for approval, some of the data may be related to products already approved by the FDA. If the data relied upon is related
to products already approved by the FDA and covered by third-party patents we would be required to certify that we do not infringe
the listed patents or that such patents are invalid or unenforceable. As a result of the certification, the third party would have
45 days from notification of our certification to initiate an action against us. In the event that an action is brought in response
to such a certification, the approval of our NDA could be subject to a stay of up to 30 months or more while we defend against
such a suit. Approval of any product candidate under Section 505(b)(2) may therefore be delayed until patent exclusivity expires
or until we successfully challenge the applicability of those patents applicable to our product candidates. Alternatively, we may
elect to generate sufficient additional clinical data so that we no longer rely on data which triggers a potential stay of the
approval of any product candidate. Even if no exclusivity periods apply to an application under Section 505(b)(2), the FDA has
broad discretion to require us to generate additional data on the safety and efficacy of our product candidates to supplement third-party
data on which we may be permitted to rely. In either event, we could be required, before obtaining marketing approval for such
product candidate, to conduct substantial new research and development activities beyond those in which we currently plan to engage
in order to obtain approval of that product candidate. Such additional new research and development activities would be costly
and time consuming.
We may not be able to obtain shortened review of our applications
where available, and in any event the FDA may not agree that any of our product candidates qualify for marketing approval. If we
are required to generate additional data to support approval, we may be unable to meet our anticipated development and commercialization
timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing
approval of that product candidate. In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2),
over the last few years, some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2).
If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in
court, this could delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit.
Two of our product candidates, Mino-Lok and Halo-Lido,
are combination products consisting of components that have each been separately approved by the FDA for other indications and
which are commercially available and marketed by other companies. Our approval under Section 505(b)(2), if received, would not
preclude physicians, pharmacists and patients from obtaining individual drug products and titrating the dosage of these drug products
as close to our approved dose as possible.
Our Mino-Lok solution contains minocycline, disodium ethylenediaminetetraacetic
acid (edetate), and ethyl alcohol, all of which have been separately approved by the FDA for other indications, or are used as
excipients in other parenteral products. Assuming FDA approval and as a branded pharmaceutical product, we would need to obtain
hospital formulary acceptance to generate sales of Mino-Lok. Additionally, we may encounter reluctance by the infectious disease
physician community to vary from the existing standard of care to remove and replace an infected catheter. Currently, hospitals
are reimbursed for the treatment of CRBSIs by the Center for Medicare and Medicare Services, (“CMS”) through a Diagnosis
Related Group (“DRG”) classification or code. Commercial insurance plans reimburse for CRBSIs in a similar manner.
With Mino-Lok being priced as a branded FDA-approved pharmaceutical product, this could result in the participating hospital retaining
a lower share of CMS or commercial reimbursement which may impact the acceptance and use of Mino-Lok by these institutions.
Our Halo-Lido product candidate for the treatment of hemorrhoids
is a combination product consisting of two drugs, halobetasol propionate, a corticosteriod, and lidocaine, that have each been
separately approved by the FDA for other indications and which are commercially available and marketed by other companies. Halobetasol
propionate cream is available in a 0.05% strength, and lidocaine creams are also available in strengths up to 5%. From our market
analysis and discussions with a limited number of physicians, we know that patients sometimes obtain two separate cream products
and co-administer them as prescribed, giving them a combination treatment which could be very similar to what we intend to study
and seek approval for. As a branded, FDA-approved product with safety and efficacy data, we intend to price our product substantially
higher than the generically available individual creams. We will then have to convince third-party payers and pharmacy benefit
managers of the advantages of our product and justify our premium pricing. We may encounter resistance from these entities and
will then be dependent on patients’ willingness to pay the premium and not seek alternatives. In addition, pharmacists often
suggest lower cost prescription treatment alternatives to both physicians and patients. If approved, our Section 505(b)(2) approval
and the market exclusivity we may receive will not guarantee that such alternatives will not exist, that substitution will not
occur, or that there will be immediate acceptance to our pricing by payer formularies.
Any fast track designation or grant of priority review
status by the FDA may not actually lead to a faster development or regulatory review or approval process, nor will it assure FDA
approval of our product candidates. Additionally, our product candidates may treat indications that do not qualify for priority
review vouchers.
We have received fast track designation for Mino-Lok to treat
and salvage infected central venous catheters in patients with CRBSIs. We may seek fast track designation for some of our other
product candidates or priority review of applications for approval of our product candidates for certain indications. If a drug
is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet
medical needs for this condition, the drug sponsor may apply for FDA fast track designation. If a product candidate offers major
advances in treatment, the FDA may designate it eligible for priority review. The FDA has broad discretion whether or not to grant
these designations, so even if we believe a particular product candidate is eligible for these designations, we cannot assure you
that the FDA would decide to grant them. Even with the fast track designation for Mino-Lok and if we do receive fast track designation
or priority review for any other product candidate, we may not experience a faster development process, review or approval compared
to conventional FDA procedures. The FDA may withdraw fast track designation from Mino-Lok or any other product candidate to be
so designated if it believes that the designation is no longer supported by data from our clinical development program.
Even if we receive regulatory approval to commercialize
a product candidate, our ability to generate revenues from any resulting product will be subject to a variety of risks, many of
which are out of our control.
Even if one of our product candidates obtains regulatory approval,
that product may not gain market acceptance among physicians, patients, healthcare payers or the medical community. The indication
may be limited to a subset of the population or we may implement a distribution system and patient access program that is limited.
Coverage and reimbursement of our product candidates by third-party payers, including government payers, generally is also necessary
for commercial success. We believe that the degree of market acceptance and our ability to generate revenues from any approved
product candidate or acquired approved product will depend on a number of factors, including:
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prevalence and severity of any side effects;
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results of any post-approval studies of the product;
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potential or perceived advantages or disadvantages over alternative treatments;
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availability of coverage and reimbursement from government and other third-party payers;
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the willingness of patients to pay out of pocket in the absence of government or third-party coverage;
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the relative convenience and ease of administration and dosing schedule;
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product labeling or product insert requirements of the FDA or other regulatory authorities;
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strength of sales, marketing and distribution support;
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price of any future products, if approved, both in absolute terms and relative to alternative treatments;
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the effectiveness of our or any future collaborators’ sales and marketing strategies;
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the effect of current and future healthcare laws on our product candidates;
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patient access programs that require patients to provide certain information prior to receiving new and refill prescriptions; and
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requirements for prescribing physicians to complete certain educational programs for prescribing drugs.
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If approved, any product candidate may fail to achieve market
acceptance or generate significant revenue to achieve or sustain profitability. In addition, our efforts to educate the medical
community and third-party payers on the benefits of any product candidate may require significant resources and may never be successful.
Even if approved for marketing by applicable regulatory
bodies, we will not be able to create a market for any of our product candidates if we fail to establish marketing, sales and distribution
capabilities, either on our own or through arrangements with third parties.
Our strategy with our product candidates is to outsource to
third parties, all or most aspects of the product development process, and possibly marketing, sales and distribution activities.
Currently, we do not have any sales, marketing or distribution capabilities. In order to generate sales of any product candidates
that receive regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise
and with supporting distribution capabilities or make arrangements with third parties to perform these services for us. The acquisition
or development of a sales and distribution infrastructure would require substantial resources, which may divert the attention of
our management and key personnel and defer our product development efforts. To the extent that we enter into marketing and sales
arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we
fail to develop sales, marketing and distribution channels, or enter into arrangements with third parties, we will experience delays
in product sales and incur increased costs.
The markets in which we operate are highly competitive
and we may be unable to compete successfully against new entrants or established companies.
Competition in the pharmaceutical and medical products industries
is intense and is characterized by costly and extensive research efforts and rapid technological progress. We are aware of several
pharmaceutical companies also actively engaged in the development of therapies or products for at least some of the same conditions
we are targeting. Many of these companies have substantially greater research and development capabilities as well as substantially
greater marketing, financial and human resources than we do. In addition, many of these companies have significantly greater experience
than us in undertaking pre-clinical testing, clinical trials and other regulatory approval procedures. Our competitors may develop
technologies and products that are more effective than those we are currently marketing or researching and developing. Such developments
could render our product candidates, if approved, less competitive or possibly obsolete. We are also competing with respect to
marketing capabilities and manufacturing efficiency, areas in which we have no current capabilities and in which we have no experience
as a company, although our executive officers do have commercialization experience. However, that experience might not translate
into the successful development and launch of any of our product candidates. Mergers, acquisitions, joint ventures and similar
events may also significantly increase the competition we face. In addition, new developments, including the development of other
drug technologies and methods of preventing the incidence of disease, occur in the pharmaceutical and medical technology industries
at a rapid pace. These developments may render our product candidates obsolete or noncompetitive. Compared to us, many of our potential
competitors have substantially greater:
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research and development resources, including personnel and technology;
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regulatory resources, experience and expertise;
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product candidate development and clinical trial resources and experience;
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product sourcing, sales and marketing resources and experience;
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experience and expertise in exploitation of intellectual property rights; and
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access to strategic partners and capital resources.
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As a result of these factors, our competitors may obtain regulatory
approval of their products more rapidly than we can or may obtain patent protection or other intellectual property rights that
limit our ability to develop or commercialize our product candidates. Our competitors may also develop products that are more effective,
more useful and less costly than ours and may also be more successful in manufacturing and marketing their products. In addition,
our competitors may be more effective than us in commercializing their products and as a result, our business and prospects might
be materially harmed.
Physicians and patients might not accept and use any of
our product candidates for which regulatory approval is obtained.
Even if the FDA approves one of our product candidates, physicians
and patients might not accept and use it. Acceptance and use of our approved product candidates will depend upon a number of factors,
including:
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perceptions by members of the health care community, including physicians, about the safety and effectiveness of any of our product candidates;
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cost-effectiveness of our product candidates relative to competing products or therapies;
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availability of reimbursement for our product candidates from government or other healthcare payers; and
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effective marketing and distribution efforts by us and/or our licensees and distributors, if any.
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If any of our current product candidates are approved, we expect
their sales to generate substantially all of our revenues for the foreseeable future, and as a result, the failure of any of these
product candidates to find market acceptance would harm our business and would require us to seek additional financing.
Our ability to generate product revenues will be diminished
if any of our product candidates that may be approved sell for inadequate prices or patients are unable to obtain adequate levels
of reimbursement.
Our ability to commercialize our product candidates, alone or
with collaborators, will depend in part on the extent to which reimbursement will be available from:
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government and health administration authorities;
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private health maintenance organizations and health insurers; and
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other healthcare payers.
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Significant uncertainty exists as to the reimbursement status
of newly approved healthcare products. Healthcare payers, including Medicare, are challenging the prices charged for medical products
and services. Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage
and the level of reimbursement for drugs. Even if our product candidates are approved by the FDA, insurance coverage might not
be available, and reimbursement levels might be inadequate, to cover our products. If government and other healthcare payers do
not provide adequate coverage and reimbursement levels for our products, once approved, market acceptance of such products could
be reduced. Proposals to modify the current health care system in the U.S. to improve access to health care and control its costs
are continually being considered by the federal and state governments. In March 2010, the U.S. Congress passed landmark healthcare
legislation. Portions of this legislation have been repealed in recent years and members of the U.S. Congress and some state legislatures
continue to seek to overturn at least some remaining portions of the legislation and we expect they will continue to review and
assess this legislation and possibly alternative health care reform proposals. We cannot predict what impact on federal reimbursement
policies this legislation will have in general or on our business specifically. We cannot predict whether new proposals will be
made or adopted, when they may be adopted or what impact they may have on us if they are adopted.
Health administration authorities in countries other than the
U.S. may not provide reimbursement for our products at rates sufficient for us to achieve profitability, or at all. Like the U.S.,
these countries have considered health care reform proposals and could materially alter their government-sponsored health care
programs by reducing reimbursement rates. Any reduction in reimbursement rates under Medicare or foreign health care programs could
negatively affect the pricing of our product candidates. If we are not able to charge a sufficient amount for our product candidates,
then our margins and our profitability will be adversely affected.
We are and will be dependent on third-party contract research
organizations to conduct all of our clinical trials.
We are and will be dependent on third-party research organizations
to conduct all of our clinical trials with respect to our product candidates, including any candidates that we may develop in the
future. If we are unable to obtain any necessary testing services on acceptable terms, we may not complete our product development
efforts in a timely manner or at all. If we rely on third parties for human trials, we may lose some control over these activities
and become too dependent upon these parties. These third parties may not complete testing activities on schedule or when we so
request. We may not be able to secure and maintain suitable research organizations to conduct our human trials. We are responsible
for confirming that each of our clinical trials is conducted in accordance with the trial’s general plan and protocol. Moreover,
the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical
practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are
credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve
us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or
regulatory obligations or meet expected deadlines, if the third parties 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 clinical protocols or regulatory requirements or for other
reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may
not be able to obtain regulatory approval for any of our product candidates.
We rely exclusively on third parties to formulate and
manufacture our product candidates.
We do not have and do not intend to establish our own manufacturing
facilities. Consequently, we lack the physical plant to formulate and manufacture our product candidates, which are currently being
manufactured entirely by commercial third party manufacturers. If any product candidate we might develop or acquire in the future
receives FDA approval, we will rely on one or more third-party contractors to manufacture our products. If, for any reason, we
become unable to rely on our current source or any future source or sources to manufacture our product candidates, either for pre-clinical
or clinical trials or, for commercial quantities, then we would need to identify and contract with additional or replacement third-party
manufacturers to manufacture compounds for preclinical, clinical and commercial purposes. We might not be successful in identifying
additional or replacement third-party manufacturers, or in negotiating acceptable terms with any that we do identify. If we are
unable to secure and maintain third-party manufacturing capacity, the development and sales of our product candidates and our financial
performance might be materially affected.
In addition, before any of our collaborators can begin to commercially
manufacture our product candidates, each must obtain regulatory approval of the manufacturing facility and process. Manufacturing
of drugs for clinical and commercial purposes must comply with the FDA’s Current Good Manufacturing Practices, or cGMP, and
applicable non-U.S. regulatory requirements. The cGMP requirements govern quality control and documentation policies and procedures.
Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping,
and quality control to assure that the product meets applicable specifications and other requirements. Our contracted manufacturing
facilities must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection might significantly
delay FDA approval of our product candidates. If any of our collaborators fails to comply with these requirements, we would be
subject to possible regulatory action which could limit the jurisdictions in which we are permitted to sell our product candidates.
As a result, our business, financial condition, and results of operations might be materially harmed.
Our reliance on a limited number of third-party manufacturers
exposes us to the following risks:
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We might be unable to identify manufacturers for commercial supply on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would generally require compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our product candidates after receipt of FDA approval, if any;
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Our third-party manufacturers might be unable to formulate and manufacture our product candidates in the volume and of the quality required to meet our clinical and commercial needs, if any;
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Our contract manufacturers might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our product candidates for commercialization;
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Currently, our contract manufacturer for our clinical supplies is foreign, which increases the risk of shipping delays and adds the risk of import restrictions;
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Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign standards. We do not have complete control over third-party manufacturers’ compliance with these regulations and standards;
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If any third-party manufacturer makes improvements in the manufacturing process for our product candidates, we might not own, or might have to share, the intellectual property rights to the innovation with our licensors;
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Operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including a bankruptcy of the manufacturer or supplier or a natural disaster; and
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We might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other clients higher priority than us.
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Each of these risks could delay our clinical trials or the approval,
if any, of our product candidates by the FDA or any foreign regulatory agency or the commercialization of our product candidates
and could result in higher costs or deprive us of potential product revenues. As a result, our business, financial condition, and
results of operations might be materially harmed.
If we materially breach or default under any of our license
agreements, the licensor party to such agreement will have the right to terminate the license agreement, which termination may
materially harm our business.
Our commercial success will depend in part on the maintenance
of our license agreements. Currently, we are a party to two in-license agreements with MDACC, one for Mino-Lok (sub-licensed from
the entity holding the license from MDACC) and one for Mino-Wrap. Additionally, we expect to enter into additional license agreements
in the future. Our license agreements impose, and we expect that future license agreements will impose, various diligence, milestone
payment, royalty and other obligations on us. For example, under our current license agreements, we are required to use commercially
reasonable diligence to develop and commercialize a product and to satisfy specified payment obligations. If we fail to comply
with our obligations under our agreements or any future license agreements with any party, or we are subject to a bankruptcy, the
licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.
Each of our license agreements provides the licensor with a right to terminate the license agreement for our material breach or
default under the agreement, including the failure to make any required milestone or other payments. Should the licensor under
any of our license agreements exercise such a termination right, we would lose our right to the intellectual property under the
respective license agreement, which loss may materially harm our business.
Any termination, or breach by, or conflict with our strategic
partners or licensees could harm our business.
If we or any of our current or future collaborators or licensees
fail to renew or terminate any of our collaboration or if either party fails to satisfy its obligations under any of our collaboration
or license agreements or complete them in a timely manner, we could have difficult completing the development of any of our product
candidates and potentially lose significant sources of revenue, which could result in volatility in our future revenue. In addition,
our agreements with our collaborators and licensees may have provisions that give rise to disputes regarding the rights and obligations
of the parties. These and other possible disagreements could lead to termination of the agreement or delays in collaborative research,
development, supply or commercialization of our product candidates, or could require or result in litigation or arbitration. Any
such conflicts with our collaborators could reduce our ability to obtain future collaboration agreements and could have a negative
impact on our relationship with existing collaborators, adversely affecting our business and revenues. Finally, any of our collaborations
or license agreements may prove to be unsuccessful.
We plan to grow and develop our business through acquisitions
of or investment in new or complementary businesses, products or technologies, and the failure to manage these acquisitions or
investments, or the failure to integrate them with our existing business, could have a material adverse effect on us.
Our business strategy is based on the acquisition of additional
product candidates. We might consider opportunities to acquire or invest in other technologies, products and businesses that might
enhance our capabilities or complement our current product candidates. Potential and completed acquisitions and strategic investments
involve numerous risks, including potential problems or issues associated with the following:
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assimilating the purchased technologies, products or business operations;
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maintaining uniform standards, procedures, controls and policies;
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unanticipated costs associated with the acquisition or investment;
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diversion of our management’s attention from our preexisting business;
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maintaining or obtaining the necessary regulatory approvals or complying with regulatory standards; and
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adverse effects on existing business operations.
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We have no current commitments with respect to any acquisition
or investment in other technologies or businesses. We do not know if we will identify suitable acquisitions, whether we will be
able to successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired product, technology
or business into our business operations or retain key personnel, suppliers or collaborators.
Our ability to successfully develop our business through acquisitions
would depend on our ability to identify, negotiate, complete and integrate suitable target businesses or technologies and obtain
any necessary financing. These efforts could be expensive and time consuming and might disrupt our ongoing operations. If we are
unable to efficiently integrate any acquired business, technology or product into our business operations, our business and financial
condition might be adversely affected.
We rely on the significant experience and specialized
expertise of our executive management and other key personnel and the loss of any of our executive management or key personnel
or our inability to successfully hire their successors could harm our business.
Our performance is substantially dependent on the continued
services and on the performance of our executive management and other key personnel, who have extensive experience and specialized
expertise in our business. Our President and Chief Executive Officer, Myron Holubiak, and our Executive Chairman, Leonard Mazur,
in particular have significant experience in the running of pharmaceutical companies as well as drug development itself. This depth
of experience is of significant benefit to us, especially given the small size of our management team and company. The loss of
the services of either Mr. Holubiak or Mr. Mazur, as well as any other member of our executive management or any key employees
could harm our ability to attract capital and develop and commercialize our product candidates. We have no key man life insurance
policies.
If we are unable to retain or hire additional qualified
personnel, our ability to grow our business might be harmed.
We utilize the services of a clinical management team on part-time
basis to assist us in managing our ongoing Phase 2 and Phase 3 trials and intend to do so for future trials. While we believe this
will provide us with sufficient staffing for our current and future development efforts, we will need to hire or contract with
additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation
and manufacturing and sales and marketing in connection with the continued development, regulatory approval and commercialization
of our product candidates. We compete for qualified individuals with numerous pharmaceutical and biopharmaceutical companies, universities
and other research institutions. Competition for these individuals is intense, and we cannot be certain that our search for such
personnel will be successful. Attracting and retaining qualified personnel will be critical to our success. In addition, we may
be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective
management. If we are unable to attract and retain qualified employees, officers and directors, the management and operation of
our business could be adversely affected.
We expect to need to increase the size of our organization
to further develop our product candidates, and we may experience difficulties in managing growth.
We will need to manage our anticipated growth and increased
operational activity. Our personnel, systems and facilities currently in place may not be adequate to support this future growth.
Our need to effectively execute our growth strategy will require that we:
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manage our research and development activities and our regulatory trials effectively;
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attract and motivate sufficient numbers of talented employees or consultants;
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manage our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors, collaborators and other third parties;
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develop internal sales and marketing capabilities or establish collaborations with third parties with such capabilities;
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commercialize our product candidates; and
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improve our operational, financial and management controls, reporting systems and procedures.
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This planned future growth could place a strain on our administrative
and operational infrastructure and may require our management to divert a disproportionate amount of its attention away from our
day-to-day activities. We may not be able to effectively manage the expansion of our operations or recruit and train additional
qualified personnel, which may result in weaknesses in our infrastructure, and give rise to operational mistakes, loss of business
opportunities, loss of employees and consultants and reduced productivity among remaining employees and consultants. We may not
be able to make improvements to our management information and control systems in an efficient or timely manner and may discover
deficiencies in existing systems and controls. If our management is unable to effectively manage our expected growth, our expenses
may increase more than expected, our ability to generate or increase our revenues could be reduced and we may not be able to implement
our business strategy. Our future financial performance and our ability to compete effectively will depend, in part, on our ability
to effectively manage any future growth.
Risks Related to Our Regulatory and Legal
Environment
We are subject to extensive and costly government regulation.
Our product candidates are and any approved products will be
subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare and
Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice, state and
local governments, and their respective foreign equivalents. The FDA regulates the research, development, preclinical and clinical
testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale,
distribution, import, and export of pharmaceutical products. If our product candidates are to be marketed abroad, they will also
be subject to extensive regulation by foreign governments, whether or not they have obtained FDA approval. Such foreign regulation
might be equally or more demanding than corresponding U.S. regulation. Government regulation substantially increases the cost and
risk of researching, developing, manufacturing, and selling our product candidates. The regulatory review and approval process,
which includes preclinical testing and clinical trials of each product candidate, is lengthy, expensive, and uncertain. We or our
collaborators must obtain and maintain regulatory authorization to conduct clinical trials and approval for each product candidate
we intend to market, and the manufacturing facilities used for the product candidates must be inspected and meet legal requirements.
Securing regulatory approval requires submitting extensive preclinical and clinical data and other supporting information for each
proposed product candidate in order to establish the product’s safety and efficacy for each intended use. The development
and approval process might take many years, requires substantial resources, and might never lead to the approval of a product.
Further, the FDA or any foreign regulatory authority could change its established regulations that govern the drug development
and approval process, which could negatively impact the regulatory review of our product candidates, including the anticipated
timeline and cost of development and approval. Even if we are able to obtain regulatory approval for a particular product candidate,
the approval might limit the indicated medical uses for the product, limit our ability to promote, sell, and distribute the product,
require that we conduct costly post-marketing surveillance, and/or require that we conduct ongoing post-marketing studies. Material
changes to an approved product, such as, for example, manufacturing changes or revised labeling, might require further regulatory
review and approval. Once obtained, any approvals might be withdrawn, including, for example, if there is a later discovery of
previously unknown problems with the product, such as a previously unknown safety issue.
If we, our collaborators, or our contract manufacturers fail
to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance could result in,
among other things; suspension or cessation of clinical trials; delays in the approval of applications or supplements to approved
applications; refusal of a regulatory authority, including the FDA, to review pending market approval applications or supplements
to approved applications; warning letters; fines; import and export restrictions; product recalls or seizures; injunctions; total
or partial suspension of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations
by the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
We might not obtain the necessary U.S. regulatory approvals
to commercialize any product candidates.
We cannot assure you that we will receive the approvals necessary
to commercialize for sale any product candidates we are currently developing or that we may acquire or develop in the future. We
will need FDA approval to commercialize our product candidates in the U.S. In order to obtain FDA approval of any product candidate,
we must submit to the FDA an NDA demonstrating that the product candidate is safe for humans and effective for its intended use.
This demonstration requires significant research, pre-clinical studies, and clinical trials. Satisfaction of the FDA’s regulatory
requirements typically takes many years, depends upon the type, complexity and novelty of the product candidate and requires substantial
resources for research, development and testing. We cannot predict whether our research and clinical approaches will result in
products that the FDA considers safe for humans and effective for their indicated uses. The FDA has substantial discretion in the
product approval process and might require us to conduct additional pre-clinical and clinical testing, perform post-marketing studies
or otherwise limit or impose conditions on any additional approvals we obtain. The approval process might also be delayed by changes
in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our
regulatory review. Delays in obtaining regulatory approvals might:
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delay commercialization of, and our ability to derive product revenues from, our product candidates;
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impose costly procedures on us; and
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diminish any competitive advantages that we might otherwise enjoy.
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Even if we comply with all FDA requests, the FDA might ultimately
reject one or more of our NDAs. We cannot be sure that we will ever obtain regulatory clearance for our product candidates. Failure
to obtain FDA approval of our product candidates will severely undermine our business by leaving us without saleable products,
and therefore without any potential sources of revenues, until another product candidate could be developed or obtained and successfully
developed, approved and commercialized. There is no guarantee that we will ever be able to successfully develop or acquire any
product candidate.
Following any regulatory approval of any product candidate,
we will be subject to ongoing regulatory obligations and restrictions, which may result in significant expense and limit our ability
to commercialize our other product candidates.
If one of our product candidates is approved by the FDA or by
a foreign regulatory authority, we will be required to comply with extensive regulations for product manufacturing, labeling, packaging,
adverse event reporting, storage, distribution, advertising, promotion and record keeping. Regulatory approvals may also be subject
to significant limitations on the indicated uses or marketing of the products or to whom and how we may distribute an approved
product. Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product’s indicated
uses or marketing or impose ongoing requirements for potentially costly post-approval studies. For example, the label ultimately
approved for our product candidates, if any, may include restrictions on use. If so, we may be subject to ongoing regulatory obligations
and restrictions, which may result in significant expense and limit our ability to commercialize our product candidates. The FDA
could also require a registry to track the patients utilizing the product or implement a Risk Evaluation and Mitigation Strategy,
or REMS, that could restrict access to the product, reduce our revenues and/or increase our costs. Potentially costly post-marketing
clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate specific
issues of interest to the regulatory authority.
Manufacturers of pharmaceutical products and their facilities
are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations,
which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records
and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture
our future approved products, if any, and these facilities are subject to ongoing regulatory inspections. In addition, regulatory
agencies subject a pharmaceutical product, its manufacturer and the manufacturer’s facilities to continual review and inspections.
The subsequent discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, may result in restrictions on the marketing of that product, up
to and including, withdrawal of the product from the market. If the manufacturing facilities of our suppliers fail to comply with
applicable regulatory requirements, it could result in regulatory action and additional costs to us. Failure to comply with applicable
FDA and other regulatory requirements may, either before or after product approval, if any, subject our company to administrative
or judicially imposed sanctions, including:
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issuance of Form 483 notices, warning letters and adverse publicity by the FDA or other regulatory agencies;
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imposition of fines and other civil penalties due to product liability or other issues;
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injunctions, suspensions or revocations of regulatory approvals;
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suspension of any ongoing pre-clinical and clinical trials;
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total or partial suspension of manufacturing;
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delays in commercialization;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our collaborators;
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refusals to permit medical products to be imported into or exported from the U.S.;
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restrictions on operations, including costly new manufacturing requirements;
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product recalls or seizures; and
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criminal prosecutions.
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In addition, the law or regulatory policies governing pharmaceutical
products may change. New statutory requirements may be enacted or additional regulations may be enacted that could prevent or delay
regulatory approval of our product candidates. Contract manufacturing organizations, or CMOs, and their vendors or suppliers may
also face changes in regulatory requirements from governmental agencies in the U.S. and other countries. We cannot predict the
likelihood, nature, extent or effects of government regulation that may arise from future legislation or administrative action,
either in the U.S. or elsewhere. If we are not able to maintain regulatory compliance, we might not be permitted to market any
future approved products and our business could suffer.
Even if we receive regulatory approval to commercialize
our product candidates, post-approval marketing and promotion of products is highly regulated by the FDA, and marketing campaigns
which violate FDA standards may result in adverse consequences including regulatory enforcement action by the FDA as well as follow-on
actions filed by consumers and other end-payers, which could result in substantial fines, sanctions and damage awards against us,
any of which could harm our business.
Post-approval marketing and promotion of products, standards
and regulations for direct-to-consumer advertising, dissemination of off-label product information, industry-sponsored scientific
and educational activities and promotional activities via the Internet are heavily scrutinized and regulated by the FDA. Products
may only be marketed for approved indications and in accordance with provisions of the FDA approved labels. Failure to comply with
such requirements may result in adverse publicity, warning letters issued by the FDA, and civil or criminal penalties.
In the event the FDA discovers post-approval violations, we
could face penalties in the future including the FDA’s issuance of a cease and desist order, impounding of our products,
and civil or criminal penalties. As a follow-on to such governmental enforcement activities, consumers and other end-payers of
the product may initiate action against us claiming, among other things, fraudulent misrepresentation, unfair competition, violation
of various state consumer protection statues and unjust enrichment. If the plaintiffs in such follow-on actions are successful,
we could be subject to various damages, including compensatory damages, treble damages, punitive damages, restitution, disgorgement,
prejudgment and post-judgment interest on any monetary award, and the reimbursement of the plaintiff’s legal fees and costs,
any of which could have an adverse effect on our revenue, business, financial condition and prospects.
We could be forced to pay substantial damage awards if
product liability claims that may be brought against us are successful.
The use of any of our product candidates in pre-clinical and
clinical trials, and the sale of any approved products, may expose us to liability claims and financial losses resulting from the
use or sale of our products. We have obtained limited product liability insurance coverage for our pre-clinical and clinical trials
of $2.0 million per occurrence and in the aggregate, subject to a deductible of $50,000 per occurrence. There can be no assurance
that our existing insurance coverage will extend to any other product candidates in the future. Any product liability insurance
coverage may not be sufficient to satisfy all liabilities resulting from product liability claims. A successful claim may prevent
us from obtaining adequate product liability insurance in the future on commercially desirable terms, if at all. Even if a claim
is not successful, defending such a claim would be time consuming and expensive, may damage that product’s and our reputations
in the marketplace, and would likely divert management’s attention, any of which could have a material adverse effect on
our company.
Risks Related to our Intellectual Property
Our business depends on protecting our intellectual property.
Without the intellectual property rights we have already obtained,
as well as the further rights we are also pursuing, our competitors would have opportunity to take advantage of our research and
development efforts to develop competing products. Our success, competitive position and future revenues, if any, depend in part
on our ability and the abilities of our licensors to obtain and maintain patent protection for our product candidates, methods,
processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights
and to operate without infringing the proprietary rights of third parties. We anticipate filing additional patent applications
both in the U.S. and in other countries, as appropriate. However, the patent process is subject to numerous risks and uncertainties,
and there can be no assurance that we will be successful in protecting our product candidates by obtaining and defending patents.
These risks and uncertainties include the following:
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Our patent rights might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;
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Our competitors, many of which have substantially greater resources than we do and many of which might make significant investments in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our product candidates either in the U.S. or in international markets;
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Countries other than the U.S. might have less restrictive patent laws than those upheld by U.S. courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products; and
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As a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for product candidates that prove successful.
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In addition, the U.S. Patent and Trademark Office and patent
offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related
inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby
limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents,
the patents might be substantially narrower than anticipated.
Because the time period from filing a patent application to
the issuance, if ever, of the patent is often more than three years and because any regulatory approval and marketing for a pharmaceutical
product often occurs several years after the related patent application is filed, the resulting market exclusivity afforded by
any patent on our drug candidates and technologies will likely be substantially less than 20 years. For example, the U.S. patent
on the original Mino-Lok composition expires in June 2024, and the U.S. patent on the stabilized Mino-Lok composition expires in
November 2036. Since we anticipate significant additional time before FDA approval could be obtained, the maximum market exclusivity
afforded by the statutory term of the currently issued patents would be less than 17 years. In the United States, the European
Union and some other jurisdictions, patent term extensions are available for certain delays in either patent office proceedings
or marketing and regulatory approval processes. However, due to the specific requirements for obtaining these extensions, there
is no assurance that our patents will be granted extensions even if we encounter significant delays in patent office proceedings
or marketing and regulatory approval.
Patent and other intellectual property protection is crucial
to the success of our business and prospects, and there is a substantial risk that such protections will prove inadequate. Our
business and prospects will be harmed if these protections prove insufficient.
We rely on trade secret protections through confidentiality
agreements with our employees and other parties, and the breach of these agreements could adversely affect our business and prospects.
We rely on trade secrets, which we seek to protect, in part,
through confidentiality and non-disclosure agreements with our employees, collaborators, suppliers, and other parties. There can
be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our
trade secrets will not otherwise become known to or independently developed by our competitors. We might be involved from time
to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could
result in substantial cost and divert management’s attention from our operations.
If we infringe the rights of third parties we might have
to forego developing and/or selling any approved products, pay damages, or defend against litigation.
If our product candidates, methods, processes
and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we might have to:
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obtain licenses, which might not be available on commercially reasonable terms, if at all;
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abandon an infringing product candidate;
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redesign our product candidates or processes to avoid infringement;
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stop using the subject matter claimed in the patents held by others;
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pay damages; and/or
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defend litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
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Any of these events could substantially harm our earnings, financial
condition and operations.
The U.S. government could have “march-in rights”
to certain of our intellectual property.
If at any time federal monies are used in support of the research
and development activities at MDACC that resulted or in the future result in certain of our issued pending U.S. patent applications,
the federal government retains what are referred to as “march-in rights” to patents that are granted on these applications.
Our license agreements for Mino-Lok and Mino-Wrap each provide that in the event of such governmental funding, our rights are subject
to the government’s prior rights, if any. In addition, the license agreements provide that we will comply with the requirements
of any agreement between MDACC and the governmental funding entity. If applicable, this could require us to grant the U.S. government
either a nonexclusive, partially exclusive or exclusive license to the patented invention in any field of use, upon terms that
are reasonable for a particular situation. Circumstances that could trigger march-in rights generally would be set out in the agreement
between MDACC and the funding governmental entity and could include, for example, failure to take, within a reasonable time, effective
steps to achieve practical application of the invention in a field of use, failure to satisfy the health and safety needs of the
public and failure to meet requirements of public use specified by federal regulations. A funding governmental entity could elect
to exercise these march-in rights on their own initiative or at the request of a third-party; however, the exercise of such march-in
rights has been historically rare when the patent holder (or its licensee) is practicing the patent invention although there can
be no assurance that such rights would not be exercised. This same risk would apply to any other license into which we enter if
the licensor receives government funding for the product candidate that is the subject of the license.
Changes in patent law or patent jurisprudence could diminish
the value of patents in general, thereby impairing our ability to protect our product candidates.
The United States has enacted and is expected to continue to
implement wide-ranging patent reform legislation. Further, recent United States Supreme Court rulings have either narrowed the
scope of patent protection available in certain circumstances or weakened 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 scope and value of patents, once obtained.
In September 2011, the Leahy-Smith America Invents Act, also
known as the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent
law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The
USPTO is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes
to patent law associated with the AIA. It is not clear what other, if any, impact(s) the AIA will have on the operation of our
business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our
patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business.
One important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file”
system for deciding which party should be granted a patent when two or more patent applications are filed by different parties
claiming the same invention. A third party who files a patent application with the USPTO after such date but prior to our filing
may therefore be awarded a patent covering an invention of ours even if we were the first to invent. All of our U.S. patent applications
were filed after March 16, 2013. This “first-inventor-to-file” system will require us both to remain cognizant, going
forward, of the timing between invention and filing of a patent application.
Among some of the other changes introduced by the AIA are those
that (i) limit where a patentee may file a patent infringement suit and (ii) provide opportunities for third parties to challenge
any issued patent in the USPTO. Such changes apply to all of our U.S. patents. Because of a lower evidentiary standard in USPTO
proceedings, as compared to the evidentiary standard applied in U.S. federal courts, necessary to invalidate a patent claim, a
third party could potentially present evidence in a USPTO proceeding sufficient for the USPTO to find a claim invalid, notwithstanding
that the same evidence would be insufficient to invalidate a claim first presented in a district court action. Accordingly, a third
party may attempt opportunistically to use USPTO procedures to invalidate our patent claims.
Depending on decisions by the United States Congress, the U.S.
federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change
in unpredictable ways that may weaken our and our licensors’ abilities to obtain new patents or to enforce existing patents
we and our licensors or partners may obtain in the future.
Risks Related to Our Securities
Our current failure to meet the continued listing requirements
of Nasdaq could result in a delisting of our common stock and certain warrants.
Our common stock and certain outstanding warrants are currently
listed for trading on The Nasdaq Capital Market, and the continued listing of our common stock on The Nasdaq Capital Market is
subject to our compliance with a number of listing standards. These listing standards include the requirement for avoiding sustained
losses and maintaining a minimum level of stockholders’ equity. In October 2019, we received a notice from Nasdaq
that because the closing bid price for our common stock had fallen below $1.00 per share for 30 consecutive business days, we no
longer complied with the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market under Rule 5550(a)(2)
of the Nasdaq Listing Rules. Pursuant to Nasdaq Listing Rules, we have until April 27, 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 April 27, 2020.
If we do not regain compliance by April 27, 2020, we may be
eligible for an additional grace period. To qualify, we would be required to meet the continued listing requirements for market
value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the
minimum bid price requirement, and provide written notice of our intention to cure the minimum bid price deficiency during the
second compliance period. If we meet these requirements, the Nasdaq staff will grant an additional 180 calendar days for us to
regain compliance with the minimum bid price requirement. If the Nasdaq staff determines that we will not be able to cure the deficiency,
or if we are otherwise not eligible for such additional compliance period, Nasdaq will provide notice that our common stock will
be subject to delisting. We would have the right to appeal a determination to delist our common stock, and the common stock would
remain listed on The Nasdaq Capital Market until the completion of the appeal process.
If our common stock were no longer listed on The Nasdaq Capital
Market, investors might only be able to trade on one of the over-the-counter markets, including the OTC Bulletin Board ® or
in the Pink Sheets ® (a quotation medium operated by Pink Sheets LLC). This would impair the liquidity of our common stock
not only in the number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity,
but also through delays in the timing of transactions and reduction in media coverage. In addition, we could face significant material
adverse consequences, including:
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a limited availability of market quotations for our securities;
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a limited amount of news and analyst coverage for us; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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We intend to consider all available alternatives to regain compliance
with Rule 5550(a)(2) to allow for continued listing of the common stock on The Nasdaq Capital Market. However, we can provide no
assurance that any action taken by us would allow our common stock to become listed again, stabilize the market price or improve
the liquidity of our common stock. If we regain compliance and maintain the listing of the common stock on The Nasdaq Capital Market,
we cannot assure you that we would be able to prevent future non-compliance with Nasdaq’s listing requirements.
If our common stock were delisted and determined to be
a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor may find it more
difficult to acquire or dispose of our common stock in the secondary market.
If our common stock were removed from listing with The Nasdaq
Capital Market, it may be subject to the so-called “penny stock” rules. The SEC has adopted regulations that define
a “penny stock” to be any equity security that has a market price per share of less than $5.00, subject to certain
exceptions, such as any securities listed on a national securities exchange, which is the exception on which we currently rely.
For any transaction involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements
on broker-dealers, subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,”
a broker-dealer may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose
of our common stock on the secondary market.
If we fail to maintain an effective system of internal
controls, we may not be able to accurately report our financial results or detect fraud. Consequently, shareholders could lose
confidence in our financial reporting and this may decrease the trading price of our common stock.
We are subject to the reporting requirements of the Exchange
Act, the Sarbanes-Oxley Act of 2002, or SOX, and Nasdaq rules and regulations. SOX requires, among other things, that we maintain
effective disclosure controls and procedures and internal control over financial reporting. We perform system and process evaluation
and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal
controls over financial reporting in our Annual Report on Form 10-K filing for that year, as required by Section 404 of SOX. We
previously had identified material weaknesses in our internal control over financial reporting related to ineffective separation
of duties due to our limited finance staff, our reliance on consultants to assist with the financial reporting function and a lack
of documented policies and procedures, which weaknesses were reported in fiscal 2016 and 2017 (and prior to that by our predecessor
company). While we remediated these material weaknesses as of September 30, 2018, such that management determined that our internal
controls over financial reporting were effective as of that date, and as of September 30, 2019, we cannot assure that, in the future,
a material weakness or significant deficiency will not exist or otherwise be discovered. If that were to happen, it could harm
our operating results and cause shareholders to lose confidence in our reported financial information. Any such loss of confidence
would have a negative effect on the trading price of our securities.
A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied. Internal control
over financial reporting and disclosure controls and procedures are designed to give a reasonable assurance that they are effective
to achieve their objectives. We cannot provide absolute assurance that all of our possible future control issues will be detected.
These inherent limitations include the possibility that judgments in our decision making can be faulty, and that isolated breakdowns
can occur because of simple human error or mistake. The design of our system of controls is based in part upon assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed absolutely in achieving our stated
goals under all potential future or unforeseeable conditions. Because of the inherent limitations in a cost-effective control system,
misstatements due to error could occur and not be detected. This and any future failures could cause investors to lose confidence
in our reported financial information, which could have a negative impact on our financial condition and stock price.
The price of our securities may become volatile, which
could lead to losses by shareholders and costly securities litigation.
The trading price of our securities is likely to be highly volatile
and could fluctuate in response to factors such as:
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the completion and/or results of our clinical trials;
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our common stock being delisted from The Nasdaq Capital Market;
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sales of our common stock or other securities in the open market or in private placements;
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regulatory actions regarding our product candidates or any approved products;
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announcements of developments by us or our competitors;
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additions or departures of key personnel;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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actual or anticipated variations in our operating results;
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adoption of new accounting standards affecting our industry;
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introduction of new approved products by us or our competitors; and
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other events or factors, many of which are beyond our control.
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The stock market is subject to significant price and volume
fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class
action litigation has often been initiated against such a company. Any such litigation initiated against us, whether or not successful,
could result in substantial costs and diversion of our management’s attention and resources, which could harm our business
and financial condition.
You may experience dilution of your ownership interests
because of the future issuance of additional shares of our common stock or securities convertible into common stock.
For the foreseeable future, to finance our operations, including
possible acquisitions or strategic transactions, we expect to issue equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 200,000,000 shares of common stock
and 10,000,000 shares of preferred stock. As of September 30, 2019, there were 28,930,493 shares of common stock outstanding, 25,492,513
shares underlying warrants with a weighted average exercise price of $1.62 per share (including 1,060,615 shares underlying pre-funded
warrants with an exercise price of $0.0001), and 1,771,039 shares underlying options with a weighted average exercise price of
$4.03 per share. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable
for common stock in connection with hiring or retaining employees, or for other business purposes. The future issuance of any such
additional shares of common stock or common stock equivalents may create downward pressure on the trading price of our common stock.
The common stock is controlled by insiders.
As of November 30, 2019, our executive officers and directors
beneficially owned approximately 56.84% of our outstanding shares of common stock. Such concentrated control of our company may
adversely affect the price of our common stock. If you acquire common stock, you may have no effective voice in the management
of our company. Sales by our directors and executive officers or their affiliates, along with any other market transactions, could
adversely affect the market price of our common stock.
We do not intend to pay dividends for the foreseeable
future.
We have paid no dividends on our common stock to date and we
do not anticipate that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend
policy will be based on the operating results and capital needs of the business, it is currently anticipated that any future earnings
will be retained to finance our future expansion and for the implementation of our business plan. The lack of a dividend can further
affect the market value of our stock, and could significantly affect the value of any investment in our company.
Our Certificate of Incorporation allows for our Board
of Directors to create new series of preferred stock without further approval by our stockholders, which could adversely affect
the rights of the holders of the common stock.
Our Board of Directors has the authority to issue up to 10,000,000
shares of preferred stock and to fix and determine the relative rights and preferences of any such preferred stock without further
stockholder approval. As a result, our Board of Directors could authorize the issuance of any one or more series of preferred stock
that would grant preferential rights to our assets upon liquidation, the right to receive dividend payments before dividends are
distributed to the holders of common stock and the right to the redemption of the preferred shares, together with a premium, prior
to the redemption of the common stock. In addition, our Board of Directors could authorize the issuance of a series of preferred
stock that has greater voting power than the common stock or that is convertible into our common stock, which could decrease the
relative voting power of the common stock or result in dilution to our existing stockholders.
Our publicly traded warrants may not have any value.
Our publicly traded warrants to purchase shares of our common
stock may not have any value. These warrants have an exercise price of $4.125 per share. In the event that our common stock price
does not exceed the exercise price of our publicly traded warrants during the period when the warrants are exercisable, the warrants
may not have any value.
There is no established market for our publicly traded
warrants.
There is no established trading market for our publicly traded
warrants, and we do not expect a market to develop. In addition, we do not intend to apply for the listing of these warrants on
any national securities exchange or other trading market. Without an active trading market, the liquidity of these warrants is
limited.
Holders of our publicly traded warrants will have no rights
as a common stockholder until they acquire our common stock.
Until holders of our publicly traded warrants acquire shares
of our common stock upon exercise of their warrants, the warrant holders will have no rights with respect to shares of our common
stock issuable upon exercise of their warrants. Upon exercise of the warrants, the warrant holders will be entitled to exercise
the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.