Item 1A. Risk Factors
Summary of Risk Factors
An investment
in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed in
the section titled “Risk Factors” prior to making an investment in our common stock. These risks include, but are not
limited to, the following:
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We will need additional funding and may be unable to raise
additional capital when needed, which would force us to delay, reduce or eliminate our research and development activities.
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The outbreak of the novel strain of coronavirus, SARS-CoV-2,
which causes COVID-19, could adversely impact our business, including our clinical trials and preclinical studies.
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We have had a history of losses and no revenue.
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We are an early-stage biotechnology company and may never
be able to successfully develop marketable products or generate any revenue. We have a very limited relevant operating history
upon which an evaluation of our performance and prospects can be made. There is no assurance that our future operations will result
in profits. If we cannot generate sufficient revenues, we may suspend or cease operations.
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If we fail to demonstrate efficacy or safety in our research
and clinical trials, our future business prospects, financial condition and operating results will be materially adversely affected.
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If our current and any future clinical trials are delayed,
suspended or terminated, we may be unable to develop our product candidates on a timely basis, which would adversely affect our
ability to obtain regulatory approvals, increase our development costs and delay or prevent commercialization of any approved
products.
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If we do not achieve our projected development goals in
the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price
may decline.
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Our future success depends on key members of our scientific
team and our ability to attract, retain and motivate qualified personnel.
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We may seek to establish development and commercialization
collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development
and commercialization plans.
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We may not be successful in our efforts to identify or
discover potential drug development candidates.
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Our research and development plans will require substantial
additional future funding which could impact our operational and financial condition. Without the required additional funds, we
will likely cease operations.
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Even if we are able to develop our potential drugs, we
may not be able to obtain regulatory approval, or if approved, we may not be able to generate significant revenues or successfully
commercialize our products, which will adversely affect our financial results and financial condition, and we will have to delay
or terminate some or all of our research and development plans, which may force us to cease operations.
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If we do not maintain the support of qualified scientific
collaborators, our revenue, growth and profitability will likely be limited, which would have a material adverse effect on our
business.
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We expect to rely on third parties to conduct our clinical
trials and some aspects of our research and preclinical testing. These third parties may not perform satisfactorily, including
failing to meet deadlines for the completion of such trials, research or preclinical testing.
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We contract with third parties for the manufacture of our
peptide materials for research and preclinical testing and expect to continue to do so for any future product candidate advanced
to clinical trials and commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities
of our research peptide materials, product candidates or medicines, or that such supply will not be available to us at an acceptable
cost, which could delay, prevent or impair our research, development or commercialization efforts.
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We may not be able to develop drug candidates, market or
generate sales of our products to the extent anticipated. Our business may fail, and investors could lose all of their investment
in our Company.
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Interim and preliminary or topline data from our clinical
trials that we announce or publish from time to time may change as more patient data become available and are subject to audit
and verification procedures that could result in material changes in the final data.
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We expect to expand our drug development and regulatory
capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
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The use of any of our products in clinical trials may expose
us to liability claims, which may cost us significant amounts of money to defend against or pay out, causing our business to suffer.
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CohBar operates
in an environment that involves a number of risks and uncertainties. The risks and uncertainties described below are not the only
risks and uncertainties that we face. Additional risks and uncertainties that presently are not considered material or are not
known to us, and therefore are not mentioned herein, may impair our business operations. If any of the risks described below actually
occur, our business, operating results and financial position could be adversely affected.
Risks Related to Our Financial Position
and Need for Additional Capital
We will need
additional funding and may be unable to raise additional capital when needed, which would force us to delay, reduce or eliminate
our research and development activities.
Our operations to
date have consumed substantial amounts of cash, and we expect our capital and operating expenditures to continue to increase in
the next few years. We may not be able to generate significant revenues for several years, if at all. Until we can generate significant
revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing, and/or through any future development
collaborations with commercial partners. We cannot be certain that additional funding will be available on acceptable terms, or
at all. We have no committed source of additional capital and, in light of our current market capitalization, it may be more difficult
to raise the amount of capital needed to support planned development of our product candidates. In addition, the ongoing COVID-19
pandemic has led to, and may continue to create, global economic disruption, uncertainty and volatility in the global financial
markets. These effects may make it increasingly difficult to raise additional capital. If we are unable to raise additional capital
in sufficient amounts or on terms acceptable to us, we may be required to significantly delay, reduce the scope of, or eliminate
one or more of our research and development activities. If we are unable to secure additional capital, a Phase 2 clinical trial
of CB4211 will be delayed or discontinued. We could also be required to seek collaborators for our product candidate at an earlier
stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or
license on unfavorable terms our rights to such product candidates.
The
outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including
our clinical trials and preclinical studies.
Public health
crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of
coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 or COVID-19, surfaced in Wuhan, China. Since
then, COVID-19 has spread to multiple countries, including the United States. In response to the spread
of COVID-19, the Company has modified its business practices by restricting nonessential travel, implementing a partial
work from home policy for its employees and instituting new safety protocols for its lab to enable essential on-site work to
continue. We continue to monitor the impact of COVID-19 on ongoing activities at our external research and development
partner sites.
Timely enrollment
in our clinical trials is dependent upon global clinical trial sites which may be adversely affected by global health matters,
such as pandemics. We are currently conducting a clinical trial for our lead product candidate in the United States, which is currently,
and may continue to be, affected by COVID-19. For example, enrollment for our CB4211 Phase 1b study was delayed due to suspension
of study activities at some of our clinical sites. Although enrollment resumed, any additional delays in our CB4211 Phase 1b study
could increase our development costs, delay or prevent the availability of topline data expected to be available from the trial,
delay our product development and regulatory submission process, result in the termination of the trial or make it difficult to
raise additional capital.
As a result of the COVID-19 outbreak,
or similar pandemics, we may experience disruptions that could severely impact our business, clinical trials and preclinical studies,
including:
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delays or difficulties in
enrolling patients in our clinical trials;
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delays or difficulties in
clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
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delays or disruptions in non-clinical experiments
and investigational new drug application-enabling good laboratory practice standard toxicology studies due to unforeseen circumstances
in the supply chain;
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increased rates of patients
withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine
or not accepting home health visits;
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diversion of healthcare
resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and
hospital staff supporting the conduct of our clinical trials;
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interruption of key clinical
trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal
or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly
any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study
endpoints;
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interruption or delays in
the operations of the U.S. Food and Drug Administration and comparable foreign regulatory agencies, which may impact approval
timelines;
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limitations on employee
resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of
sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance
on working from home or mass transit disruptions;
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disruptions in the supply
chain and the manufacture or shipment of both drug substance and finished drug product for our product candidates for preclinical
testing and clinical trials
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interruption of, or delays in receiving, supplies of our
product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages
and disruptions in delivery systems; and
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reduced ability to engage
with the medical and investor communities due to the cancellation of conferences scheduled throughout the year.
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These and other factors
arising from the COVID-19 pandemic could worsen in locations that are already afflicted with COVID-19, could
continue to spread to additional locations, or could return to locations where the pandemic has been partially contained, each
of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material
adverse impact on our operations and financial condition and results.
In addition, the trading
prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic
and the resulting impact on economic activity. As a result, we may face difficulties raising capital through sales of our common
stock or other equity-linked securities, and any such sales may be on unfavorable terms to us and potentially dilutive to existing
stockholders.
The COVID-19 pandemic
continues to rapidly evolve. The extent to which the outbreak may impact our business, clinical trials and preclinical studies
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of COVID-19, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact,
such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business
disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We have had
a history of losses and no revenue.
We have generated
substantial accumulated losses since our inception. We have not generated any revenues from our operations to date and do not expect
to generate any revenue in the near future. As a result, our management expects the business to continue to experience negative
cash flow for the foreseeable future. We can offer no assurance that we will ever operate profitably or that we will generate positive
cash flow in the future.
Until we can generate
significant revenues, if ever, we expect to satisfy our future cash needs through equity or debt financing. We will need to raise
additional funds, and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds
on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations. In
the event we are not able to continue operations, investors will likely suffer a complete loss of their investments in our securities.
We are an early-stage
biotechnology company and may never be able to successfully develop marketable products or generate any revenue. We have a very
limited relevant operating history upon which an evaluation of our performance and prospects can be made. There is no assurance
that our future operations will result in profits. If we cannot generate sufficient revenues, we may suspend or cease operations.
We are an early-stage
company. Our operations to date have been limited to organizing and staffing our Company, business planning, raising capital, identifying
MDPs for further research, developing our intellectual property portfolio, performing research on identified MDPs and advancing
our lead MBT candidate into and through clinical studies. We have not generated any revenues to date. All of our MBTs are in the
concept, research or early clinical stages. Moreover, we cannot be certain that our research and development efforts will be successful
or, if successful, that our MBTs will ever be approved by the United States Food and Drug Administration (“FDA”). Typically,
it takes 10-12 years to develop one new medicine from the time it is discovered to when it is available for treating patients,
and longer timeframes are not uncommon. Even if approved, our products may not generate commercial revenues. We have no relevant
operating history upon which an evaluation of our performance and prospects can be made. We are subject to all of the business
risks associated with a new enterprise, including, but not limited to, risks of unforeseen capital requirements, failure of potential
drug candidates either in research, preclinical testing or in clinical trials, failure to establish business relationships and
competitive advantages against other companies. If we fail to become profitable, we may be forced to suspend or cease operations.
If we fail to
demonstrate efficacy or safety in our research and clinical trials, our future business prospects, financial condition and operating
results will be materially adversely affected.
The success of our
research and development efforts will greatly depend on our ability to demonstrate efficacy of MBTs in non-clinical studies, as
well as in clinical trials. Non-clinical studies involve testing potential MBTs in appropriate non-human disease models to demonstrate
efficacy and safety. Regulatory agencies evaluate these data carefully before they will approve clinical testing in humans. If
certain non-clinical data reveals potential safety issues or the results are inconsistent with an expectation of the potential
drug’s efficacy in humans, the program may be discontinued or the regulatory agencies may require additional testing before
allowing human clinical trials. This additional testing will increase program expenses and extend timelines. We may decide to suspend
further testing on our potential drugs if, in the judgment of our management and advisors, the non-clinical test results do not
support further development.
Moreover, success
in research, preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we
cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and non-clinical testing.
The clinical trial process may fail to demonstrate that our potential drug candidates are safe for humans and effective for indicated
uses. This failure would cause us to abandon a drug candidate and may delay development of other potential drug candidates. Any
delay in, or termination of, our non-clinical testing or clinical trials will delay the filing of an investigational new drug application
and new drug application with the FDA or the equivalent applications with pharmaceutical regulatory authorities outside the United
States and, ultimately, our ability to commercialize our potential drugs and generate product revenues. In addition, we expect
that our early clinical trials will involve small patient populations. Because of the small sample size, the results of these early
clinical trials may not be indicative of future results.
If our current
and any future clinical trials are delayed, suspended or terminated, we may be unable to develop our product candidates on a timely
basis, which would adversely affect our ability to obtain regulatory approvals, increase our development costs and delay or prevent
commercialization of any approved products.
We cannot predict
whether we will encounter problems with our ongoing, planned or any future clinical trials that will cause regulatory agencies,
institutional review boards, or us to suspend or delay a trial. For example, in November 2018, the Company announced the temporary
suspension of the Phase 1 clinical trial for CB4211, our lead MBT candidate, in order to address injection site reactions, and we
resumed the trial in June 2019. In November 2019, we announced the completion of the Phase 1a portion of the clinical trial and
the commencement of the recruiting phase of the final Phase 1b stage of the study. However, in March 2020, we announced anticipated
delays in the completion of our Phase 1b study for NASH and obesity. The delays were caused by a pause by some of our clinical
research organization partners in all of their activities related to the study in response to recent developments relating to the
COVID-19 pandemic. We announced the resumption of our Phase 1b study in July 2020. In response to a routine annual development
safety update report (the “DSUR”) we submitted to the FDA on August 6, 2020, the FDA has requested additional details
regarding injection site reaction safety data presented in the DSUR. We are preparing to provide such details to the FDA, and the
FDA’s review of such information could result in the delay or suspension of our Phase 1b study to address any concerns. Clinical
trials and clinical data collection protocols can be delayed for a variety of reasons, including:
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unanticipated consequences of the formulation of the product
candidate requiring us to pause the trial to investigate alternative formulations;
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the occurrence of unacceptable drug-related side effects
or adverse events experienced by participants in our clinical trials;
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discussions with the FDA regarding the scope or design
of our clinical trials and clinical data collection protocols;
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delays or the inability to obtain required approvals from
institutional review boards or other responsible entities at clinical sites selected for participation in our existing or future
clinical trials;
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adverse findings in clinical or nonclinical studies related
to the safety of our product candidates in humans;
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the amendment of clinical trial or data collection protocols
to reflect changes in regulatory requirements and guidance or other reasons, as well as subsequent re-examination of amendments
of clinical trial or data collection protocols by institutional review boards or other responsible bodies; and
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the need to repeat or conduct additional clinical trials
as a result of inconclusive or negative results, failure to replicate positive early clinical data in subsequent clinical trials,
failure to deliver an efficacious dose of a product candidate, poorly executed testing, a failure of a clinical site to adhere
to the clinical protocol, an unacceptable study design or other problems.
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In addition, a clinical
trial or development program may be suspended or terminated by us, institutional review boards, the FDA or other responsible bodies
due to a number of factors, including:
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failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical protocols;
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inspection of the clinical trial operations or trial sites
by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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inability to resume a suspended trial in a timely manner
(which we cannot predict with certainty), if at all;
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unforeseen safety issues or any determination that a trial
presents unacceptable health risks;
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inability to deliver an efficacious dose of a product
candidate; and
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lack of adequate funding to continue the clinical trial.
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If the results of our
clinical trials are not available when we expect or if we encounter any delay in the analysis of data from our clinical trials,
we may be unable to conduct additional clinical trials on the schedule we anticipate. Many of the factors that cause, or lead to,
a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a
product candidate. Any delays in completing a clinical trial could increase our development costs, delay or prevent the availability
of topline data expected to be available from the trial, delay our product development and regulatory submission process or make
it difficult to raise additional capital.
If we do not
achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be
delayed and, as a result, our stock price may decline.
From time to time, we
estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other product development
goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies
and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of
some of these milestones. All of these milestones are and will be based on numerous assumptions, including positive clinical and
preclinical results, the addition of a corporate partner for the CB4211 program, and sufficient funding from partnering and general
fundraising. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond
our control. If we do not meet these milestones as publicly announced, or at all, our revenue may be lower than expected, the commercialization
of our products may be delayed or never achieved and, as a result, our stock price may decline.
Our
future success depends on key members of our management and scientific teams and our ability to attract, retain and motivate qualified
personnel.
Recruiting and retaining
qualified senior management and scientific, clinical, and operations management and personnel will be critical to our success.
We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions.
We are highly dependent
on our key management and scientific teams, including our Chief Executive Officer, Chief Financial Officer and Chief Scientific
Officer who are all employed “at will,” meaning they may terminate the employment relationship at any time. We do not
maintain “key person” insurance for any of the key members of our team. The loss of the services of any of these persons
could impede the achievement of our research, development and commercialization objectives.
Our consultants and
advisors, including our founders, may be employed by employers other than us and may have commitments under consulting or advisory
contracts with other entities that may limit their availability to us. Our founders, Dr. Pinchas Cohen and Dr. Nir Barzilai,
are members of our board of directors and provide oversight and guidance on scientific, research and development topics in that
capacity. In addition, we rely on other consultants and advisors from time to time, including drug discovery and development advisors,
to assist us in formulating our research and development strategy. Agreements with these advisors typically may be terminated by
either party, for any reason, on relatively short notice.
We may seek
to establish development and commercialization collaborations, and, if we are not able to establish them on commercially reasonable
terms, we may have to alter our development and commercialization plans.
Our potential drug
development programs and the potential commercialization of our drug candidates will require substantial additional cash to fund
expenses. We may decide to collaborate with pharmaceutical or biotechnology companies in connection with the development or commercialization
of our potential drug candidates.
We face significant
competition in seeking appropriate collaborators. Whether we reach a definitive collaboration agreement will depend, among other
things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration
and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical
trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market
for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients,
the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist
if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally.
The collaborator may also consider alternative product candidates or technologies for similar disease indications on which to collaborate,
and whether such alternative collaboration project could be more attractive than one with us for our product candidate.
There are a limited
number of large pharmaceutical companies with whom we could potentially collaborate, and collaborations are complex and time-consuming
to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If
we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate,
reduce or delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on
our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not
have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product
revenue.
We may not be
successful in our efforts to identify or discover potential drug development candidates.
A key element of our
strategy is to identify and test MDPs that play a role in cellular processes underlying our targeted disease indications. A significant
portion of the research that we are conducting involves emerging scientific knowledge and drug discovery methods. Our drug discovery
efforts may not be successful in identifying MBTs that are useful in treating disease. Our research programs may initially show
promise in identifying potential drug development candidates, yet fail to yield candidates for preclinical and clinical development
for a number of reasons, including:
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the research methodology used may not be successful in
identifying appropriate potential drug development candidates; or
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potential drug development candidates may, on further
study, be shown not to be effective in humans, or to have unacceptable toxicities, harmful side effects or other characteristics
that indicate that they are unlikely to be medicines that will receive marketing approval and achieve market acceptance.
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Research programs
to identify new product candidates require substantial technical, financial and human resources. We may choose to focus our efforts
and resources on a potential product candidate that ultimately proves to be unsuccessful. As a result, we may forego or delay pursuit
of opportunities with other product candidates or for other disease indications that later prove to have greater commercial potential.
Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market
opportunities. If we are unable to advance our lead MBT candidate through clinical development or identify other MBTs that are
suitable for preclinical and clinical development, we will not be able to obtain product revenues in future periods, which likely
would result in significant harm to our financial position and negatively affect our ability to continue our operations.
Our research
and development plans will require substantial additional future funding which could impact our operational and financial condition.
Without the required additional funds, we will likely cease operations.
It will take several
years before we are able to develop potentially marketable products, if at all. Our research and development plans will require
substantial additional capital to:
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conduct research, preclinical testing and human studies;
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manufacture any future drug development candidate or product
at pilot and commercial scale; and
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establish and develop quality control, regulatory, and
administrative capabilities to support these programs.
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Our future operating
and capital needs will depend on many factors, including:
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the pace of scientific progress in our research programs
and the magnitude of these programs;
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the scope and results of preclinical testing and human
studies;
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the time and costs involved in obtaining regulatory approvals;
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the time and costs involved in preparing, filing, prosecuting,
securing, maintaining and enforcing intellectual property rights;
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competing technological and market developments;
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our ability to establish additional collaborations;
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changes in any future collaborations;
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the cost of manufacturing our drug products; and
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the effectiveness of efforts to commercialize and market
our products.
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We base our outlook
regarding the need for funds on many uncertain variables. Such uncertainties include the success of our research and development
initiatives, regulatory approvals, the timing of events outside our direct control such as negotiations with potential strategic
partners, and other factors. Any of these uncertain events can significantly change our cash requirements as they determine such
one-time events as the receipt or payment of major milestones and other payments.
Additional funds will
be required to support our operations, and if we are unable to obtain them on favorable terms, we may be required to cease or reduce
further research and development of our drug product programs, sell or abandon some or all of our intellectual property, merge
with another entity or cease operations.
Even if we are
able to develop our potential drugs, we may not be able to obtain regulatory approval, or if approved, we may not be able to generate
significant revenues or successfully commercialize our products, which will adversely affect our financial results and financial
condition, and we will have to delay or terminate some or all of our research and development plans, which may force us to cease
operations.
All our potential
drug candidates will require extensive additional research and development, including preclinical testing and clinical trials,
as well as regulatory approvals, before we can market them. We cannot predict if or when any potential drug candidate we intend
to develop will be approved for marketing. There are many reasons that we may fail in our efforts to develop our potential drug
candidates. These include:
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the possibility that preclinical testing or clinical trials
may show that our potential drugs are ineffective and/or cause harmful side effects or toxicities;
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our potential drugs may prove to be too expensive to manufacture
or administer to patients;
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our potential drugs may fail to receive necessary regulatory
approvals from the FDA or foreign regulatory authorities in a timely manner, or at all;
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even if our potential drugs are approved, we may not be
able to produce them in commercial quantities or at reasonable costs;
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even if our potential drugs are approved, they may not
achieve commercial acceptance;
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regulatory or governmental authorities may apply restrictions
to any of our potential drugs, which could adversely affect their commercial success; and
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the proprietary rights of other parties may prevent us
or our potential collaborative partners from marketing our potential drugs.
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If we fail to develop
our potential drug candidates, our financial results and financial condition will be adversely affected, we will have to delay
or terminate some or all of our research and development plans and may be forced to cease operations.
Risks Related to Our Reliance on Third
Parties
If we do not
maintain the support of qualified scientific collaborators, our revenue, growth and profitability will likely be limited, which
would have a material adverse effect on our business.
We will need to maintain
our existing relationships with leading scientists and/or establish new relationships with scientific collaborators. We believe
that such relationships are pivotal to establishing products using our technologies as a standard of care for various disease indications.
There is no assurance that our founders, scientific advisors or research partners will continue to work with us or that we will
be able to attract additional research partners. If we are not able to establish scientific relationships to assist in our research
and development, we may not be able to successfully develop our potential drug candidates. If this happens, our business will be
adversely affected.
We expect to
rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing. These third parties
may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or preclinical
testing.
We currently rely
on third parties to conduct some aspects of our research and expect to continue to rely on third parties to conduct additional
aspects of our research and preclinical testing, as well as any future clinical trials. Any of these third parties may terminate
their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product research and
development activities.
Our reliance on these
third parties for research and development activities will reduce our control over these activities but will not relieve us of
our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance
with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with 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 rights, integrity and confidentiality of trial participants are protected.
We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions.
Furthermore, these
third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do
not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals
for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines.
We currently rely,
and expect to continue to rely, on other third parties to store and distribute drug supplies for our clinical trials. Any performance
failure on the part of our distributors could delay clinical development or marketing approval of our drug candidates or commercialization
of our products, producing additional losses and depriving us of potential product revenue.
We contract
with third parties for the manufacture of our peptide materials for research and preclinical testing and expect to continue to
do so for any future product candidate advanced to clinical trials and commercialization. This reliance on third parties increases
the risk that we will not have sufficient quantities of our research peptide materials, product candidates or medicines, or that
such supply will not be available to us at an acceptable cost, which could delay, prevent or impair our research, development or
commercialization efforts.
We do not have manufacturing
facilities adequate to produce our research peptide materials or supplies of any future product candidate. We currently rely, and
expect to continue to rely, on third-party manufacturers for the manufacture of our peptide materials, our current and any future
product candidates for preclinical and clinical testing, and for commercial supply of any of these product candidates for which
we or future collaborators obtain marketing approval. We do not have long term supply agreements with any third-party manufacturers,
and we purchase our research peptides on a purchase order basis.
We may be unable to
establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements
with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
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reliance on the third party for producing the peptide
materials or product candidates according to the detailed specifications;
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reliance on the third party for regulatory compliance
and quality assurance;
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the possible breach of the manufacturing agreement by
the third party;
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the possible termination or nonrenewal of the agreement
by the third party at a time that is costly or inconvenient for us; and
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reliance on the third party for regulatory compliance,
quality assurance, and safety and pharmacovigilance reporting.
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Third-party manufacturers
may not be able to comply with current good manufacturing practices (“cGMP”), regulations or similar regulatory requirements
outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations
could result in us being subject to sanctions, including fines, injunctions, civil penalties, delays, suspension or withdrawal
of approvals, license revocation, seizures or recalls of product candidates or medicines, operating restrictions and criminal prosecutions,
any of which could significantly and adversely affect supplies of our medicines and harm our business and results of operations.
Any drug candidate
that we may develop may compete with other drug candidates and products for access to manufacturing facilities. There are a limited
number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.
Our current and anticipated
future dependence upon others for the manufacture of our investigational materials or future product candidates or medicines may
adversely affect our future profit margins and our ability to commercialize any medicines that receive marketing approval on a
timely and competitive basis.
Risks Related to Product Development
and Regulatory Approval
We may not be
able to develop drug candidates, market or generate sales of our products to the extent anticipated. Our business may fail, and
investors could lose all of their investment in our Company.
Assuming that we are
successful in developing our potential drug candidates and receiving regulatory clearances to market our potential products, our
ability to successfully penetrate the market and generate sales of those products may be limited by a number of factors, including
the following:
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if our competitors receive regulatory approvals for and
begin marketing similar products in the United States, the European Union (“EU”), Japan and other territories before
we do, greater awareness of their products as compared to ours will cause our competitive position to suffer;
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information from our competitors or the academic community
indicating that current products or new products are more effective or offer compelling other benefits than our future products
could impede our market penetration or decrease our future market share; and
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the pricing and reimbursement environment for our future
products, as well as pricing and reimbursement decisions by our competitors and by payers, may have an effect on our revenues.
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If any of these occur, our business could
be adversely affected.
Interim
and preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient
data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we
may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials that we may complete
are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more
patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result
in the final data being materially different from the preliminary or topline data we previously published. As a result, interim
and preliminary data should be viewed with caution until the final data are available. Adverse differences between interim or preliminary
or topline data and final data could significantly harm our reputation and business prospects.
Any product
candidate we are able to develop and commercialize would compete in the marketplace with existing therapies and new therapies that
may become available in the future. These competitive therapies may be more effective, less costly, more easily administered or
offer other advantages over any product we seek to market.
Although there are
no currently approved therapies for the treatment of NAFLD and NASH, there are numerous therapies in development, including those
in clinical trials that are more advanced than ours. Additionally, there are numerous therapies currently marketed to treat diabetes,
cancer, Alzheimer’s disease and other diseases for which our potential product candidates may be indicated. For example,
if we develop an approved treatment for T2D, it would compete with several classes of drugs for T2D that are approved to improve
glucose control. These include the insulin sensitizers pioglitazone (Actos) and rosiglitazone (Avandia), which are administered
as oral once daily pills, and metformin, which is sometimes called an insulin sensitizer and is available as a generic once daily
formulation. If we develop an approved treatment for Alzheimer’s disease, it would compete with approved therapies such as
donepezil (Aricept), galantamine (Razadyne), memantine (Namenda), rivastigmine (Exelon) and tacrine (Cognex). These therapies are
varied in their design, therapeutic application and mechanism of action and may provide significant competition for any of our
product candidates for which we obtain market approval. New products may also become available that provide efficacy, safety, convenience
and other benefits that are not provided by currently marketed therapies. As a result, they may provide significant competition
for any of our product candidates for which we obtain market approval. Our commercial opportunity could be reduced or eliminated
if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are
more conveniently administered or stored or are less expensive than any products that we may develop. Our competitors also may
obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result
in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete
may be affected in many cases by insurers’ or other third-party payers’ reimbursement polices seeking to encourage
the use of existing products which are generic or are otherwise less expensive to provide.
We expect to
expand our drug development and regulatory capabilities, and as a result, we may encounter difficulties in managing our growth,
which could disrupt our operations.
We expect to experience
significant growth in the scope of our operations, particularly in the areas of drug development and commercialization and regulatory
affairs. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial
systems, expand our facilities and continue to recruit and train additional qualified personnel. We expect that if our drug candidates
continue to progress into and in development, we may require significant additional investment in personnel, management systems
and resources, particularly in the build out of our clinical and commercial capabilities. Over the next several years, we may experience
significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development,
regulatory affairs and sales and marketing. Due to our limited financial resources and our limited operating history, we may not
be able to effectively manage the expected expansion of our operations. The physical expansion of our operations may lead to significant
costs and may divert our management and business development resources. Any inability to manage growth could delay the execution
of our business plans or disrupt our operations.
The use of any
of our products in clinical trials may expose us to liability claims, which may cost us significant amounts of money to defend
against or pay out, causing our business to suffer.
The nature of our
business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our products. Our leading
product candidate, CB4211, is currently in clinical trials, and if any of our drug candidates enter into clinical trials, or if
any of our drug candidates become marketed products, they could potentially harm people or allegedly harm people, possibly subjecting
us to costly and damaging product liability claims. Some of the patients who participate in clinical trials are already ill when
they enter a trial or may intentionally or unintentionally fail to meet the exclusion criteria. The waivers we obtain may not be
enforceable and may not protect us from liability or the costs of product liability litigation. Although we obtained product liability
insurance, which we believe is adequate, we are subject to the risk that our insurance will not be sufficient to cover claims.
We anticipate that we will need to increase our insurance coverage if we successfully commercialize any product candidate. The
insurance costs along with the defense or payment of liabilities above the amount of coverage could cost us significant amounts
of money and management distraction from other elements of the business, decrease demand for any product candidates that we may
develop, injure our reputation and attract significant negative media attention, and lead to the withdrawal of clinical trial participants,
causing our business to suffer. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate
to satisfy any liability that may arise.
Compliance with
laws and regulations pertaining to the privacy and security of health information may be time consuming, difficult and costly,
particularly in light of increased focus on privacy issues in countries around the world, including the United States and the EU.
We are subject to
various domestic and international privacy and security regulations. The confidentiality, collection, use and disclosure of personal
data, including clinical trial patient-specific information, are subject to governmental regulation generally in the country that
the personal data were collected or used. In the United States, we are subject, or expect to be subject, to various state and federal
privacy and data security regulations, including but not limited to the Health Insurance Portability and Accountability Act of
1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009. HIPAA mandates, among
other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions,
as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption
of administrative, physical and technical safeguards to protect such information. In the EU, personal data includes any information
that relates to an identified or identifiable natural person with health information carrying additional obligations, including
obtaining the explicit consent from the individual for collection, use or disclosure of the information. In addition, the protection
of and cross-border transfers of such data out of the EU has become more stringent with the EU’s General Data Protection
Regulation which came into effect in May 2018. Furthermore, the legislative and regulatory landscape for privacy and data protection
continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues. The United States
and the EU and its member states continue to issue new privacy and data protection rules and regulations that relate to personal
data and health information. Compliance with these laws may be time consuming, difficult and costly. If we fail to comply with
applicable laws, regulations or duties relating to the use, privacy or security of personal data, we could be subject to the imposition
of significant civil and criminal penalties, be forced to alter our business practices and suffer reputational harm.
Any
product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and
could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to
comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of
them are approved.
Our
product candidates and the activities associated with their development and potential commercialization, including their testing,
manufacturing, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive
regulation by the FDA and other U.S. and international regulatory authorities. These requirements include submissions of safety
and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing,
including current cGMPs, quality control, quality assurance and corresponding maintenance of records and documents, including periodic
inspections by the FDA and other regulatory authorities and requirements regarding the distribution of samples to providers and
recordkeeping.
The
FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or
efficacy of any approved product. The FDA closely regulates the post-approval marketing and promotion of drugs and biologics to
ensure drugs and biologics are marketed only for the approved disease indications and in accordance with the provisions of the
approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products.
If we promote our product candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance
with FDA regulations, we may be subject to enforcement action. Violations of the Federal Food, Drug, and Cosmetic Act relating
to the promotion of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and
abuse laws, as well as state consumer protection laws and similar laws in international jurisdictions.
In
addition, later discovery of previously unknown adverse events or other problems with our product candidates, manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such product candidates, manufacturers
or manufacturing processes;
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restrictions on the labeling or marketing of a product;
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restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical
trials;
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warning or untitled letters;
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withdrawal of any approved product from the market;
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refusal to approve pending applications or supplements
to approved applications that we submit;
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recall of product candidates;
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restrictions on product distribution or use;
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fines, restitution or disgorgement of profits or revenues;
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suspension or withdrawal of marketing approvals;
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refusal to permit the import or export of our product
candidates;
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injunctions or the imposition of civil or criminal penalties.
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Non-compliance with
European requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products
for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the EU’s
requirements regarding the protection of personal information can also lead to significant penalties and sanctions.
The patent positions
of biopharmaceutical products are complex and uncertain, and we may not be able to protect our patented or other intellectual property.
If we cannot protect this property, we may be prevented from using it, or our competitors may use it, and our business could suffer
significant harm. Also, the time and money we spend on acquiring and enforcing patents and other intellectual property will reduce
the time and money we have available for our research and development, possibly resulting in a slow down or cessation of our research
and development.
We own or exclusively
license patents and patent applications related to our MDPs and potential MBTs and we anticipate continuing to develop our intellectual
property portfolio. However, neither patents nor patent applications ensure the protection of our intellectual property for a number
of reasons, including the following:
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The United States Supreme Court rendered a decision in
Molecular Pathology vs. Myriad Genetics, Inc., 133 S.Ct. 2107 (2013) (“Myriad”), in which the court held that
naturally occurring DNA segments are products of nature and not patentable as compositions of matter. On March 4, 2014, the
U.S. Patent and Trademark Office (“USPTO”) issued guidelines for examination of such claims that, among other things,
extended the Myriad decision to any natural product. Since MDPs are natural products isolated from cells, the USPTO guidelines
may affect allowability of some of our patent claims (pertaining to natural MDP sequences) that are filed in the USPTO but are
not yet issued. Further, while the USPTO guidelines are not binding on the courts, it is likely that as the law of subject matter
eligibility continues to develop, Myriad will be extended to natural products other than DNA. Thus, our issued U.S. patent claims
directed to MDPs as compositions of matter may be vulnerable to challenge by competitors who seek to have our claims rendered
invalid. While Myriad and the USPTO guidelines described above will affect our patents only in the United States, there is no
certainty that similar laws or regulations will not be adopted in other jurisdictions.
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Competitors may interfere with our patenting process in
a variety of ways. Competitors may claim that they invented the claimed invention prior to us. Competitors may also claim that
we are infringing their patents and restrict our freedom to operate. Competitors may also contest our patents and patent applications,
if issued, by showing in various patent offices that, among other reasons, the patented subject matter was not original, was not
novel or was obvious. In litigation, a competitor could claim that our patents and patent applications are not valid or enforceable
for a number of reasons. If a court agrees, we would lose some or all of our patent protection.
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As a company, we have no meaningful experience with competitors
interfering with our patents or patent applications. In order to enforce our intellectual property, we may need to file a lawsuit
against a competitor. Enforcing our intellectual property in a lawsuit can take significant time and money. We may not have the
resources to enforce our intellectual property if a third party infringes an issued patent claim. Infringement lawsuits may require
significant time and money resources. If we do not have such resources, the licensor is not obligated to help us enforce our patent
rights. If the licensor does take action by filing a lawsuit claiming infringement, we will not be able to participate in the
suit and therefore will not have control over the proceedings or the outcome of the suit.
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Because of the time, money and effort involved in obtaining
and enforcing patents, our management may spend less time and resources on developing potential drug candidates than they otherwise
would, which could increase our operating expenses and delay product programs.
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Our licensed patent applications directed to the composition
and methods of using MOTS-c, an MDP, and SHLP-6, which we consider as a research peptide for the potential treatment of cancer,
have not yet been issued. There can be no assurance that these or our other licensed patent applications will result in the issuance
of patents, and we cannot predict the breadth of claims that may be allowed in our currently pending patent applications or in
patent applications we may file or license from others in the future.
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Issuance of a patent may not provide much practical protection.
If we receive a patent of narrow scope, then it may be easy for competitors to design products that do not infringe our patent(s).
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We have limited ability to expand coverage of our licensed
patent related to SHLP-2 and our licensed patent application related to SHLP-6 outside of the United States. The lack of patent
protection in international jurisdictions may inhibit our ability to advance MBT drug candidates in these markets.
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If a court decides that the method of manufacture or use
of any of our drug candidates infringes on a third-party patent, we may have to pay substantial damages for infringement.
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A court may prohibit us from making, selling or licensing
a potential drug candidate unless the patent holder grants a license. A patent holder is not required to grant a license. If a
license is available, we may have to pay substantial royalties or grant cross licenses to our patents, and the license terms may
be unacceptable.
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Redesigning our potential drug candidates so that they
do not infringe on other patents may not be possible or could require substantial funds and time.
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It is also unclear
whether our trade secrets are adequately protected. While we use reasonable efforts to protect our trade secrets, our employees
or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that someone illegally
obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts
outside the United States are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent
knowledge, methods and know-how. We may also support and collaborate in research conducted by government organizations, hospitals,
universities or other educational institutions. These research partners may be unable or unwilling to grant us exclusive rights
to technology or products derived from these collaborations prior to entering into the relationship.
If we do not obtain
required intellectual property rights, we could encounter delays in our drug development efforts while we attempt to design around
other patents or even be prohibited from developing, manufacturing or selling potential drug candidates requiring these rights
or licenses. There is also a risk that disputes may arise as to the rights to technology or potential drug candidates developed
in collaboration with other parties.
General Risk Factors
Because of our
status as an emerging growth company, our independent registered public accountants are not required to provide an attestation
report as to our internal control over financial reporting for several years.
Our
independent registered public accounting firm will not be required to attest formally to the effectiveness of our internal control
over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) until we are no longer
an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (JOBS Act). We will be an
emerging growth company until December 31, 2020, although circumstances could cause us to lose that status earlier, including if
the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30th before that time, in which
case we would no longer be an emerging growth company as of the following December 31st. Accordingly, you will not likely be able
to depend on any attestation concerning our internal control over financial reporting from our independent registered public accountants
until we file our annual report on Form 10-K for the year ending December 31, 2020.
If
we fail to establish and maintain proper and effective internal control over financial reporting in the future, our ability to
produce accurate and timely financial statements could be impaired, which could harm our operating results, investors’ views
of us and, as a result, the value of our common stock.
While
we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial
reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed
period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly
and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants
and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps
to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement
a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk
that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting
is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction
in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. In addition,
if we are not able to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Capital Market (Nasdaq).
As
we continue to grow, we expect to hire additional personnel and may utilize external temporary resources to implement, document
and modify policies and procedures to maintain effective internal controls. However, it is possible that we may identify deficiencies
and weaknesses in our internal controls. If material weaknesses or deficiencies in our internal controls exist and go undetected
or unremediated, our consolidated financial statements could contain material misstatements that, when discovered in the future,
could cause us to fail to meet our future reporting obligations and cause the price of our common stock to decline.
Significant
disruptions of information technology systems or security breaches could adversely affect our business.
We are increasingly
dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business,
we collect, store and transmit large amounts of confidential information (including, among other things, trade secrets or other
intellectual property, proprietary business information and personal information). It is critical that we do so in a secure manner
to maintain the confidentiality and integrity of such confidential information. We also have outsourced elements of our operations
to third parties, and as a result we manage a number of third-party vendors who may or could have access to our confidential information.
Attacks on information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity,
and they are being conducted by increasingly sophisticated and organized groups and individuals with a wide range of motives and
expertise. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract,
and the large amounts of confidential information stored on those systems, make such systems vulnerable to service interruptions
or to security breaches from inadvertent or intentional actions by our employees, third-party vendors, and/or business partners,
or from cyber-attacks by malicious third parties. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service
attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability
of information.
Significant disruptions
of our information technology systems, or those of our third-party vendors, or security breaches could adversely affect our business
operations and/or result in the loss, misappropriation and/or unauthorized access, use or disclosure of, or the prevention of access
to, confidential information, including, among other things, trade secrets or other intellectual property, proprietary business
information and personal information, and could result in financial, legal, business and reputational harm to us.
Any
failure or perceived failure by us or any third-party collaborators, service providers, contractors or consultants to comply with
our privacy, confidentiality, data security or similar obligations to third parties, or any data security incidents or other security
breaches that result in the unauthorized access, release or transfer of sensitive information, including personally identifiable
information, may result in governmental investigations, enforcement actions, regulatory fines, litigation or public statements
against us, could cause third parties to lose trust in us or could result in claims by third parties asserting that we have breached
our privacy, confidentiality, data security or similar obligations, any of which could have a material adverse effect on our reputation,
business, financial condition or results of operations. Moreover, data security incidents and other security breaches can be difficult
to detect, and any delay in identifying them may lead to increased harm. While we have implemented data security measures intended
to protect our information technology systems and infrastructure, there can be no assurance that such measures will successfully
prevent service interruptions or data security incidents.
If securities
or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change
their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market
for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us,
our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our
stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline.
If any analysts who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
The market price
of our common stock may be highly volatile.
The market for our
common stock has been characterized by significant price volatility when compared to more established issuers, and we expect that
it will continue to be so for the foreseeable future. The market price of our common stock is likely to be volatile for a number
of reasons. First, our common stock is likely to be sporadically and/or thinly traded. As a consequence of this lack of liquidity,
the trading of relatively small quantities of common stock by our stockholders may disproportionately influence the price of the
common stock in either direction. The price of the common stock could, for example, decline precipitously if even a relatively
small number of shares are sold on the market without commensurate demand, as compared to a market for shares of an established
issuer which could better absorb those sales without adverse impact on its share price. Second, we are a speculative investment
due to our lack of profits to date and substantial uncertainty regarding our ability to develop and commercialize a drug product
from our new or existing technologies. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear
of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares
on the market more quickly and at greater discounts than would be the case with the shares of an established issuer. We cannot
make any predictions or projections as to what the prevailing market price for our common stock will be at any time or as to what
effect the sale of common stock or the availability of common stock for sale at any time will have on the prevailing market price.
Our management
owns, and could acquire, a significant percentage of our outstanding common stock. If the ownership of our common stock continues
to be highly concentrated in management, it may prevent other stockholders from influencing significant corporate decisions.
As of September 30,
2020, our executive officers and directors own, as a group, approximately 23% of the outstanding shares of our common stock. Additionally,
our executive officers and directors own, as a group, options and warrants exercisable for approximately 7.8% of our outstanding
common stock, assuming exercise of such options and warrants. As a result, our management could exert significant influence over
matters requiring stockholder approval, including the election of our board of directors, the approval of mergers and other extraordinary
transactions, as well as the terms of any of these transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which
could in turn have an adverse effect on the fair market value of our Company and our common stock. These actions may be taken even
if they are opposed by our other stockholders.
The requirements
of being a public company may strain our resources, divert management’s attention and require us to disclose information
that is helpful to competitors, make us more attractive to potential litigants and make it more difficult to attract and retain
qualified personnel.
As a public company,
we are subject to the reporting requirements of the Securities Act of 1933, as amended, the Exchange Act, the Sarbanes-Oxley Act,
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and applicable Canadian securities rules and regulations.
Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations creates significant legal and
financial compliance costs and makes some activities difficult, time-consuming or costly. The Exchange Act and applicable Canadian
provincial securities legislation require, among other things, that we file annual, quarterly and current reports with respect
to our business and operating results.
Additionally, the
Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Nasdaq Capital Market require us to implement particular
corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. Among other things,
we are subject to rules regarding the independence of the members of our board of directors and committees of the board and their
experience in finance and accounting matters, and certain of our executive officers are required to provide certifications in connection
with our quarterly and annual reports filed with the SEC. The perceived personal risk associated with these rules may deter qualified
individuals from accepting these positions. Accordingly, we may be unable to attract and retain qualified officers and directors.
If we are unable to attract and retain qualified officers and directors, our business and our ability to maintain the listing of
our shares of common stock on the Nasdaq or another stock exchange could be adversely affected.
Changes
in U.S. federal income and other tax laws could adversely affect us.
New
U.S. legislation or regulations which could affect our tax burden could be enacted by the U.S. government. We cannot predict the
timing or extent of such tax-related developments which could have a negative impact on our financial results.
Additionally, we use our best judgment in attempting to quantify and reserve for these tax obligations. However, a challenge by
a taxing authority, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions could
have a material adverse effect on our business, results of operations, or financial condition.
Unfavorable
global economic conditions could adversely affect our business, financial condition or results of operations.
Our
results of operations could be adversely affected by general conditions in the global economy and in the global financial markets.
For example, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe
or prolonged economic downturn, such as a global financial crisis, could result in a variety of risks to our business, including,
weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all.
A weak or declining economy could also strain our suppliers, possibly resulting in supply disruptions. Any of the foregoing could
harm our business, and we cannot anticipate all of the ways in which the current economic climate and financial market conditions
could adversely impact our business.
We
or the third parties upon whom we depend may be adversely affected by natural disasters, and our business continuity and disaster
recovery plans may not adequately protect us from a serious disaster.
Natural disasters
could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition
and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion
of our headquarters, that damaged critical infrastructure or that otherwise disrupted operations, it may be difficult or, in certain
cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity
plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses
as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect
on our business.
Our
employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance
with regulatory standards and requirements and insider trading.
We are exposed to
the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct
by these parties could include intentional failures to comply with the regulations of FDA and non-U.S. regulators, provide accurate
information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States
and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing
and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct,
kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct
could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory
sanctions and cause serious harm to our reputation. We have adopted a code of ethics, but it is not always possible to identify
and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling
unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming
from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful
in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition
of significant fines or other sanctions.