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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Substantial
doubt exists as to our ability to continue as a going concern. Our ability to continue as
a going concern is uncertain and 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, and the ongoing
COVID-19 pandemic, 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 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 in this Quarterly
Report on Form 10-Q 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 in this Quarterly Report on Form 10-Q actually occur, our business, operating results and financial position could be
adversely affected.
Risks
Related to Our Financial Position and Need for Additional Capital
Substantial
doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is uncertain and 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.
Substantial
doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is uncertain and dependent
on our ability to obtain additional financing. We have expended and continue to expend substantial funds in connection with our product
development, clinical trial and regulatory approval 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, preparation for and execution of a Phase 2 clinical trial of CB4211
and an initial clinical trial for CB5138-3 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, and the ongoing COVID-19 pandemic, 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 response to the global COVID-19 pandemic,
we have modified our business practices by restricting nonessential travel, implementing a partial work from home policy for our employees
and instituting new safety protocols for our 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. These and any additional delays in our clinical trials 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 recruiting, enrolling and retaining 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 (“FDA”)
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, investor and partnering communities due to the cancellation
of conferences scheduled throughout the year.
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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
extent to which the pandemic 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 duration of the pandemic, the emergence of novel variants of
SARS-CoV-2, the impact of vaccinations and vaccination rates, travel restrictions and actions to contain the virus 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 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, and 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.
Risks
Related to Discovery, Development and Commercialization
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 1a/1b 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 a delay 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 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 requested additional details regarding injection site reaction safety data presented in the DSUR.
The additional information was provided to the FDA. FDA’s review of this information or future information requests could result
in the delay or suspension of any ongoing or planned clinical trials 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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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 timely performance by our
CROs and other vendors, 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. We have in the past and may in the future
continue to experience changes in our executive management team resulting from the departure of executives or subsequent hiring of new
executives, which may be disruptive to our business. For example, effective May 3, 2021, Joseph Sarret assumed the role of Chief Executive
Officer and Steven Engle resigned from his position as Chief Executive Officer. We anticipate that we will experience a transitional
period as Dr. Sarret becomes fully integrated into his new role, and such transition may have a disruptive impact on our ability to implement
our business strategy and could have a material adverse effect on our business. Any changes in business strategies can create uncertainty,
may negatively impact our ability to execute our business strategy quickly and effectively and may ultimately be unsuccessful. The
impact of hiring new executives may not be immediately realized.
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 reimbursement rates for such product candidates, 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;
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we
may not be able to identify the mechanism of action for potential drug candidates, which
may make it more difficult to develop and commercialize such drug candidates due to the potential
desire of the FDA and other regulatory bodies, potential partners, physicians and patients
to understand such mechanism of action; 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, properties that make them difficult
or impossible to formulate in a commercial fashion, 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 generate 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
cost and 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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we
may not be able to develop commercially viable formulations for our potential drug candidates;
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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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even
if our potential drugs are approved and commercially launched, they may not receive desirable
payor reimbursement and formulary access;
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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. For example, we have
experienced delays in receiving the data from our third-party CRO conducting our CB4211 Phase 1b study, which delayed our analysis and
release of topline data.
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”) as enforced by the FDA, or 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, safer, 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 non-alcoholic fatty liver disease or 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, IPF 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 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, which we may not be able
to attract. 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 (“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.
We
may not be able to obtain agreement with regulatory authorities regarding an acceptable development plan for our product candidates,
the outcome of our clinical trials may not be favorable or, even if favorable, regulatory authorities may not find the results of our
clinical trials to be sufficient for marketing approval.
In
the United States, the FDA generally requires two adequate and well-controlled pivotal clinical trials to approve a new drug application
(“NDA”). Furthermore, for full approval of an NDA, the FDA requires a demonstration of efficacy based on a clinical benefit
endpoint. The FDA may grant accelerated approval based on a surrogate endpoint reasonably likely to predict clinical benefit. Even though
our pivotal clinical trials for a specific indication may achieve their primary endpoints and are reasonably believed by us to be likely
to predict clinical benefit, the FDA may not accept the results of such trials or approve our product candidates on an accelerated basis,
or at all. It is also possible that the FDA may refuse to accept for filing and review any regulatory application we submit for regulatory
approval in the United States. Even if our regulatory application is accepted for review, there may be delays in the FDA’s review
process and the FDA may determine that such regulatory application does not contain adequate clinical or other data or support the approval
of our product candidate. In such a case, the FDA may issue a complete response letter that may require that we conduct and/or complete
additional clinical trials and preclinical studies or provide additional information or data before it will reconsider an application
for approval. Any such requirements may be substantial, expensive and time-consuming, and there is no guarantee that we will continue
to pursue such application or that the FDA will ultimately decide that any such application supports the approval of our product candidate.
Furthermore, the FDA may also refer any regulatory application to an advisory committee for review and recommendation as to whether,
and under what conditions, the application should be approved. While the FDA is not bound by the recommendation of an advisory committee,
it considers such recommendations carefully when making decisions. Delay or failure to obtain, or unexpected costs in obtaining, the
regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient revenue to maintain
our business.
The
regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our
product candidates under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of
our product candidates and adversely impact our ability to generate revenue, our business and our results of operations.
The
development, research, testing, manufacturing, labeling, approval, selling, import, export, marketing, promotion and distribution of
drug products are subject to extensive and evolving regulation by federal, state and local governmental authorities in the United States,
principally the FDA, and by foreign regulatory authorities, which regulations differ from country to country. Neither we nor any future
collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of an NDA
from the FDA.
Obtaining
regulatory approval of an NDA can be a lengthy, expensive and uncertain process. Prior to obtaining approval to commercialize our product
candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical
trials, and to the satisfaction of the FDA or other foreign regulatory authorities, that such product candidates are safe and effective
for their intended uses. The number of nonclinical studies and clinical trials that will be required for regulatory approval varies depending
on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable
to any particular product candidate.
Results
from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data
for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities.
Administering product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials
and result in the FDA or other regulatory authorities denying approval of a product candidate for any or all indications. The FDA may
also require us to conduct additional studies or trials for our product candidates either prior to or post-approval, such as additional
clinical pharmacology studies or safety or efficacy studies or trials, or it may object to elements of our clinical development program
such as the primary endpoints or the number of subjects in our clinical trials.
The
FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional
nonclinical or clinical testing or abandon a program for many reasons, including:
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the
FDA or the applicable foreign regulatory authority’s disagreement with the design or
implementation of our clinical trials;
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negative
or ambiguous results from our clinical trials or results that may not meet the level of statistical
significance required by the FDA or comparable foreign regulatory authorities for approval;
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serious
and unexpected drug-related side effects experienced by participants in our clinical trials;
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our
inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory
authority that our product candidates are safe and effective for the proposed indication;
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the
FDA’s or the applicable foreign regulatory authority’s disagreement with the
interpretation of data from nonclinical studies or clinical trials;
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our
inability to demonstrate the clinical and other benefits of our product candidates outweigh
any safety or other perceived risks;
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the
FDA’s or the applicable foreign regulatory authority’s requirement for additional
nonclinical studies or clinical trials;
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the
FDA’s or the applicable foreign regulatory authority’s disagreement regarding
the formulation, labeling and/or the specifications of our product candidates;
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the
FDA’s or the applicable foreign regulatory authority’s failure to approve the
manufacturing processes or facilities of third-party manufacturers with which we contract;
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the
potential for approval policies or regulations of the FDA or the applicable foreign regulatory
authorities to significantly change in a manner rendering our clinical data insufficient
for approval; or
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the
FDA or the applicable foreign regulatory authority’s disagreement with the sufficiency
of the clinical, non-clinical and/or quality data in the NDA or comparable marketing authorization
application.
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Of
the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes
and are commercialized. The lengthy development and approval process as well as the unpredictability of future clinical trial results
may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business,
financial condition, results of operations and prospects.
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, for patents that we have licensed
from a third party, 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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There
can be no assurance that any of our patent applications, including any 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
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.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
controls and procedures and that we furnish a report by management on, among other things, the effectiveness of our internal control
over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our
internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements
will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from
our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for
as long as we are not an accelerated filer or large accelerated filer, we intend to take advantage of the exemption permitting us not
to comply with the independent registered public accounting firm attestation requirement.
Our
compliance with Section 404 will require us 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 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 June 30, 2021, our executive officers and directors own, as a group, approximately 21% of the outstanding shares of our common stock.
Additionally, our executive officers and directors own, as a group, options and warrants exercisable for approximately 13% 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 Nasdaq 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, rules regarding the diversity of our board of directors 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 Nasdaq or another stock exchange could be adversely affected.
We
are also subject to more stringent state law requirements. For example, under California law, we will be required to have at least three
female directors on our board of directors and one director from an “underrepresented community” by December 31, 2021, and
an additional director from an “underrepresented community” by December 31, 2022. A director from an “underrepresented
community” means a director who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American,
Native Hawaiian, Alaska Native, gay, lesbian, bisexual or transgender. If we fail to comply with either of these requirements, we could
be fined by the California Secretary of State, our reputation may be adversely affected and certain investors may divest their holdings
in our stock.
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. For example, our corporate headquarters are located in the San Francisco Bay Area, which has experienced both
severe earthquakes and the effects of wildfires. We do not carry earthquake insurance. If an earthquake, wildfire, other 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.