Item 1A. Risk Factors
Summary of Risk Factors
An
investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed
in the section titled “Risk Factors” prior to making an investment in our common stock. These risks include, but are not limited
to, the following:
| ● | we are an early-stage biotechnology company and may never be able to successfully develop marketable products
or generate any revenue. We have a 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 have had a history of losses and no revenue; |
| ● | 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; |
| ● | 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; |
| ● | 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; |
| ● | 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; |
| ● | our future success depends on key members of our scientific team and our ability to attract, retain and
motivate qualified personnel; |
| ● | 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; |
| ● | we may not be successful in our efforts to identify or discover potential drug development candidates; |
| ● | we may not be successful in our efforts to develop commercially viable formulations for our product candidates; |
| ● | 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; |
| ● | 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; |
| ● | 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 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 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 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; |
| ● | 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; |
| ● | 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; and |
| ● | 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. |
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
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 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 our novel analogs and
progressing our most advanced drug candidate into and through clinical studies. We have not generated any revenues to date. All of our
novel peptide analogs 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 novel peptide analogs will ever be approved by the FDA. Typically, it takes 10
to 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.
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:
| ● | delays or difficulties in recruiting, enrolling and retaining patients in our clinical trials; |
| ● | delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site
investigators and clinical site staff; |
| ● | 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; |
| ● | 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; |
| ● | 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; |
| ● | 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; |
| ● | 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; |
| ● | interruption or delays in the operations of the FDA and comparable
foreign regulatory agencies, which may impact approval timelines; |
| ● | 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; |
| ● | 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 |
| ● | reduced ability to engage with the medical, investor and
partnering communities due to the cancellation of conferences scheduled throughout the year. |
In addition, the trading
prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic
and the resulting impact on economic activity. As COVID-19 transitions from a pandemic to an endemic disease, we are uncertain about its
ongoing effect on both domestic and worldwide economic activity, which may continue to be unpredictable. 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. For example, primarily due to COVID-19 related restrictions
and disruption, we have experienced delays in shipping raw materials to our partners in China, which has delayed certain of our investigational
new drug application-enabling activities.
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 our novel peptide analogs in non-clinical studies,
as well as in clinical trials. Non-clinical studies involve testing potential drug candidates 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, our Phase 1a/1b trial of CB4211, our most advanced
drug candidate, involved, and we expect that our other early clinical trials will involve, small patient populations. Because of these
small sample sizes, the results of these early clinical trials, including the topline data from our CB4211 Phase 1a/1b trial, may not
be indicative of future results.
Risks Related to Discovery, Development and
Commercialization
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.
We cannot predict whether
we will encounter problems with our planned or future clinical trials that will cause regulatory agencies, institutional review boards,
or us to suspend or delay a trial. For example, in November 2018, we announced the temporary suspension of the Phase 1a/1b clinical trial
for CB4211 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 this trial due to 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. While we
announced the resumption of our Phase 1b study in July 2020, our clinical activities could be delayed again in the future. Additionally,
the FDA’s review of any prior or future submissions related to completed, ongoing, or planned clinical trials of our product candidates,
or future information requests from the FDA 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:
| ● | unanticipated consequences of the formulation of the product
candidate requiring us to pause the trial to investigate alternative formulations; |
| ● | the occurrence of unacceptable drug-related side effects
or adverse events experienced by participants in our clinical trials; |
| ● | discussions with the FDA regarding the scope or design of
our clinical trials and clinical data collection protocols; |
| ● | 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; |
| ● | adverse findings in clinical or nonclinical studies related
to the safety of our product candidates in humans; |
| ● | 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 |
| ● | 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. |
In addition, a clinical trial
or development program may be suspended or terminated by us, institutional review boards, the FDA or other responsible bodies due to a
number of factors, including:
| ● | failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical protocols; |
| ● | inspection of the clinical trial operations or trial sites
by the FDA or other regulatory authorities resulting in the imposition of a clinical hold; |
| ● | inability to resume a suspended trial in a timely manner,
which we cannot predict with certainty, if at all; |
| ● | unforeseen safety issues or any determination that a trial
presents unacceptable health risks; |
| ● | inability to deliver an efficacious dose of a product candidate;
and |
| ● | lack of adequate funding to continue the clinical trial. |
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 contract research organizations
(“CROs”) and other vendors, positive clinical and preclinical results, our ability to develop commercially viable formulations
for our product candidates, the addition of a corporate partner for our 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 biopharmaceutical 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 and Chief Financial Officer who are 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,
Kenneth Cundy resigned from his role of Chief Scientific Officer effective March 31, 2022. 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.
We rely on 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. In addition,
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.
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 biopharmaceutical companies in connection with the development or commercialization of our potential drug candidates.
For example, we intend to partner CB4211 before moving this program forward into further clinical trials. There is no guarantee that we
will be able to establish a partnership for the CB4211 program on favorable terms, if at all. If we are unable to establish such
a partnership, our CB4211 program may be delayed or terminated, which may cause our stock price to decline or otherwise result in adverse
effects on our business.
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 biopharmaceutical 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 and novel analogs 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 novel peptide analogs 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:
| ● | the research methodology used may not be successful in identifying
appropriate potential drug development candidates; |
| ● | 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 |
| ● | 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. |
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 progress our most advanced drug candidate through clinical development or identify other novel peptide analogs 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.
We may not be successful
in our efforts to develop commercially viable formulations for our product candidates.
Our product candidates are
comprised of novel peptide analogs. We expect that our product candidates will need to be delivered via subcutaneous injection and may
cause local injection site reactions (“ISRs”), which is a common finding in peptide therapeutic product candidates. While not necessarily adverse to patients’ health, ISRs could substantially limit the commercial appeal
of our product candidates, and we may decide or be required to perform additional preclinical studies
or to halt or delay further clinical development of our product candidates. For example,
in November 2018, we announced a temporary suspension of the Phase 1a stage of our Phase 1a/1b clinical study of CB4211 to address mild,
but persistent ISRs. In March 2022, we announced that we had seen ISRs at the higher dose levels in our nonhuman primate toxicology studies
for CB5138-3 and were delaying the filing of our IND in that program in part to address these ISRs. It is possible that other product
candidates that we identify will also result in ISRs. Our approach to address these ISRs is to develop novel formulations that decrease
or eliminate these reactions. If we are unable to successfully develop such formulations, we may decide to abandon those drug candidates.
Our efforts to identify alternate drug candidates that do not cause ISRs will take additional time and expense
and may not be successful.
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:
| ● | conduct research, preclinical testing and human studies; |
| ● | manufacture any future drug development candidate or product
at pilot and commercial scale; and |
| ● | establish and develop quality control, regulatory, and administrative
capabilities to support these programs. |
| Our | future operating and capital needs will depend on many factors,
including: |
| ● | the pace of scientific progress in our research programs
and the magnitude of these programs; |
| ● | the scope and results of preclinical testing and human studies; |
| ● | the time and costs involved in obtaining regulatory approvals; |
| ● | the time and costs involved in preparing, filing, prosecuting,
securing, maintaining and enforcing intellectual property rights; |
| ● | competing technological and market developments; |
| ● | our ability to establish additional collaborations; |
| ● | changes in any future collaborations; |
| ● | the cost of manufacturing our drug products; and |
| ● | the cost and effectiveness of efforts to commercialize and
market our products. |
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 or at all, 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:
| ● | the possibility that preclinical testing or clinical trials
may show that our potential drugs are ineffective and/or cause harmful side effects or toxicities; |
| ● | we may not be able to develop commercially viable formulations
for our potential drug candidates; |
| ● | our potential drugs may prove to be too expensive to manufacture
or administer to patients; |
| ● | our potential drugs may have routes of administration that
are less convenient or acceptable to patients; |
| ● | our potential drugs may fail to receive necessary regulatory
approvals from the FDA or foreign regulatory authorities in a timely manner, or at all; |
| ● | even if our potential drugs are approved, we may not be able
to produce them in commercial quantities or at reasonable costs; |
| ● | even if our potential drugs are approved, they may not achieve
commercial acceptance; |
| ● | even if our potential drugs are approved and commercially
launched, they may not receive desirable payor reimbursement and formulary access; |
| ● | regulatory or governmental authorities may apply restrictions
to any of our potential drugs, which could adversely affect their commercial success; and |
| ● | the proprietary rights of other parties may prevent us or
our potential collaborative partners from marketing our potential drugs. |
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 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:
| ● | reliance on the third party for producing the peptide materials
or product candidates according to the detailed specifications; |
| ● | reliance on the third party for regulatory compliance and
quality assurance; |
| ● | the possible breach of the manufacturing agreement by the
third party; |
| ● | the possible termination or nonrenewal of the agreement by
the third party at a time that is costly or inconvenient for us; and |
| ● | reliance on the third party for regulatory compliance, quality
assurance, and safety and pharmacovigilance reporting. |
Third-party manufacturers
may not be able to comply with 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
Even if we are successful
in developing drug candidates, we may not be able to 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:
| ● | 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; |
| ● | 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 |
| ● | 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. |
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 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 IPF, diabetes, cancer, and other diseases
for which our potential product candidates may be indicated. 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 that 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, and the results of those 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. If any of our drug candidates
are used in 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 may be 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:
| ● | the FDA or the applicable foreign regulatory authority’s disagreement with the design or implementation
of our clinical trials; |
| | |
| ● | 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; |
| | |
| ● | serious and unexpected drug-related side effects experienced by participants in our clinical trials; |
| | |
| ● | 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; |
| | |
| ● | the FDA’s or the applicable foreign regulatory authority’s disagreement with the interpretation
of data from nonclinical studies or clinical trials; |
| | |
| ● | our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety
or other perceived risks; |
| | |
| ● | the FDA’s or the applicable foreign regulatory authority’s requirement for additional nonclinical
studies or clinical trials; |
| | |
| ● | the FDA’s or the applicable foreign regulatory authority’s disagreement regarding the formulation,
labeling and/or the specifications of our product candidates; |
| | |
| ● | 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; |
| | |
| ● | 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 |
| | |
| ● | 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. |
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 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:
| ● | restrictions on such product candidates, manufacturers or manufacturing processes; |
| | |
| ● | restrictions on the labeling or marketing of a product; |
| | |
| ● | restrictions on product distribution or use; |
| | |
| ● | requirements to conduct post-marketing studies or clinical trials; |
| | |
| ● | warning or untitled letters; |
| | |
| ● | withdrawal of any approved product from the market; |
| | |
| ● | refusal to approve pending applications or supplements to approved applications that we submit; |
| | |
| ● | recall of product candidates; |
| | |
| ● | restrictions on product distribution or use; |
| | |
| ● | fines, restitution or disgorgement of profits or revenues; |
| | |
| ● | suspension or withdrawal of marketing approvals; |
| | |
| ● | refusal to permit the import or export of our product candidates; |
| | |
| ● | injunctions or the imposition of civil or criminal penalties. |
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 drug candidates comprised of novel analogs 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:
| ● | 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 United States 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. |
| | |
| ● | 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. |
| | |
| ● | 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. |
| | |
| ● | 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. |
| | |
| ● | 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. |
| | |
| ● | 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). |
| | |
| ● | 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 our drug candidates in these markets. |
| | |
| ● | 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. |
| | |
| ● | 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. |
| | |
| ● | 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. |
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 price of our common
stock may be volatile and fluctuate substantially, which could result in substantial losses for holders of our common stock.
The market price of our common
stock has been and is likely to continue to be volatile. The stock market in general, and the market for biotechnology companies in particular
has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price
for our common stock may be influenced by many factors, including:
| ● | results of preclinical studies or clinical trials of our product candidates or those of our competitors: |
| | |
| ● | unanticipated or serious safety concerns related to the use of any of our product candidates; |
| ● | challenges in developing commercially viable formulations for our product candidates; |
| | |
| ● | adverse regulatory decisions, including failure to receive regulatory approval for any of our product
candidates; |
| | |
| ● | the success of competitive drugs or technologies; |
| | |
| ● | regulatory or legal developments in the United States and other countries applicable to our product candidates; |
| | |
| ● | the size and growth of our prospective patient populations; |
| | |
| ● | developments concerning our collaborators, our external manufacturers or in-house manufacturing capabilities; |
| | |
| ● | inability to obtain adequate product supply for any product candidate for preclinical studies, clinical
trials or future commercial sale or inability to do so at acceptable prices; |
| | |
| ● | developments or disputes concerning patent applications, issued patents or other proprietary rights; |
| | |
| ● | the recruitment or departure of key personnel; |
| | |
| ● | the level of expenses related to any of our product candidates or clinical development programs; |
| | |
| ● | the results of our efforts to discover, develop, acquire or in-license additional product candidates or
drugs; |
| | |
| ● | actual or anticipated changes in estimates as to financial results, development timelines or recommendations
by securities analysts or publications of research reports about us or our industry; |
| | |
| ● | variations in our financial results or those of companies that are perceived to be similar to us; |
| | |
| ● | changes in the structure of healthcare payment systems; |
| | |
| ● | market conditions in the biotechnology sector; |
| | |
| ● | our cash position or the announcement or expectation of additional financing efforts; |
| | |
| ● | general economic, industry and market conditions; and |
| | |
| ● | other factors, including those described in this “Risk Factors” section, many of which are
beyond our control. |
The price of our common
stock does not meet the requirements for continued listing on Nasdaq. If we fail to regain compliance with the minimum listing requirements,
our common stock will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our common
stock could be adversely affected if our common stock is delisted.
The continued listing standards
of Nasdaq require, among other things, that the minimum bid price of a listed company’s stock be at or above $1.00. If the closing
minimum bid price is below $1.00 for a period of more than 30 consecutive trading days, the listed company will fail to be in compliance
with Nasdaq’s listing rules and, if it does not regain compliance within the grace period, will be subject to delisting. As previously
reported, on November 10, 2021, we received a notice from the Nasdaq Listing Qualifications Department notifying us that for 30 consecutive
trading days, the bid price of our common stock had closed below the minimum $1.00 per share requirement. In accordance with Nasdaq’s
listing rules, we were afforded a grace period of 180 calendar days, or until May 9, 2022, to regain compliance with the bid price requirement.
In order to regain compliance, the bid price of our common stock must close at a price of at least $1.00 per share for a minimum of 10
consecutive trading days.
On May 10, 2022, Nasdaq notified us that we did not regain compliance
by May 9, 2022, but that Nasdaq had granted us an additional 180 day period to regain compliance because we met the continued listing
requirement for market value of publicly held shares and all other applicable Nasdaq listing requirements (other than the minimum closing
bid price requirement) and we provided written notice to Nasdaq of our intention to cure the deficiency during the second compliance period,
by effecting a reverse stock split, if necessary. Pursuant to the May 10, 2022 letter from Nasdaq and additional grace period granted
thereby, we now have until November 7, 2022 to regain compliance with Nasdaq’s $1.00 minimum bid requirement.
We cannot provide any guarantee
that we will regain compliance during the grace period or be able to maintain compliance with Nasdaq’s listing requirements in the
future. If we are not able to regain compliance during the grace period, or any extension of the grace period for which we may be eligible,
our common stock will be subject to delisting. Delisting from Nasdaq could adversely affect our ability to raise additional financing
through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and
would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential
loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
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, were required to have at least three female directors on our board
of directors and one director from an “underrepresented community” starting December 31, 2021, and will be required to have
two additional directors from an “underrepresented community” starting 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 common stock.
Changes
in U.S. federal income and other tax laws could adversely affect us.
New
U.S. legislation or regulations that 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 that 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 and the recent and ongoing
armed conflict in Ukraine may have similar impacts on the global financial 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. In addition, the long-term effects of climate
change on general economic conditions and the biopharmaceutical industry in particular are unclear, and may heighten or intensify existing
risk of natural disasters. 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, directors, 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, directors, 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 or director 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.