ITEM 1. BUSINESS
Business Overview
Relmada Therapeutics, Inc. (Relmada, the
Company, we or us) (a Nevada corporation), is a clinical-stage biotechnology company focused on the development of d-methadone
(dextromethadone, REL-1017), an N-methyl-D-aspartate (NMDA) receptor antagonist. d-methadone is a new chemical entity (NCE) that
potentially addresses areas of high unmet medical need in the treatment of central nervous system (CNS) diseases and other disorders.
On October 7, 2019, our application to
list our common stock on the Nasdaq Capital Market was approved. On October 10, 2019, our common stock began trading on Nasdaq
under our existing symbol, “RLMD.”
On December 19, 2019, the Board of Directors
of the Company approved a change to its end of fiscal year from June 30 to December 31. The change in fiscal year will become
effective for the Company’s 2020 fiscal year, which will begin January 1, 2020 and end December 31, 2020. Accordingly the
Company is filing this transition report on Form 10-KT for the six-month period from July 1, 2019 through December 31, 2019 within
the time period prescribed by the Securities and Exchange Commission.
Our lead product candidate, d-methadone,
is an NCE being developed as a rapidly acting, oral agent for the treatment of depression and other potential indications. We have
previously completed Phase 1 single and multiple ascending dose studies and on October 15, 2019 we reported top-line data from
study REL-1017-202. This was a double-blind, placebo-controlled Phase 2 clinical trial evaluating the safety, tolerability and
efficacy of two oral doses of REL-1017, 25 mg once a day and 50 mg once a day, as an adjunctive treatment in patients with major
depressive disorder (MDD), who experienced an inadequate response to 1 to 3 adequate antidepressant treatments with an antidepressant
medication.
In the REL-1017-202 study, 62 subjects, average age 49.2 years,
with an average Hamilton Depression Rating Scale score of 25.3 and an average Montgomery-Asberg Depression Rating Scale (MADRS)
score of 34.0 (severe depression), were randomized. Other demographic characteristics were balanced across all arms. After an initial
screening period, subjects were randomized to one of three arms: placebo, REL-1017 25 mg or REL-1017 50 mg, in addition to stable
background antidepressant therapy. Subjects in the REL-1017 treatment arms received one loading dose of either 75 mg (25 mg arm)
or 100 mg (50 mg arm) of REL-1017. Subjects were treated inpatient for 7 days and discharged home at Day 9. They returned for follow-up
visits at Day 14 and Day 21. Efficacy was measured on Days 2, 4 and 7 in the dosing period and on Day 14, one week after treatment
discontinuation. 61 subjects received all treatment doses and were included in the per-protocol population (PPP) treatment analysis;
57 subjects completed all visits. All 62 randomized subjects were part of the intention-to-treat (ITT) analysis. No differences
were observed between the ITT and PPP analyses and results.
NMDA receptors are present in many parts
of the central nervous system and play important roles in regulating neuronal activity. We believe that dextromethadone acting
as an NMDA receptor antagonist can have potential applications in a number of disease indications which mitigates risk and offers
significant upside.
Key findings:
We observed that subjects in both the REL-1017
25 mg and 50 mg treatment groups experienced statistically significant improvement on all efficacy measures tested as compared
to subjects in the placebo group, including: the Montgomery-Asberg Depression Rating Scale (MADRS); the Clinical Global Impression
– Severity (CGI-S) scale; the Clinical Global Impression – Improvement (CGI-I) scale; and the Symptoms of Depression
Questionnaire (SDQ). SDQ scores demonstrated moderate effect size differences between subjects receiving REL-1017 and a placebo
from day 4 to day 7 and demonstrated statistically significant differences and large effect size for both 25 mg (P=0.0066; d=0.9)
and 50 mg (P=0.0014; d=1.1) arms at day 14.
The improvement on the MADRS appeared on
Day 4 in both REL-1017 dose groups and continued through Day 7 and Day 14, seven days after treatment discontinuation, with P values<
0.03 and large effect sizes (a measure of quantifying the difference between two groups), ranging from 0.7 to 1.0. Similar findings
emerged from the CGI-S and CGI-I scales.
MADRS: Analysis of Change from Baseline
to Day 7 and to Day 14 ITT Population
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Day 2
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Day 4
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Day 7
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Day 14
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LS Means Difference
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P-value
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d
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LS Means Difference
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P-value
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d
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LS Means Difference
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P-value
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D
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LS Means Difference
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P-value
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d
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REL-1017 25mg
vs Placebo
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-1.9
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0.4340
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0.3
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-7.9
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0.0087
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0.9
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-8.7
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0.0122
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0.8
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-9.4
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0.0103
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0.9
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REL-1017 50mg vs Placebo
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-0.3
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0.9092
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0.0
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-7.6
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0.0096
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0.8
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-7.2
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0.0308
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0.7
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-10.4
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0.0039
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1.0
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LS
= Least Squares; d = Cohen’s effect size
The study also supported the favorable
tolerability profile of REL-1017, which was also observed in the Phase 1 studies. Subjects experienced mild and moderate adverse
events (AEs), and no serious adverse events, without significant differences between placebo and treatment groups. The AEs observed
in the Phase 2a clinical study were of the same nature as those observed in the Phase 1 clinical studies in d-Methadone, and there
was no evidence of either treatment induced psychotomimetic and dissociative AEs or withdrawal signs and symptoms upon treatment
discontinuation.
Key Upcoming Anticipated Milestones
We expect multiple key milestones over the next 12-18 months.
These include:
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Presentation of full details of the Phase 2 data for REL-1017.
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Meeting
with the U.S. Food and Drug Administration (FDA) in an End-of-Phase 2 meeting for the REL-1017 program at the end of the first
half of 2020. We intend to discuss the registrational plan for REL-1017 as an adjunctive treatment of MDD.
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Start of pivotal studies for REL-1017 as an adjunctive treatment of MDD.
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Start of Phase 2 study in MDD. We plan to start Phase 2 MDD studies in the second half of 2020, though development plans may change based on the FDA’s feedback and other factors.
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Our Development Programs
Our four development projects are briefly described below:
d-Methadone (dextromethadone, REL-1017)
Background
In 2014, the National Institute of Mental Health (NIMH) estimated
that 15.7 million adults aged 18 or older in the United States had at least one major depressive episode in the past year. According
to data from nationally representative surveys supported by NIMH, only about half of Americans diagnosed with major depression
in a given year receive treatment. Of those receiving treatment with as many as four different standard antidepressants, 33% of
drug-treated depression patients do not achieve adequate therapeutic benefits according to the Sequenced Treatment Alternatives
to Relieve Depression (STAR*D) trial published in the American Journal of Psychiatry.
In addition to the high failure rate,
only one of the marketed products for depression, esketamine (marketed by Johnson and Johnson as Spravato), an in-clinic nasal
spray treatment can demonstrate rapid antidepressant effects, while the other currently approved products can take two to four
weeks to show activity. The urgent need for improved, faster acting antidepressant treatments is underscored by the fact that
severe depression can be life-threatening, due to heightened risk of suicide.
Recent studies have shown that ketamine,
a drug known previously as an anesthetic and never officially approved by FDA for the treatment of depression and the single isomer
esketamine can lift depression in many patients within hours. However, we believe it is unlikely that ketamine or esketamine will
become practical treatments for most cases of depression. They must be administered through intravenous infusion or intranasally,
requiring a hospital or clinic setting, and more importantly can potentially trigger adverse side effects including psychedelic
symptoms (hallucinations, memory defects, panic attacks), nausea/vomiting, somnolence, cardiovascular stimulation and, in a minority
of patients, hepatoxicity. Ketamine and esketamine also have not been thoroughly studied for long-term safety and effectiveness.
d-Methadone Overview and Mechanism of Action
d-Methadone’s mechanism of action,
as a low affinity, non-competitive NMDA channel blocker or antagonist, is fundamentally differentiated from most currently FDA-approved
antidepressants, as well as all atypical antipsychotics used adjunctively with standard, FDA-approved antidepressants. Working
through the same brain mechanisms as ketamine and esketamine but potentially lacking its adverse side effects, d-methadone is
being developed as a rapidly acting, oral agent for the treatment of depression and potentially other CNS conditions.
In chemistry an enantiomer, also known
as an optical isomer, is one of two stereoisomers that are mirror images of each other that are non-superimposable (not identical),
much as one’s left and right hands are the same except for being reversed along one axis. A racemic compound, or racemate,
is one that has equal amounts of left- and right-handed enantiomers of a chiral molecule. For racemic drugs, often only one of
a drug’s enantiomers is responsible for the desired physiologic effects, while the other enantiomer is less active or inactive.
As a single isomer of racemic methadone,
d-methadone has been shown to possess NMDA antagonist properties with virtually no traditional opioid or ketamine-like adverse
events at the expected therapeutic doses. In contrast, racemic methadone is associated with common opioid side effects that include
anxiety, nervousness, restlessness, sleep problems (insomnia), nausea, vomiting, constipation, diarrhea, drowsiness, and others.
It has been shown that the left (levo) isomer, l-methadone, is largely responsible for methadone’s opioid activity, while
the right (dextro) isomer, d-methadone, at the currently therapeutic doses used in development is virtually inactive as an opioid
while maintaining affinity for the NMDA receptor.
NMDA receptors are present in many parts
of the CNS and play important roles in regulating neuronal activity and promoting synaptic plasticity in brain areas important
for cognitive functions such as executive function, learning and memory. Based on these premises, d-methadone could show benefits
in several different CNS indications.
d-Methadone Phase 1 Clinical Safety Studies
The safety data from two Company-funded
d-methadone Phase 1 clinical safety studies and a third study conducted by researchers at Memorial Sloan-Kettering Cancer Center
indicate that d-methadone was well tolerated in both healthy subjects and cancer patients at all projected therapeutic doses tested.
In November 2014, Health Canada approved
a Clinical Trial Application (CTA) to conduct the first Phase 1 study with d-methadone. This was a Single Ascending Dose (SAD)
study and was followed by a Multiple Ascending Dose (MAD) study, both in healthy volunteers. The two studies were designed to
assess the safety, tolerability and pharmacokinetics of d-methadone in healthy, opioid-naïve subjects. The SAD study included
single escalating oral doses of d-methadone to determine the maximum tolerated dose, defined as the highest dose devoid of unacceptable
adverse events. In the MAD study, healthy subjects received daily oral doses of d-methadone for several days to assess its safety,
pharmacokinetics and tolerability. In March 2015, we reported that d-methadone demonstrated an acceptable safety profile with
no dose limiting side effects after four cohorts were exposed to increasing higher doses. In April 2015, the Company received
clearance from Health Canada to continue with dose escalation and explore even higher single doses of d-methadone. In June 2015,
the Company successfully completed the SAD study identifying the maximum tolerated dose and subsequently received a No Objection
Letter (NOL) from Health Canada to conduct the MAD clinical study in August 2015. The MAD study was completed in January 2016
and the results successfully demonstrated a potential therapeutic dosing regimen for d-methadone with a favorable side effect
and tolerability profile. The data from these studies was used to design a Phase 2 study of REL-1017 as an adjunctive treatment
in patients with MDD, who experienced an inadequate response to 1 to 3 adequate antidepressant treatments with an antidepressant
medication.
d-Methadone In Vivo Study for Depression
In May 2016, we announced the results of
an in vivo study showing that administration of d-methadone results in antidepressant-like effects in a well-validated animal model
of depression, known as the forced swim test (FST), providing preclinical support for its potential as a novel treatment of depression.
According to the Journal of Visualized
Experiments, the FST is based on the assumption that when placing an animal in a container filled with water, it will first make
efforts to escape by swimming or climbing, but eventually will exhibit “immobility” that may be considered to reflect
a measure of behavioral despair. This test has been extensively used because it involves the exposure of the animals to stress,
which was shown to have a role in the tendency for major depression. Additionally, the FST has been shown to be influenced by some
of the factors that are altered by or worsen depression in humans, including changes in food consumption and sleep abnormalities.
The main advantages of this procedure are that it is relatively easy to perform and that its results are easily and quickly analyzed.
Importantly, the FST’s sensitivity to a broad range of antidepressant drugs makes it a suitable screening test and is one
of the most important features leading to its high predictive validity.
In our FST study, male Sprague Dawley rats
were administered single doses of placebo, ketamine, or d-methadone on day one (after habituation; 24 hours prior to forced swim
testing). At all doses tested, d-methadone induced statistically significant decrease of immobility of the rats compared to the
placebo, suggesting antidepressant-like activity. In addition, the effect of d-methadone on immobility at the two highest doses
tested was larger than the effect seen with ketamine. Moreover, the effects of d-methadone in the forced swim test were not caused
by a stimulant effect on spontaneous locomotor activity of the rats. Locomotor activity of lab animals is often monitored to assess
the behavioral effects of drugs.
In September 2017, we completed two additional
in vivo studies to further assess the antidepressant-like effect of d-methadone in validated animal models, the Novelty Suppressed
Feeding Test (NSFT) and the Female Urine-Sniffing test (FUST) test. The studies were performed by Professor Ronald S. Duman, Ph.D.
at Yale University School of Medicine.
For FUST, rats are first exposed to a cotton
tip dipped in tap water and later exposed to another cotton tip infused with fresh female urine. Male behavior was video recorded
and total time spent sniffing the cotton-tipped applicator is determined. For NSFT, rats were food deprived for 24 hours and then
placed in an open field with food pellets in the center; latency to eat is recorded in seconds. As a control, food consumption
in the home cage is quantified. Rats were administered vehicle, ketamine or d-methadone.
The results of the FUST demonstrate that
administration of ketamine induced a significant increase of the time male rats spent engaged in sniffing female urine compared
to vehicle group. Similarly, a single dose of d-methadone produced a statistically significant increase of the time spent sniffing
female urine compared to vehicle. In contrast, ketamine or d-methadone had no effect on time sniffing water, demonstrating that
the effect of drug treatment was specific to the rewarding effects of female urine. The results of the NSFT demonstrate that a
single dose of ketamine significantly decreases the latency to eat in a novel open field. Similarly, a single dose of d-methadone
also significantly decreased the latency to enter and eat in the novel open field. In contrast, neither ketamine nor d-methadone influenced
latency to feed in the home cage.
These findings demonstrate that ketamine
and d-methadone produce rapid antidepressant actions in the FUST and NSFT, effects that are only observed after chronic administration
of an SSRI antidepressant.
A separate in vitro electrophysiology study
of d-methadone was conducted using 2 subtypes of cloned human NMDA receptors.
The results of this study demonstrated
functional antagonist activity with d-methadone comparable to that of both racemic ketamine and the isomer esketamine.
Phase 2 Study for d-Methadone
Combined with the results of our Phase
1 studies, the encouraging results of in vivo and in vitro studies supported further evaluation of d-methadone. We submitted an
Investigational New Drug (IND) application for REL-1017 to the FDA and proposed REL-1017-202 Phase 2 study of REL-1017 as an adjunctive
treatment in MDD, which was accepted on January 25, 2017.
On April 13, 2017, we announced that the
FDA granted Fast Track designation for d-methadone (REL-1017 dextromethadone) for the adjunctive treatment of major depressive
disorder. Fast Track designation is a process designed to facilitate the development and expedite the review of drugs to treat
serious conditions and fill an unmet medical need. The purpose, according to the FDA, is to get important new drugs to the patient
earlier. Drugs that receive Fast Track designation may be eligible for more frequent meetings and written communications with the
FDA, accelerated review and priority approval, and rolling New Drug Application (NDA) review.
On January 17, 2018, Relmada acquired
the global rights to develop and market dextromethadone for the treatment of neurological conditions including certain rare diseases
with symptoms affecting the CNS.
In February 2018, Relmada initiated its
Phase 2 study of d-methadone as adjunctive treatment in adults with major depressive disorder.
In July 2019, Relmada announced the completion
of dosing of the last patient in its Phase 2 study of d-methadone in patients with major depressive disorder.
On October 15, 2019, we reported top-line data from our Phase 2 study of d-methadone in adults with major
depressive disorder. Subjects in both dose groups experienced statistically significant improvement of their depression compared
to subjects in the placebo group on all efficacy measures, including: the Montgomery-Asberg Depression Rating Scale (MADRS); the
Clinical Global Impression – Severity (CGI-S) scale; the Clinical Global Impression – Improvement (CGI-I) scale; and
the Symptoms of Depression Questionnaire (SDQ). The improvement on the MADRS appeared on Day 4 in both REL-1017 dose groups and
continued through Day 7 and Day 14, seven days after treatment discontinuation, with P values < 0.03 and large effect sizes
(a measure of quantifying the difference between two groups), ranging from 0.7 to 1.0. Similar findings emerged from the CGI-S
and CGI-I scales. The study also confirmed the favorable safety and tolerability profile of d-methadone, which was also observed
in the Phase 1 studies. Subjects experienced mild and moderate adverse events (AEs), and no serious adverse events, without significant
differences between placebo and treatment groups. There was no evidence of either treatment induced psychotomimetic and dissociative
AEs or withdrawal signs and symptoms upon treatment discontinuation.
d-Methadone (dextromethadone, REL-1017) in other indications
In addition to developing d-methadone
as an adjunctive treatment of MDD, we are planning to evaluate the utility of d-methadone as a front line monotherapy treatment
for MDD.
Additionally, other indications that Relmada may explore in
the future, include, restless leg syndrome and other glutamatergic system activation related diseases.
In January 2018, we entered into an Intellectual
Property Assignment Agreement (the Assignment Agreement) and License Agreement (the “License Agreement” and together
with the Assignment Agreement, the Agreements) with Dr. Charles E. Inturrisi and Dr. Paolo Manfredi (collectively, the Licensor).
Pursuant to the Agreements, Relmada assigned its existing rights, including patents and patent applications, to d-methadone in
the context of psychiatric use (the Existing Invention) to Licensor. Licensor then granted Relmada under the License Agreement
a perpetual, worldwide, and exclusive license to commercialize the Existing Invention and certain further inventions regarding
d-methadone in the context of other indications such as those contemplated above.
Our Corporate History and Background
We are a clinical-stage, publicly traded
biotechnology company developing NCEs and novel versions of proven drug products that potentially address areas of high unmet medical
need in the treatment of depression and other CNS diseases.
Currently, none of our product candidates
have been approved for sale in the United States or elsewhere. We have no commercial products nor do we have a sales or marketing
infrastructure. In order to market and sell our products we must conduct clinical trials on patients and obtain regulatory approvals
from appropriate regulatory agencies, like the FDA in the United States, and similar organizations elsewhere in the world.
We have not generated revenues and do not
anticipate generating revenues for the foreseeable future. We had net loss of approximately $8,196,600 and $10,509,000 for the
six months ended December 31, 2019 and 2018, respectively and $17,318,000 and $8,960,900 for the years ended June 30, 2019 and
2018, respectively. At December 31, 2019, we have an accumulated deficit of approximately $119,858,900.
Business Strategy
Our strategy is to leverage our considerable
industry experience, understanding of CNS markets and development expertise to identify, develop and commercialize product candidates
with significant market potential that can fulfill unmet medical needs in the treatment of CNS diseases. We have assembled a management
team along with both scientific and business advisors, including recognized experts in the fields of depression, with significant
industry and regulatory experience to lead and execute the development and commercialization of d-methadone.
We plan to further develop d-methadone as our priority program.
As the drug d-methadone is a NCE, the regulatory pathway required to support and NDA submission will consist of conducting a full
clinical development program. We plan to also generate intellectual property (IP) that will further protect our products from competition.
We will continue to prioritize our product development activities after taking into account the resources we have available, market
dynamics and potential for adding value.
Market Opportunity
We believe that the market for addressing areas of high unmet
medical need in the treatment of CNS diseases will continue to be large for the foreseeable future and that it will represent a
sizable revenue opportunity for us. For example, the World Health Organization (WHO) has estimated that CNS diseases affect nearly
2 billion people globally, making up approximately 40% of total disease burden (based on disability adjusted life years), compared
with 13% for cancer and 12% for cardiovascular disease.
The depression treatment market is segmented
on the basis of antidepressants drugs, devices, and therapies. Antidepressants are the largest and most popular market segment.
The antidepressants segment consists of large pharmaceutical and generic companies, such as Eli Lilly, Pfizer, GlaxoSmithKline,
Allergan, Sage Therapeutics and Johnson & Johnson. Some of the popular drugs produced by these companies are Cymbalta®
(Eli Lilly), Effexor® (Pfizer), Pristiq® (Pfizer), Zulresso (Sage) and Spravato (Johnson & Johnson).
Intellectual Property Portfolio and
Market Exclusivity
We have secured three Orphan Drug Designations
from the FDA for d-methadone for “the treatment of postherpetic neuralgia. Upon NDA approval, carry 7-year FDA Orphan Drug
marketing exclusivity. In the European Union, some of our products may be eligible up to 10 years of market exclusivity, which
includes 8 years data exclusivity and 2 years market exclusivity. In addition to any granted patents, our products will be eligible
for market exclusivity to run concurrently with the term of the patent for 3 years in the U.S. (Hatch Waxman plus pediatric exclusivity)
and up to 10 years of in the E.U. We believe an extensive intellectual property estate of over fifty US and foreign filed and
issued patents will protect our technology and products once our patent applications for our products are approved.
The following is a summary of our patents
and patent applications:
d-Methadone:
U.S. Patent No. 9,468,611 issued
on 10/18/2016 (filed 3/14/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada. Estimated
expiry in 2033.
U.S. Patent No. 9,855,226 issued
on 1/2/2018 (filed 7/7/2016), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada. Estimated
expiry in 2033.
U.S. Patent Application No. 15/884,915
(filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms and manifestations
thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Australian Patent No. 2013323645
issued on 2/15/2018 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Estimated expiry in 2033.
European Patent No. 2,906,209
granted on 6/20/2018 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Estimated expiry in 2033.
Australian Patent Application
No. 2017276189 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Canadian Patent Application No.
2,893,238 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Chinese Patent No. ZL201380061197.3
issued on 9/14/2019 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Hong Kong Patent Application
No. 16101841.1 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada. Currently
allowed and awaiting issuance.
Indian Patent Application No.
3481/DELNP/2015 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Mexican Patent Application No.
2015/006720 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
South Korean Patent No. 1969667
issued 4/10/2019 (filed 9/25/2013), “d-Methadone for the Treatment of Psychiatric Symptoms.” Licensed to Relmada.
Taiwanese Patent Application
No. 107108987 (filed 3/16/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms
and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Australian Patent Application
No. 2018215056 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms
and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Licensed to Relmada.
Brazilian Patent Application
No. BR112019015286-5 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and
symptoms and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations
thereof.” Licensed to Relmada.
Canadian Patent Application No.
3052273 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms and
manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Licensed to Relmada.
Chinese Patent Application No.
201880020508.4 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms
and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Licensed to Relmada.
EP Patent Application No. 18706021.5
(filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms and manifestations
thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.” Licensed to
Relmada.
Indian Patent Application No.
201917033638 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms
and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Licensed to Relmada.
Japanese Patent Application No.
(appl’n no. not yet assigned) (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous
system and symptoms and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations
thereof.” Licensed to Relmada.
Mexican Patent Application No.
2019/009038 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms
and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Licensed to Relmada.
South Korean Patent Application
No. 2019-7025398 (filed 1/31/2018), “Compounds for the treatment or prevention of disorders of the Nervous system and symptoms
and manifestations thereof, and for cyto-protection against diseases and aging of cells and symptoms and manifestations thereof.”
Licensed to Relmada.
U.S. Provisional Patent Application
No. 62/852,537 (filed 5/24/2019), “Dextromethadone for the Prevention and Treatment of Diseases and Conditions in Asian Subjects.”
Licensed to Relmada.
U.S. Provisional Patent Application
No. 62/798,709 (filed 1/31/2019), “Structurally Modified Opioids for the Prevention and Treatment of Diseases and Conditions,”
Licensed to Relmada.
International (PCT) Patent Application
No. PCT/US2019/055590 (filed 10/10/2019), “Structurally Modified Opioids for the Prevention and Treatment of Diseases and
Conditions,” Licensed to Relmada.
Below are patents owned by
the Company, but not currently in development:
Levorphanol:
US Patent No. 9,125,833, filed
4/26/08, granted on 9/8/15. Multimodal Abuse Resistant and Extended Release Opioid Formulations. Owned by Relmada. Estimated expiry
in 2029. This patent may cover the SECUREL technology platform and Relmada’s lead product candidate, LevoCap ER (REL-1015,
levorphanol extended-release, abuse deterrent capsules) as well as providing additional coverage for multiple opioid molecules
that are prone to abuse.
EU patent No. 2,448,406, filed
2/26/10, granted on 4/20/16. Extended Release Oral Pharmaceutical Compositions of 3-Hydroxy-N-Methylmorphinan and Method of Use.
Owned by Relmada. Estimated expiry in 2030.
U.S. Patent application 12/223,327
filed 1/29/07, Abuse Resistant and Extended Release Formulations and Method of Use Thereof. Owned by Relmada. Currently pending.
U.S. Patent application 13/320,989
filed 2/26/10 Extended Release Oral Pharmaceutical Compositions of 3-Hydroxy-N-Methylmorphinan and Method of Use. Owned by Relmada.
Currently pending.
EP Patent Application No. 16158311.7
filed 2/26/10, Extended Release Oral Pharmaceutical. Owned by Relmada. Currently pending.
Buprenorphine:
U.S. Patent application 12/988,209
(filed 3/9/2009), “Oral Pharmaceutical Compositions of Buprenorphine and Method of Use.” Owned by Relmada.
U.S. Patent Application No. 13/229,505
(filed 9/9/2011), “Oral Pharmaceutical Compositions of Buprenorphine.” Owned by Relmada.
U.S. Patent Application No. 15/057,358
(filed 3/1/2016), “Oral Pharmaceutical Compositions of Buprenorphine.” Owned by Relmada.
EP Patent Application No. 9719755.2
(filed 3/9/2009), “Oral Pharmaceutical Compositions of Buprenorphine and Method of Use.” Owned by Relmada.
EP Patent Application No. 09841608.4
(filed 9/28/2009), “Modified Release Pharmaceutical Compositions of Buprenorphine.” Owned by Relmada.
Mepivacaine:
Canadian Patent No. 2,796,575
issued on 5/15/2018 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of
Use.” Owned by Relmada. Estimated expiry in 2031.
Chinese Patent No. ZL201180027559.8
issued on 5/31/2017 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of
Use.” Owned by Relmada. Estimated expiry in 2031.
Japanese Patent No. 5927506 issued
on 5/13/2016 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.”
Owned by Relmada. Estimated expiry in 2031.
U.S. Patent Application No. 13/641,240
(filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.” Owned by
Relmada.
Australian Patent No. 2016259348
issued 2/21/2019 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.”
Owned by Relmada.
European Patent No. 2557924 issued
6/12/2019 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.”
Owned by Relmada.
Indian Patent Application No.
9424/CHENP/2012 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.”
Owned by Relmada.
South Korean Patent Application
No. 10-2018-7017167 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of
Use.” Owned by Relmada.
Chinese Patent Application No.
20171323695.0 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.”
Owned by Relmada.
Hong Kong Patent Application
No. 18102952.2 (filed 4/13/2011), “Dermal Pharmaceutical Compositions of 1-Methyl-2,6-Pipecoloxylidide and Method of Use.”
Owned by Relmada.
d-Methadone
License Agreement
In January 2018 we entered into an
Intellectual Property Assignment Agreement (the “Assignment Agreement”) and License Agreement (the License Agreement
and together with the Assignment Agreement, the Agreements), with Dr. Charles E. Inturrisi and Dr. Paolo Manfredi (collectively,
the “Licensor”). Pursuant to the Assignment Agreement, we assigned our existing rights, including patents and patent
applications, to d-methadone in the context of psychiatric use to Licensor, and pursuant to the License Agreement, Licensor then
granted us an exclusive, perpetual, worldwide license under the assigned intellectual property rights as well as patents and know-how
covering new inventions developed by Licensor and relating to d-methadone in neurological and other uses, to develop and
commercialize d-methadone in all fields of use. The License Agreement also grants to us rights in all future inventions developed
by Licensor, whether or not in collaboration with us, that relate in any way to d-methadone or the use thereof. The License Agreement
was amended in December 2019 to modify certain termination rights relating to the Chief Executive Officer, which are described
further below.
In consideration of the rights granted
to us under the License Agreement, we paid Licensor an upfront license fee of $180,000. Additionally, we are required to pay Licensor
a quarterly license maintenance fee of $45,000 until the earliest to occur of the following events: (i) the first commercial sale
of a licensed product anywhere in the world, (ii) the expiration or invalidation of the last to expire or be invalidated of the
patent rights anywhere in the world, or (iii) the termination of the License Agreement. We will also pay Licensor royalties in
the very low single digits on net sales of licensed products covered by the licensed intellectual property rights, including future
licensed products, subject to certain reductions following expiration of the patent rights covering the licensed products, and
a percentage of all consideration received by us for sublicenses granted under the License Agreement ranging from twenty percent
down to the mid-teens, depending on the extent of patent coverage of the licensed products. We will be required to pay royalties
and sublicensing revenue to Licensor as long as we continue to receive income derived from the intellectual property rights licensed
to us under the License Agreement.
If we develop any new inventions relating
to d-methadone, we are required to do so in collaboration with Licensor, and to file patents covering such inventions jointly in
the name of the Company and Licensor. All such future inventions or patents shall be jointly owned by us and Licensor, and will
be included in and subject to the financial and other terms of the License Agreement.
The License Agreement includes standard
termination rights for Licensor in the event of our insolvency, challenge of the licensed patents and uncured material breach
of our obligations under the License Agreement. In addition, the License Agreement contains certain “Key Man” provisions
such that Licensor may terminate the License Agreement if we terminate the employment of our Chief Executive Officer Dr Sergio
Traversa for any reason other than for specified causes determined by a majority of our Board of Directors (including fraud, gross
negligence, unauthorized use of our confidential information, conduct including harassment or discrimination, breach of fiduciary
duty or uncured material breach), or if we (a) substantially modify Dr Traversa’s job responsibilities or decision-making
rights in connection with the development and commercialization of d-methadone, (b) remove him from the role of Chief Executive
Officer other than in connection with a permitted change-of-control transaction, (c) materially reduce his compensation, or (d)
assign or transfer our rights under the License Agreement or the d-methadone intellectual property without Dr Traversa’s
consent, in each case (termination or the events in (a) through (d)) during the period commencing on the effective date and ending
on the later of five years from the original effective date of the License Agreement or December 31, 2022 (the “Key Man
Term”). The December 2019 amendment to the License Agreement made certain clarifications to the nature of a termination
for Cause, including to clarify that termination due to Dr Traversa’s death or disability does not give Licensor the right
to terminate the License Agreement.
Wonpung License Agreement
In 2007, we entered into a License Development and Commercialization
Agreement with Wonpung Mulsan Co (Wonpung), a shareholder of ours. Wonpung has exclusive territorial rights in countries it selects
in Asia to market up to two drugs we are currently developing, as well as a right of first refusal (ROFR) for up to an additional
five drugs that we may develop in the future and selected by Wonpung, as defined in more detail in the license agreement. In January
2018, Wonpung exercised its ROFR with respect to d-methadone for South Korea, Japan, the People’s Republic of China, Taiwan,
Singapore and Hong Kong. Wongpung and the Company would have to agree to terms of a license agreement for these areas in order
for Wongpung to commence development under the ROFR. As of March 2020, no discussions are active between the Company and Wongpung.
We received an upfront license fee of $1,500,000
and will earn royalties of up to 12% of net sales for up to two licensed products we are currently developing. The licensing terms
for products for which Wonpung may exercise the ROFR will be subject to future negotiations on a product-by-product basis, and
are subject to binding arbitration if we are unable to agree upon the licensing terms. The terms of each licensing agreement will
expire on the earlier of any time from 15 years to 20 years after licensing or on the date of commercial availability of a generic
product to such licensed product in the licensed territory. Our current focus is on developing and marketing our products in the
United States and not Asia.
Key Strengths
We believe that the key elements for our market success include:
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Compelling lead
product opportunity, d-methadone completed Phase 2a trial for the adjunctive treatment of MDD, including patients with TRD.
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Successful Phase 1 safety studies of d-methadone and strong clinical activity signal in depression established in three independent animal models.
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Potential in additional
multiple indications in underserved markets with large patient population, such as MDD, other affective disorders, and cognitive
disorders.
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Scientific support of leading experts: Our scientific advisors
include clinicians and scientists who are affiliated with a number of highly regarded medical institutions such as Harvard, Cornell,
Yale, and University of Pennsylvania.
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Substantial IP portfolio and market protection: approved and filed patent applications provide coverage beyond 2030. In addition, some of our drugs, including d-methadone have also been designated as Orphan Drugs by the FDA, thereby providing seven years of market exclusivity at launch.
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Competition Overview
The pharmaceutical and biotechnology industry
is characterized by intense competition, rapid product development and technological change. Competition is intense among manufacturers
of prescription pharmaceuticals and other product areas where we may develop and market products in the future. Most of our competitors
are large, well-established pharmaceutical or healthcare companies with considerable financial, marketing, sales and technical
resources than are available to us. Additionally, many of our competitors have research and development capabilities that may
allow such competitors to develop new or improved products that may compete with our products. Our products could be rendered
obsolete or made uneconomical by the development of new products.
Regarding our competitive position in
the industry, none of our products have been approved for sale.
Government Regulation
Government authorities in the United States,
at the federal, state and local level, and in other countries and jurisdictions extensively regulate, among other things, the research,
development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion,
distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes
for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance
with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial
resources.
FDA Approval Process
In the United States, pharmaceutical products
are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (FD&C Act) and other federal and state
statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval,
labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical
products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial
sanctions, such as FDA refusal to approve pending new drug applications (NDAs), warning or untitled letters, product recalls, product
seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for
a new product or certain changes to an approved product in the U.S. typically involves preclinical laboratory and animal tests,
the submission to FDA of an investigational new drug application (IND) which must become effective before clinical testing may
commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication
for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual
time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation
of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and
efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including
good laboratory practices. The results of preclinical testing are submitted to FDA as part of an IND along with other information,
including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical
tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting
period after the submission of each IND is required prior to the commencement of clinical testing in humans. If FDA has neither
commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials
involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified
investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical
practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical
trial sponsors, administrators and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters
to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients
and subsequent protocol amendments must be submitted to FDA as part of the IND.
FDA may order the temporary, or permanent,
discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not
being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study
protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board
(IRB) for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for
failure to comply with the IRB’s requirements, or may impose other conditions.
Clinical trials to support NDAs for marketing
approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of
the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions,
side effects associated with increasing doses, and, if possible, early evidence of effectiveness. Phase 2 usually involves trials
in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum
dosage, and to identify common adverse effects and safety risks. If a drug demonstrates evidence of effectiveness and an acceptable
safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy
and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate
the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases,
FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3
trial with other confirmatory evidence may be sufficient in rare instances, such as where the study is a large multicenter trial
demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality,
irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second
trial would be practically or ethically impossible.
The manufacturer of an investigational
drug in a Phase 2 or 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting
on its website, its policy on evaluating and responding to requests for expanded access.
After completion of the required clinical
testing, an NDA is prepared and submitted to FDA. FDA approval of the NDA is required before marketing of the product may begin
in the U.S. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating
to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial.
The submission of most NDAs is additionally subject to a substantial application user fee, and the applicant under an approved
NDA is also subject to an annual program fee for each prescription product. These fees are typically increased annually. Sponsors
of applications for drugs granted Orphan Drug Designation are exempt from these user fees.
FDA has 60 days from its receipt of an
NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently
complete to permit substantive review. Once the submission is accepted for filing, FDA begins an in-depth review. FDA has agreed
to certain performance goals in the review of NDAs to encourage timeliness. Applications for most standard review drug products
are reviewed within twelve months from submission of NDAs for new molecular entities (NMEs) and ten months from submission of NDAs
for non-NMEs. Priority review can be applied to drugs that FDA determines offer major advances in treatment or provide a treatment
where no adequate therapy exists. The review process for both standard and priority review may be extended by FDA for three additional
months to consider certain late-submitted information or information intended to clarify information already provided in the submission.
FDA may also refer applications for novel
drug products, or drug products that present difficult questions of safety or efficacy, to an outside advisory committee –
typically a panel that includes clinicians and other experts – for review, evaluation and a recommendation as to whether
the application should be approved. FDA is not bound by the recommendation of an advisory committee, but it generally follows such
recommendations.
Before approving an NDA, FDA will typically
inspect one or more clinical sites to assure compliance with GCP. Additionally, FDA will inspect the facility or the facilities
at which the drug is manufactured. FDA will not approve the product unless compliance with current good manufacturing practices
(cGMPs) is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the
indication studied.
After FDA evaluates the NDA and the manufacturing
facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the
deficiencies in the submission and may require substantial additional testing, or information, in order for FDA to reconsider the
application. If, or when, those deficiencies have been addressed to FDA’s satisfaction in a resubmission of the NDA, FDA will issue
an approval letter. FDA has committed to reviewing such resubmissions in two or six months depending on the type of information
included. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
As a condition of NDA approval, FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits
of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals,
and elements to assure safe use (ETASU). ETASU can include, but are not limited to, special training or certification for prescribing
or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement
for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial
post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn
if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established
in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission
and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically
requires clinical data similar to that in the original application, and FDA uses the same procedures and actions in reviewing
NDA supplements as it does in reviewing NDAs.
Fast Track Designation
FDA is required to facilitate the development,
and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for
which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under
the Fast Track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication
as a Fast Track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate
qualifies for Fast Track Designation within 60 days of receipt of the sponsor’s request.
If a submission is granted Fast Track Designation,
the sponsor may engage in more frequent interactions with FDA, and FDA may review sections of the NDA before the application is
complete. This rolling review is available if the applicant provides, and FDA approves, a schedule for the submission of the remaining
information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an application does not
begin until the last section of the NDA is submitted. Additionally, Fast Track Designation may be withdrawn by FDA if FDA believes
that the designation is no longer supported by data emerging in the clinical trial process.
Orphan Drugs
Under the Orphan Drug Act, FDA may grant
Orphan Drug Designation to drugs intended to treat a rare disease or condition – generally a disease or condition that affects
fewer than 200,000 individuals in the U.S. Orphan Drug designation must be requested before submitting an NDA. After FDA grants
Orphan Drug Designation, the generic identity of the drug and its potential orphan use are disclosed publicly by FDA. Orphan Drug
Designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first
NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA Orphan Drug Designation
is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year
exclusivity period, FDA may not approve any other applications to market the same drug for the same disease, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does
not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or
condition. Among the other benefits of Orphan Drug Designation are tax credits for certain research and an exemption from the NDA
application user fee.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA regulated
products, including drugs, are required to register and disclose certain clinical trial information. Information related to the
product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is
then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after
completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date
of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of
development programs.
Pediatric Information
Under the Pediatric Research Equity Act
(PREA), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications
in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the
drug is safe and effective. FDA may grant full or partial waivers, or deferrals, for submission of data. With certain exceptions,
PREA does not apply to any drug for an indication for which orphan designation has been granted.
The Best Pharmaceuticals for Children Act
(BPCA) provides NDA holders a six-month extension of any exclusivity – patent or nonpatent – for a drug if certain
conditions are met. Conditions for exclusivity include FDA’s determination that information relating to the use of a new drug in
the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and
the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the
BPCA are treated as priority applications, with all of the benefits that designation confers.
Post-Approval Requirements
Once an NDA is approved, a product will
be subject to certain post-approval requirements. For instance, FDA closely regulates the post-approval marketing and promotion
of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific
and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications
and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission
of periodic reports are required following FDA approval of an NDA. FDA also may require post-marketing testing, known as Phase
4 testing, REMS and surveillance to monitor the effects of an approved product, or FDA may place conditions on an approval that
could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging and labeling procedures
must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register
their establishments with FDA and certain state agencies. Registration with FDA subjects entities to periodic unannounced inspections
by FDA, during which the Agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must
continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory
authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if
it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
The Hatch-Waxman Amendments
Orange Book Listing
In seeking approval for a drug through
an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval
of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products
with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited
by potential generic competitors in support of approval of an abbreviated new drug application (ANDA). An ANDA provides for marketing
of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown
through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence
testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or
effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to
the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify
to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must
certify that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the
listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the
listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii
statement certifying that its proposed ANDA label does not contain (or carve out) any language regarding the patented method-of-use
rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application
will not be approved until all the listed patents claiming the referenced product have expired. A certification that the new product
will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph
IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice
of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA
and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification.
The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents
the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision
in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved
until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Exclusivity
Upon NDA approval of a new chemical entity
(NCE), which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives five years
of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug. An ANDA may
be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in
the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity
period. Certain changes to a drug, such as the addition of a new indication to the package insert, can be the subject of a three-year
period of exclusivity if the application contains reports of new clinical investigations (other than bioavailability studies) conducted
or sponsored by the sponsor that were essential to approval of the application. FDA cannot approve an ANDA for a generic drug that
includes the change during the period of exclusivity.
In the case of a non-racemic drug containing
as an active ingredient a single enantiomer that is contained in a racemic drug approved in another NDA, the NDA for the non-racemic
drug may elect to have the single enantiomer not be considered the same active ingredient as that contained in the approved racemic
drug and therefore eligible for NCE exclusivity, if certain conditions are met. These conditions include: (1) the single enantiomer
has not been previously approved except in the approved racemic drug, (2) the NDA for the non-racemic drug includes full reports
of new clinical investigations necessary for the approval of the product conducted or sponsored by the applicant and not submitted
for approval of the racemic drug, and (3) the NDA for the non-racemic drug is not submitted for approval of a condition of use
in a therapeutic category in which the approved racemic drug has been approved or for which any other enantiomer of the racemic
drug has been approved. In addition, FDA will not approve the non-racemic drug for any condition of use in the therapeutic category
in which the racemic drug has been approved for a period of 10 years after approval of the non-racemic drug, and the labeling of
the non-racemic drug will include a statement in the indication that the non-racemic drug is not approved, and has not been shown
to be safe and effective, for any condition of use of the racemic drug. The applicant for the non-racemic drug may make this election
only in an application submitted before October 1, 2022.
Patent Term Extension
After NDA approval, owners of relevant
drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the
drug’s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between
NDA submission and approval up to a maximum of five years). The time can be shortened if FDA determines that the applicant did
not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years, and only one patent
can be extended. For patents that might expire during the application phase, the patent owner may request an interim patent extension.
An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent
extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and Trademark
Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely.
Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Controlled Substances
The federal Controlled Substances Act of
1970, or CSA, and its implementing regulations establish a closed chain of distribution for entities handling controlled substances.
The CSA and regulations enforced by the United States Drug Enforcement Administration, or DEA, impose registration, security, recordkeeping
and reporting, storage, manufacturing, distribution, importation, exportation, and other requirements on entities handling controlled
substances. The DEA requires those individuals or entities that handle controlled substances to comply with these requirements
in order to ensure legitimate use and prevent the diversion of controlled substances to illicit channels of commerce.
Facilities that manufacture, distribute,
import or export any controlled substance must register annually with the DEA. The DEA registration is specific to a particular
location, activity, and controlled substance schedule. For example, separate registrations are required for importation and manufacturing
activities, and the authority granted under each registration determines which schedules of controlled substances the registrant
may handle. However, certain DEA registrations permit coincident activities without obtaining a separate DEA registration, such
as authorizing a manufacturer to also distribute controlled substances produced by that registrant.
The CSA categorizes controlled substances
into one of five schedules – Schedule I, II, III, IV, or V – depending on the potential for abuse and physical or psychological
dependence. Schedule I substances by definition have a high potential for abuse, have no currently accepted medical use in
treatment in the U.S. and lack accepted safety for use under medical supervision. They may not be marketed or sold for dispensing
to patients in the U.S. Pharmaceutical products having a currently accepted medical use and that are otherwise approved for marketing
may be listed as Schedule II, III, IV, or V substances, with Schedule II substances presenting the highest potential
for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for
abuse and dependence. Schedule II substances (as well as substances defined as narcotics in any Schedule) are subject to most regulatory
requirements and restrictions, such as recordkeeping, reporting and security. For example, all Schedule II drug prescriptions
must be signed by a physician, physically presented to a pharmacist in most situations unless they are electronically prescribed
pursuant to DEA regulations, and cannot be refilled. Schedules III, IV and V controlled substances are subject to fewer restrictions.
The DEA inspects manufacturers, distributors,
importers, and exporters to review compliance with the CSA and DEA regulations including security, record keeping and reporting
prior to issuing a controlled substance registration. The specific security requirements vary by the type of business activity
and the schedule and quantity of controlled substances handled by the registrant. The most stringent requirements apply to manufacturers
of Schedule I and Schedule II substances. Physical security for controlled substances includes storage in approved vaults,
safes, and cages, and the use of alarm systems and surveillance cameras. Other security measures include restricted employee access
to controlled substances. Once registered, manufacturing, distribution, exporting or importing facilities must maintain records
documenting the manufacture, receipt, distribution, import, or export of all controlled substances. Manufacturers and distributors
must also submit regular reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III
narcotic substances, and other designated substances. All DEA registrants must report any controlled substance thefts or significant
losses and must obtain authorization to destroy or dispose of controlled substances. In addition to maintaining an importer and/or
exporter registration, importers and exporters of controlled substances must obtain a permit for every import or export of a Schedule
I or II substance and a narcotic substance in Schedule III, IV and V. For all other drugs in Schedule III, IV and V, importers
and exporters must submit an import or export declaration.
Practitioners such as pharmacies and physicians,
as well as other types of entities that handle controlled substances, such as researchers and analytical laboratories, are also
subject to DEA registration, recordkeeping, reporting, and security requirements on the receipt, storage, and dispensing of controlled
substances.
The DEA establishes annually an aggregate
production quota for the amount of substances within Schedules I and II and certain Schedule III substances, that may be produced
in the U.S. based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research and industrial
needs. The aggregate quota for each controlled substance is allocated among the various individual manufacturers through an application
process. Manufacturers may not exceed the manufacturing or procurement quota granted in a given year. The quotas apply equally
to the manufacturing of the active pharmaceutical ingredient and production of dosage forms. The DEA may adjust aggregate production
quotas and individual manufacturing or procurement quotas from time to time during the year, although the DEA has substantial discretion
concerning whether or not to make such adjustments.
Failure to maintain compliance with applicable
DEA requirements, particularly as manifested in the loss or diversion of controlled substances, can result in an enforcement action.
The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those
registrations. In certain circumstances, violations could lead to criminal prosecution.
The various states, commonwealths, and
the District of Columbia, also regulate controlled substances and impose similar licensing, recordkeeping, and reporting requirements
on entities that handle controlled substances. Entities must independently comply with the various state requirements in addition
to the federal controlled substance requirements.
Other Healthcare Laws
In the United States, biotechnology company
activities are subject to regulation by various federal, state and local authorities in addition to the FDA, including but not
limited to, the Centers for Medicare & Medicaid Services (CMS), other divisions of the U.S. Department of Health and Human
Services (e.g., the Office of Inspector General and the Office for Civil Rights), the U.S. Department of Justice (DOJ) and individual
U.S. Attorney offices within the DOJ, and state and local governments. For example, research, sales, marketing and scientific/educational
grant programs have to comply with the anti-fraud and abuse provisions of the Social Security Act, the federal false claims laws,
the privacy and security provisions of the Health Insurance Portability and Accountability Act (HIPAA) and similar state laws,
each as amended, as applicable.
The federal Anti-Kickback Statute prohibits,
among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, recommending
or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare
programs. The term remuneration has been interpreted broadly to include anything of value. The Anti- Kickback Statute has been
interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and/or formulary
managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities
from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged
to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception
or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor
does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated
on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Practices may not in all cases meet
all of the criteria for protection under a statutory exception or regulatory safe harbor. In addition, the statutory exceptions
and regulatory safe harbors are subject to change.
Additionally, the intent standard under
the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010, or collectively the ACA, to a stricter standard such that a person or entity no longer needs to have
actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified
case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal False Claims Act (discussed below).
The civil monetary penalties statute imposes
penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim
to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or
is false or fraudulent.
Federal false claims laws, including the
federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be
presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made
or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification
made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property
presented to the U.S. government. In addition, manufacturers can be held liable under the civil False Claims Act even when they
do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent
claims. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly
providing free product to customers with the expectation that the customers would bill federal programs for the product. Other
companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product
for unapproved, and thus generally non-reimbursable, uses and purportedly concealing price concessions in the pricing information
submitted to the government for government price reporting purposes.
HIPAA created additional federal criminal
statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means
of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody
of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or
covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection
with the delivery of or payment for healthcare benefits, items or services. Similar to the Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Also, many states have similar fraud and
abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several
states, apply regardless of the payor.
Data privacy and security regulations
by both the federal government and the states in which business is conducted may also be applicable. HIPAA, as amended by the
Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements
relating to the privacy, security and transmission of individually identifiable health information. HIPAA requires covered entities
to limit the use and disclosure of protected health information to specifically authorized situations and requires covered entities
to implement security measures to protect health information that they maintain in electronic form. Among other things, HITECH
made HIPAA’s security standards directly applicable to business associates, independent contractors or agents of covered
entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity.
HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable
to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.
In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ
from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Additionally, the federal Physician Payments
Sunshine Act within the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological
and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with
certain exceptions) report to CMS information related to certain payments or other transfers of value made or distributed to physicians
and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching
hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.
The information is reported annually, and the reported data are made available in searchable form on a public website. Failure
to submit required information may result in civil monetary penalties. Effective January 1, 2022, reporting on transfers of value
to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified
nurse-midwives will also be required.
Commercial distribution of products requires
compliance with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products
in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers
or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors
to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others
to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. In addition, several
states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs,
file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other
activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing
certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit
certain other sales and marketing practices. Certain local jurisdictions also require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Sales
and marketing activities are also potentially subject to federal and state consumer protection and unfair competition laws.
Violation of any of the federal and state healthcare laws described
above or any other governmental regulations may result in penalties, including without limitation, significant civil, criminal
and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare
and Medicaid, imprisonment, injunctions, private “qui tam” actions brought by individual whistleblowers in the name
of the government, refusal to enter into government contracts, contractual damages, reputational harm, administrative burdens,
diminished profits and future earnings.
U.S. Healthcare Reform
In March 2010, President Obama enacted
the ACA, which substantially changed healthcare financing and delivery by both governmental and private insurers and has significantly
impacted the pharmaceutical and biotechnology industry.
Among the ACA provisions of importance
to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:
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An annual, nondeductible fee on any entity
that manufacturers or imports certain specified branded prescription drugs and biologic agents apportioned among these entities
according to their market share in some government healthcare programs;
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an annual, nondeductible fee on any entity
that manufacturers or imports certain specified branded prescription drugs and biologic agents apportioned amount these entities
according to their market share in some government healthcare programs;
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an increase in the statutory minimum rebates
a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded
and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price,
or AMP;
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a Medicare Part D coverage gap discount
program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs
to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be
covered under Medicare Part D;
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extension of manufacturers’ Medicaid
rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for
Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new
mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially
increasing manufacturers’ Medicaid rebate liability;
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expansion of the entities eligible for
discounts under the Public Health Service pharmaceutical pricing program; and
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a new Patient-Centered Outcomes Research
Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such
research.
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Some of the provisions of the ACA have
yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent
efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed
two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA. Concurrently,
Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed
comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting
January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, and delaying the implementation
of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate
in Medicare Part D. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety
because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. While the Texas
U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect
pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the
ACA will impact the ACA.
There has been heightened governmental
scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics.
Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed
to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration’s
budget proposals for fiscal years 2019 and 2020 contain further drug price control measures that could be enacted during the budget
process or in other future legislation. Further, the Trump administration released a “Blueprint” to lower drug prices
and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase
the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products,
and reduce the out of pocket costs of drug products paid by consumers. HHS has started soliciting feedback on some of these measures
and implementing others under its existing authority. At the state level, legislatures have increasingly passed legislation and
implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing. Any reduction in reimbursement from Medicare
and other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment
measures or other healthcare reforms may prevent the generation revenue, attainment profitability, or commercialization of products.
Coverage and Reimbursement
Significant uncertainty exists as to the
coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States, sales of any
product candidates for which regulatory approval for commercial sale is obtained will depend in part on the availability of coverage
and adequate reimbursement from third-party payors. Third-party payors include government authorities and health programs in the
United States such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. These third-party
payors are increasingly reducing reimbursements for medical products and services. The process for determining whether a payor
will provide coverage for a drug product may be separate from the process for setting the reimbursement rate that the payor will
pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which
might not include all of FDA-approved drugs for a particular indication. A payor’s decision to provide coverage for a drug
product does not imply that an adequate reimbursement rate will be approved. Further, coverage and reimbursement for drug products
can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly
process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with
no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
Corporate Information
Our principal executive offices are located
at 880 Third Avenue, 12th Floor, New York, New York 10022 and our telephone number is (646) 876 3459. Our website address is www.relmada.com. The
information contained in, or that can be accessed through, our website is not part of, and is not incorporated in, this Report.
Available Information
Reports we file with the Securities and
Exchange Commission (SEC) pursuant to the Exchange Act of 1934, as amended (the Exchange Act), including annual and quarterly
reports, and other reports we file, can be inspected and copied at the public reference facilities maintained by the SEC at 100
F Street NE, Washington, D.C. 20549.
ITEM 1A. RISK FACTORS
Our business faces significant risks. You
should carefully consider the risks described below, together with all of the other information included in our filings with the
United States Securities and Exchange Commission (SEC) when evaluating our business. If any of the following risks actually occurs,
our business, financial condition or results of operations could be materially adversely affected and the trading price of shares
of our common stock could decline. The occurrence of any of the following risks could cause our actual results to differ materially
from those contained in forward-looking statements we have made in this report and those we may make from time to time.
Risk Related to Our Business
Our business depends on the success
of d-methadone (dextromethadone, REL-1017), our only product candidate currently under clinical development, which is in the early
stages of clinical development and has not initiated pivotal clinical trials. If we are unable to obtain regulatory approval for
and successfully commercialize REL-1017 or other future product candidates, or we experience significant delays in doing so, our
business will be materially harmed.
To date, the primary focus of our product development has been
d-methadone (dextromethadone, REL-1017) for the adjunctive treatment of patients with MDD. Currently, d-methadone is our only product
candidate under clinical development. This may make an investment in our company riskier than similar companies that have multiple
product candidates in active development and that therefore may be able to better sustain a failure of a lead candidate. Successful
continued development and ultimate regulatory approval of d-methadone for the adjunctive treatment of MDD, and potentially as a
monotherapy for MDD, or other indications is critical to the future success of our business. We have invested, and will continue
to invest, a significant portion of our time and financial resources in the clinical development of d-methadone. If we cannot successfully
develop, obtain regulatory approval for and commercialize d-methadone, we may not be able to continue our operations. The future
regulatory and commercial success of d-methadone is subject to a number of risks, including the following:
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we may not have sufficient financial and other resources to complete the necessary clinical trials for d-methadone, including, but not limited to, the clinical trials needed to obtain drug approval;
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the mechanism of
action of d-methadone is complex, and we do not know the degree to which it will translate into a therapeutic benefit, if any,
in the adjunctive treatment of MDD, monotherapy for MDD or any other indication, and we do not know the degree to which the complex
mechanism of action may contribute to long-term safety issues or adverse events, if any, when d-methadone is taken for prolonged
periods such as in the adjunctive treatment of MDD, monotherapy for MDD or any other indication;
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we may not be able
to obtain adequate evidence from clinical trials of efficacy and safety for d-methadone for the adjunctive treatment of MDD, monotherapy
for MDD or other indications;
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we may not be able
to demonstrate that the benefits of d-methadone for the adjunctive treatment of MDD, monotherapy for MDD or other indications
outweigh the risks;
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in our clinical
trials for d-methadone, we may need additional clinical trial sites than originally planned, which could delay our clinical trial
progress;
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the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable foreign regulatory authorities for marketing approval;
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patients in our clinical trials may suffer serious adverse effects for reasons that may or may not be related to d-methadone, which could delay or prevent further clinical development;
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the standards implemented
by clinical or regulatory agencies may change at any time and we cannot be certain what efficacy endpoints the FDA or foreign
clinical or regulatory agencies may require in pivotal clinical trials with respect to the adjunctive treatment of MDD, monotherapy
for MDD or any other indication for the approval of d-methadone;
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the results of later stage clinical trials may not be as favorable as the results we have observed to date in our preclinical studies and Phase 1 and 2a clinical trials;
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we cannot be certain
of the number and type of clinical trials and preclinical or toxicology studies that the FDA or other regulatory agencies will
require in order to approve d-methadone for the adjunctive treatment of MDD, monotherapy for MDD or any other indication;
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if approved for the adjunctive treatment of MDD or as a monotherapy for MDD, d-methadone will likely compete with products that may reach approval prior to d-methadone, products that are currently approved for the adjunctive treatment of MDD or as a monotherapy for MDD and the off-label use of currently marketed products for MDD; and
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we may not be able to obtain, maintain or enforce our patents and other intellectual property rights.
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d-methadone and any future product candidates
will be subject to rigorous and extensive clinical trials and extensive regulatory approval processes implemented by the FDA and
comparable foreign regulatory authorities before obtaining marketing approval from these regulatory authorities, if at all. The
drug development and approval process is lengthy and expensive, and approval is never certain. Investigational new drugs, such
as d-methadone, may not prove to be safe and effective in clinical trials. We have no direct experience as a company in conducting
later stage clinical trials required to obtain regulatory approval. We may be unable to conduct clinical trials at preferred sites,
enlist clinical investigators, enroll sufficient numbers of participants or begin or successfully complete clinical trials in
a timely fashion, if at all. In addition, the design of a clinical trial can determine whether its results will support approval
of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Because
we have limited experience as a company designing clinical trials, we may be unable to design and execute a clinical trial to
support regulatory approval.
There is a high failure rate for drugs
and biological products proceeding through clinical trials. Failure can occur at any time during the clinical trial process. The
results of preclinical studies and early clinical trials of d-methadone or any future product candidate may not be predictive of
the results of later-stage clinical studies or trials and the results of studies or trials in one set of patients or line of treatment
may not be predictive of those obtained in another. In fact, many companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late stage clinical trials even after achieving promising results in preclinical studies
and earlier stage clinical trials. In addition, data obtained from preclinical and clinical activities are subject to varying interpretations,
which may delay, limit or prevent regulatory approval. It is impossible to predict when or if d-methadone or any future product
candidate will prove effective or safe in humans or will receive regulatory approval. Owing in part to the complexity of biological
pathways, d-methadone or any future product candidate may not demonstrate in patients the biochemical and pharmacological properties
we anticipate based on laboratory studies or earlier stage clinical trials, and they may interact with human biological systems
or other drugs in unforeseen, ineffective or harmful ways. The number of patients exposed to product candidates and the average
exposure time in the clinical development programs may be inadequate to detect rare adverse events or findings that may only be
detected once a product candidate is administered to more patients and for greater periods of time. To date, our Phase 2a clinical
study has involved a small population of subjects with TRD, and, because of the small sample size in such trial, the results of
this clinical trial may be subject to substantial variability and may not be indicative of either future top-line results or final
results. If we are unable to successfully demonstrate the safety and efficacy of d-methadone or other future product candidates
and receive the necessary regulatory approvals, our business will be materially harmed.
Even if we do receive regulatory approval
to market d-methadone, any such approval may be subject to limitations on the indicated uses or patient populations for which we
may market the products. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development
programs, we may be unable to successfully develop or commercialize d-methadone. If we or any of our future development collaborators
are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize d-methadone, we may not be
able to generate sufficient revenue to continue our business.
Top-line results may not accurately
reflect the complete results of the clinical study.
In October 2019, we reported top-line data from our Phase 2a
study of d-methadone in adults with MDD who did not respond to one to three courses of antidepressant treatment in their current
episode. Although the top-line data indicated that subjects experienced statistically significant improvement of their depression
compared to subjects in the placebo group, as well as a favorable safety and tolerability profile, the top-line data are based
on preliminary analysis of key pharmacokinetic, safety and efficacy data, and such data may change following a more comprehensive
review of the data and may not accurately reflect the complete results of the study. Preliminary data also remain subject to audit
and verification procedures that may result in the final data being materially different from the preliminary data. As a result,
preliminary data should be viewed with caution until the final data are available.
Our license
agreement for d-methadone, our only product candidate currently under clinical development, could terminate under certain circumstances,
including if we terminate our chief executive officer except for cause, and we would be unable to conduct our business as planned.
In January 2018,
we entered into an Intellectual Property Assignment Agreement (the “Assignment Agreement”) and License Agreement
(the License Agreement and together with the Assignment Agreement, the Agreements), with Dr. Charles E. Inturrisi and Dr. Paolo
Manfredi (collectively, the “Licensor”). Pursuant to the Assignment Agreement, we assigned our existing rights, including
patents and patent applications, to d-methadone in the context of psychiatric use to Licensor, and pursuant to the License Agreement,
Licensor then granted us an exclusive perpetual, worldwide license under the assigned intellectual property rights as well as patents
and know-how covering certain new inventions developed by Licensor and relating to d-methadone in neurological and other uses,
to develop and commercialize d-methadone in all fields of use. The License Agreement also grants to us rights in all future inventions
developed by Licensor, whether or not in collaboration with us that relate in any way to d-methadone or the use thereof. The License
Agreement was amended in December 2019 to modify certain termination rights relating to the Chief Executive Officer, which are
described further below.
If we develop
any new inventions relating to d-methadone, we are required to do so in collaboration with Licensor, and to file patents covering
such inventions jointly in the name of the Company and Licensor. All such future inventions or patents shall be jointly owned by
us and Licensor and, will be included in and subject to the financial and other terms of the License Agreement.
The License Agreement
includes standard termination rights for Licensor in the event of our insolvency, challenge of the licensed patents and uncured
material breach of our obligations under the License Agreement. In addition, the License Agreement contains certain “Key
Man” provisions such that the Licensor may terminate the License Agreement if we terminate the employment of our Chief Executive
Officer Mr. Sergio Traversa for any reason other than for specified causes determined by a majority of our Board of Directors (including
fraud, gross negligence, unauthorized use of our confidential information, conduct including harassment or discrimination, breach
of fiduciary duty or uncured material breach), or if we (a) substantially modify Mr. Traversa’s job responsibilities or decision-making
rights in connection with the development and commercialization of d-methadone, (b) remove him from the role of Chief Executive
Officer other than in connection with a permitted change-of-control transaction, (c) materially reduce his compensation, or (d)
assign or transfer our rights under the License Agreement or the d-methadone intellectual property without Mr. Traversa’s
consent, in each case (termination or the events in (a) through (d) during the period commencing on the effective date and ending
on the later of five years from the original effective date of the License Agreement on December 31, 2022 (the “Key Man Term”).
The December 2019 amendment to the License Agreement made certain clarifications to the nature of a termination for Cause, including
to clarify that termination due to Mr. Traversa’s death or disability does not give Licensor the right to terminate the License
Agreement.
As a result of the provisions described
above, we are limited in our ability to terminate, as well as to decrease the salary or authority of, our Chief Executive Officer
until December 31, 2022. In addition, the agreement provides that any assignor that we assign the agreement to must agree in writing
to all terms of the license, including the key man provisions, and as noted above, our Chief Executive Officer has the right to
consent to any such assignment of the agreement unless previously terminated for cause or due to death. As the license agreement
relates to our only product candidate currently under clinical development, these provisions may
be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder
might consider to be in its best interests, including attempts that might result in a premium being paid over the market price
for the shares held by stockholders. If we fail to comply with the terms of the License Agreement, our rights to those patents
may be terminated, and we will be unable to conduct our business.
We have generated no revenue from
commercial sales to date and our future profitability is uncertain.
We have a limited operating history and
our business is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success
must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection
with this. Since we began our business, we have focused on research, development and clinical trials of product candidates, and
have incurred significant losses since inception and generated no product revenues. If we continue to incur operating losses and
fail to become a profitable company, we may be unable to continue our operations. We expect to continue to operate at a net loss
for at least the next several years as we continue our research and development efforts, continue to conduct clinical trials and
develop manufacturing, sales, marketing and distribution capabilities. There can be no assurance that the products under development
by us will be approved for sales in the US or elsewhere. Furthermore, there can be no assurance that if such products are approved
they will be successfully commercialized, and the extent of our future losses and the timing of our profitability are highly uncertain.
International commercialization of
our product candidates faces significant obstacles.
We may plan to commercialize some of our
products internationally through collaborative relationships with foreign partners. We have limited foreign regulatory, clinical
and commercial resources. Future partners are critical to our international success. We may not be able to enter into collaboration
agreements with appropriate partners for important foreign markets on acceptable terms, or at all. Future collaborations with foreign
partners may not be effective or profitable for us. We will need to obtain approvals from the appropriate regulatory, pricing and
reimbursement authorities to market any of our proposed products internationally, and we may be unable to obtain foreign regulatory
approvals. Pursuing foreign regulatory approvals will be time-consuming and expensive. The regulations can vary among countries
and foreign regulatory authorities may require different or additional clinical trials than we conducted to obtain FDA approval
for our product candidates. In addition, adverse clinical trial results, such as death or injury due to side effects, could jeopardize
not only regulatory approval, but if approval is granted, may also lead to marketing restrictions. Our product candidates may also
face foreign regulatory requirements applicable to controlled substances.
We need to raise additional capital
to operate our business.
We are a company focused on product development and have not
generated any product revenues to date. Until, and if, we receive approval from the FDA and other regulatory authorities for our
product candidates, we cannot sell our drugs and will not have product revenues. Based on our current development plans, we believe
that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements
for at least the next eighteen months unless we halt research and development activities. Therefore, for the foreseeable future,
we will have to fund all of our operations and capital expenditures from the net proceeds of future offerings. For our lead product
candidate, REL-1017, we anticipate commencing in the second half of 2020 two Phase 3 trials in the adjunctive treatment of MDD,
which we cannot assure you that we can complete, or we will need to halt our research and development activities. If we experience
unanticipated cash requirements, we may need to seek additional sources of financing, which may not be available on favorable terms,
if at all. If we do not succeed in raising additional funds on acceptable terms, we will be unable to complete planned clinical
trials or obtain approval of our product candidates from the FDA and other regulatory authorities. In addition, we could be forced
to discontinue research and development activities, product development, reduce or forego attractive business opportunities, or
discontinue operations.
We have a history of losses and we
may never achieve or sustain profitability.
We have incurred substantial losses since our inception, and
we may not achieve profitability for the foreseeable future, if at all. Since inception, we have an accumulated deficit of approximately
$119.9 million at December 31, 2019. The Company had cash, cash equivalents and short term investments of approximately $116.4
million at December 31, 2019. Even if we succeed in developing and commercializing one or more of our product candidates, we expect
to incur substantial net losses and negative cash flows for the foreseeable future due in part to increasing research and development
expenses, including clinical trials, and increasing expenses from leasing additional facilities and hiring additional personnel.
As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to
generate these revenues or achieve profitability in the future. Even if we do achieve profitability, we may not be able to sustain
or increase profitability.
We have a limited operating history
upon which to base an investment decision.
Our limited operating history may limit
your ability to evaluate our prospects due to our limited historical financial data and our unproven potential to generate profits.
You should evaluate the likelihood of financial and operational success in light of the risks, uncertainties, expenses and difficulties
associated with an early-stage business, many of which may be beyond our control, including:
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our potential inability to continue to undertake preclinical studies, pharmaceutical development and clinical trials,
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our potential inability to obtain regulatory approvals, and
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our potential inability to manufacture, sell and market our products.
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Our operations have been limited to organizing
and staffing, on a limited basis, our company, acquiring, developing and securing our proprietary technology and undertaking preclinical
studies and early stage clinical trials of our principal product candidates. These operations provide a limited basis for you to
assess our ability to commercialize our product candidates and the advisability of investing in our common stock.
If we fail to obtain the capital
necessary to fund our operations, we will be unable to continue or complete our product development and you will likely lose your
entire investment.
We had cash, cash equivalents and short term investments of
approximately $116.4 million at December 31, 2019, which will not be sufficient to capitalize the development and commercialization
of d-methadone and we will need to continue to seek capital from time to time to continue the development and to acquire and develop
other product candidates. Our first product candidate is not expected to be commercialized for at least several years, if ever,
and the revenues it will generate, if any, may not be sufficient to fund our ongoing operations. Accordingly, we believe that we
will need to raise substantial additional capital to fund our continuing operations and the development and commercialization of
our product candidates. Our business or operations may change in a manner that would consume available funds more rapidly than
anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced
products, acquire complementary products, business or technologies or otherwise respond to competitive pressures and opportunities,
such as a change in the regulatory environment or a change in preferred depression treatment modalities. In addition, we may need
to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned and this would require
additional capital. However, we may not be able to secure funding when we need it or on favorable terms. If we cannot raise adequate
funds to satisfy our capital requirements, we will have to delay, scale-back or eliminate our research and development activities,
clinical studies or future operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements
may require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing, including
rights to future product candidates or certain major geographic markets. We may further have to license our technology to others.
This could result in sharing revenues which we might otherwise retain for ourselves. Any of these actions may harm our business,
financial condition and results of operations.
The amount of capital we may need depends on many factors, including
the progress, timing and scope of our product development programs; the progress, timing and scope of our nonclinical studies and
clinical trials; the time and cost necessary to obtain regulatory approvals; the time and cost necessary to further develop manufacturing
processes and arrange for contract manufacturing; our ability to enter into and maintain collaborative, licensing and other commercial
relationships; and our partners’ commitment of time and resource to the development and commercialization of our products.
We have limited access to the capital
markets and even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.
We have limited access to the capital markets
to raise capital. The capital markets have been unpredictable in the recent past for unprofitable companies such as ours. In addition,
it is generally difficult for companies to raise capital under current market conditions. The amount of capital that a company
such as ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure
financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not
be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, results
of operations, financial condition and our continued viability will be materially adversely affected.
We may be subject to litigation for
a variety of claims, which could adversely affect our business, financial condition or results of operations.
In addition to product liability claims,
we and our directors and officers may be subject to claims arising from our normal business activities. These may include claims,
suits, and proceedings involving shareholder and fiduciary matters, intellectual property, labor and employment, wage and hour,
commercial and other matters. For example, in 2014, we dismissed with prejudice a lawsuit we had brought against Najib Babul, our
former President, which had sought to compel Dr. Babul to account for questionable expenditures of our funds. Dr. Babul subsequently
brought a lawsuit against us, including claims for breach of contract, intentional infliction of emotional distress, defamation
and wrongful use of civil process. We settled this litigation, agreeing, among other things, to pay Dr. Babul as a consulting fee
a $500,000 initial payment and four subsequent payments of $250,000, the last installment of which is due on December 31, 2019.
Our ability to use our net operating
loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2019, we had Federal,
New York State and New York City net operating loss (NOL) carryforwards of approximately $62,010,000, $58,357,000 and $57,937,000,
respectively, which begin expiring in 2027, 2032 and 2032, respectively. Under U.S. federal tax legislation enacted in 2017, informally
titled the Tax Cuts and Jobs Act, or Tax Act, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely,
but the deductibility of such federal NOLs is limited to 80% of taxable income in the year . It is uncertain if and to what extent
various states will conform to the Tax Act. Under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, if
a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage-point cumulative change
(by value) in the equity ownership of certain stockholders over a rolling three-year period), the corporation’s ability to
use its pre-change NOLs and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. We
may also experience ownership changes as a result of stock offerings or as a result of subsequent shifts in our stock ownership,
some of which are outside our control. We have not completed an analysis to determine whether any such limitations have been triggered.
If any were determined to be triggered, our ability to use our current NOLs and other pre-change tax attributes to offset post-change
taxable income or taxes would be subject to limitation. We will be unable to use our NOLs if we do not attain profitability sufficient
to offset our available NOLs prior to their expiration.
We may not be successful in hiring
and retaining key employees.
Our future operations and successes depend
in large part upon the continued service of key members of our senior management team whom we are highly dependent upon to manage
our business, specifically Dr. Sergio Traversa, our Chief Executive Officer. If he terminates employment with us, such a departure
would have a material adverse effect on our business.
Our future success also depends on
our ability to identify, attract, hire or engage, retain and motivate other well-qualified managerial, technical, clinical
and regulatory personnel. We currently only have 6 full time employees and are likely to hire additional qualified personnel
with expertise in nonclinical pharmacology and toxicology, pharmaceutical development, clinical research, regulatory affairs,
manufacturing, sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies,
universities and other research institutions. Competition for such individuals, particularly in the United States, is
intense, and we may not be able to hire sufficient personnel to support our efforts. There can be no assurance that these
professionals will be available in the market, or that we will be able to retain existing professionals or to meet or to
continue to meet their compensation requirements. Furthermore, the cost base in relation to such compensation, which may
include equity compensation, may increase significantly, which could have a material adverse effect on us. Failure to
establish and maintain an effective management team and work force could adversely affect our ability to operate, grow and
manage our business.
Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee
fraud or other misconduct. Misconduct by employees could include intentional failures to:
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comply with FDA regulations or similar regulations of comparable foreign regulatory authorities; provide accurate information to the FDA or comparable foreign regulatory authorities;
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comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities;
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report financial information or data accurately; or
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disclose unauthorized activities to us.
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In particular, research, sales, marketing
and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, 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. Employee misconduct could
also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions
and serious harm to our reputation. We have adopted a Code of Ethics, but it is not always possible to identify and deter employee
misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be
in compliance with such 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 and results of operations, including
the imposition of significant fines or other sanctions.
Managing our growth as we expand
operations may strain our resources.
We expect to need to grow rapidly in order
to support additional, larger, and potentially international, pivotal clinical trials of our drug candidates, which will place
a significant strain on our financial, managerial and operational resources. In order to achieve and manage growth effectively,
we must continue to improve and expand our operational and financial management capabilities. Moreover, we will need to increase
staffing and to train, motivate and manage our employees. All of these activities will increase our expenses and may require us
to raise additional capital sooner than expected. Failure to manage growth effectively could harm our business, financial condition
or results of operations.
We may expand our business through
the acquisition of rights to new drug candidates that could disrupt our business, harm our financial condition and may also dilute
current stockholders’ ownership interests in our company.
Our business strategy includes expanding
our products and capabilities, and we may seek acquisitions of drug candidates or technologies to do so. Acquisitions involve numerous
risks, including substantial cash expenditures; potentially dilutive issuance of equity securities; incurrence of debt and contingent
liabilities, some of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating
the acquired technologies or the operations of the acquired companies; diverting our management’s attention away from other
business concerns; risks of entering markets in which we have limited or no direct experience; and the potential loss of our key
employees or key employees of the acquired companies.
We cannot assure you that any acquisition
will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired product, company
or business. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some
of these acquisitions. We cannot assure you that we will be able to make the combination of our business with that of acquired
products, businesses or companies work or be successful. Furthermore, the development or expansion of our business or any acquired
products, business or companies may require a substantial capital investment by us. We may not have these necessary funds or they
might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our preferred
or common stock, which could dilute each current stockholder’s ownership interest in us.
If we cannot compete successfully
for market share against other drug companies, we may not achieve sufficient product revenues and our business will suffer.
The market for our drug candidates is characterized
by intense competition and rapid technological advances. If our drug candidates receive FDA approval, they will compete with a
number of existing and future drugs and therapies developed, manufactured and marketed by others. Existing or future competing
products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products,
or may offer comparable performance at a lower cost. If our products are unable to capture and maintain market share, we may not
achieve sufficient product revenues and our business will suffer.
We and our collaborators will compete for
market share against fully integrated pharmaceutical companies or other companies that are collaborating with larger pharmaceutical
companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors
have drugs already approved or drug candidates in development that will or may compete against our approved drug candidates. In
addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development
programs and have substantially greater financial resources than we do, as well as significantly greater experience in:
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developing drugs;
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conducting preclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals of drugs;
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formulating and manufacturing drugs; and
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launching, marketing, distributing and selling drugs.
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Media stories regarding the diversion of
opioids and other controlled substances are commonplace. Law enforcement agencies or regulatory agencies may apply policies that
seek to limit the availability of opioids. Such efforts may adversely affect the regulatory approval and commercialization of our
drug candidates.
Business interruptions could limit
our ability to operate our business.
Our operations as well as those of our
collaborators on which we depend are vulnerable to damage or interruption from computer viruses, human error, natural disasters,
electrical and telecommunication failures, international acts of terror and similar events. We have not established a formal disaster
recovery plan and our back-up operations and our business interruption insurance may not be adequate to compensate us for losses
we may suffer. A significant business interruption could result in losses or damages incurred by us and require us to cease or
curtail our operations.
Our business could be adversely affected
by the effects of health epidemics, including the global COVID-19 pandemic.
In December 2019, a novel strain of COVID-19
was reported in China. Since then, COVID-19 has spread globally, to include Canada, the United States and several European countries.
The spread of COVID-19 from China to other countries has resulted in the World Health Organization (WHO) declaring the outbreak
of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world
have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential
businesses.
As local jurisdictions continue to put
restrictions in place, our ability to continue to operate our business may also be limited. Such events may result in a period
of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial
condition and results of operations.
The spread of COVID-19, which has caused
a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration
of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial
markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession
or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common shares.
The continued spread of COVID-19 globally
could also adversely affect our planned clinical trial operations, including our ability to initiate the trials on the expected
timelines and recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened
exposure to COVID-19 if an outbreak occurs in their geography. Further, the COVID-19 outbreak could result in delays in our clinical
trials due to prioritization of hospital resources toward the outbreak, restrictions in travel, potential unwillingness of patients
to enroll in trials at this time, or the inability of patients to comply with clinical trial protocols if quarantines or travel
restrictions impede patient movement or interrupt healthcare services. In addition, we rely on independent clinical investigators,
contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying
out our preclinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources
to our programs or to travel to sites to perform work for us.
Additionally, COVID-19 may also result
in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with local and
foreign regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or
forced furlough of government employees.
The global outbreak of COVID-19 continues to rapidly evolve.
The ultimate long-term impact of COVID-19 is highly uncertain and
cannot be predicted with confidence. In addition, since COVID-19 has become a pandemic, it could materially affect our operations
globally, including at our headquarters in the New York City area and at our future clinical trial sites throughout the globe.
Our business could be adversely affected
by health epidemics in regions where we have significant manufacturing and distribution facilities, concentrations of clinical
trial sites or other business operations.
The ultimate impact of the COVID-19 outbreak
or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays
or impacts on our business, our supply chain, clinical trials, healthcare systems or the global economy as a whole. However, these
effects could have a material impact on our operations, and, therefore, we will continue to monitor the COVID-19 situation closely
and implement risk mitigation as needed.
Risks Related to Clinical and Regulatory Matters
If we or our potential collaborators
fail to obtain the necessary regulatory approvals, or if such approvals are limited, we and our potential collaborators will not
be allowed to commercialize our drug candidates, and we will not generate product revenues.
Satisfaction of all regulatory requirements
for commercialization of a drug candidate typically takes many years, is dependent upon the type, complexity and novelty of the
drug candidate, and requires the expenditure of substantial resources for research and development. Our research and clinical approaches
may not lead to drugs that the FDA considers safe for humans and effective for indicated uses we are studying. The FDA may require
studies in addition to those we plan to conduct, in which case we or our collaborators would have to expend additional time and
resources and would likely delay the date of potentially receiving regulatory approval. The approval process may also be delayed
by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or
during our regulatory review. Delays in obtaining regulatory approvals would:
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delay commercialization of, and product revenues from, our drug candidates; and
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diminish the competitive advantages that we may have otherwise enjoyed, which would have an adverse effect on our operating results and financial condition.
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Even if we or our collaborators comply
with all FDA regulatory requirements, our drug candidates may never obtain regulatory approval. If we or our collaborators fail
to obtain regulatory approval for any of our drug candidates we will have fewer commercial products, if any, and corresponding
lower product revenues, if any. Even if our drug candidates receive regulatory approval, such approval may involve limitations
on the indications and conditions of use or marketing claims for our products. Further, later discovery of previously unknown problems
or adverse events could result in additional regulatory restrictions, including withdrawal of products. The FDA may also require
us or our collaborators to commit to perform lengthy Phase 4 post-approval clinical efficacy or safety studies. Our expending additional
resources on such trials would have an adverse effect on our operating results and financial condition.
In jurisdictions outside the United States,
we or our collaborators must receive marketing authorizations from the appropriate regulatory authorities before commercializing
our drugs. Regulatory approval processes outside the United States generally include all of the aforementioned requirements and
risks associated with FDA approval.
If we or our collaborators are unable
to design, conduct and complete successful clinical trials, our drug candidates will not be able to receive regulatory approval.
Before obtaining regulatory approvals for
the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive nonclinical testing
and clinical trials that the product is both safe and effective for use in each target indication.
Results from early clinical trials may
not support moving a drug candidate to later-stage clinical trials. Phase 3 clinical trials may not demonstrate the safety or efficacy
of our drug candidates. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will
be successful. Results of later clinical trials may not replicate the results of prior clinical trials and preclinical studies.
Even if the results of Phase 3 clinical trials are positive, we or our collaborators may have to commit substantial time and additional
resources to conducting further preclinical studies and clinical trials before obtaining FDA approval for any of our drug candidates.
Clinical trials are very expensive and
difficult to design and implement, in part because they are subject to rigorous requirements. The clinical trial process also consumes
a significant amount of time. Furthermore, if participating patients in clinical trials suffer drug-related adverse reactions during
the course of such clinical trials, or if we, our collaborators or the FDA believe that participating patients are being exposed
to unacceptable health risks, such clinical trials will have to be suspended or terminated. Failure can occur at any stage of the
clinical trials, and we or our collaborators could encounter problems that cause abandonment or repetition of clinical trials.
Our clinical trials and our future clinical trials for d-methadone
measure clinical symptoms, such as depression that are not biologically measurable. The primary measure of depression is subjective
and can be influenced by factors outside of our control, and can vary widely from day to day for a particular patient, and from
patient to patient and site to site within a clinical study. The results we have obtained in completed animal studies or we have
observed in published clinical trials conducted by third parties of other dosage forms of the same drug (e.g., immediate release
oral, parenteral) may not be predictive of results from our future clinical trials. In addition, clinical trial results from the
study of depression are inherently difficult to predict.
We have no history of developing drug candidates.
We do not know whether any of our planned clinical trials will result in marketable drugs.
In addition, completion of clinical trials
can be delayed by numerous factors, including:
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delays in identifying and agreeing on acceptable terms with prospective clinical trial sites;
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slower than expected rates of patient recruitment and enrollment;
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unanticipated patient dropout rates;
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increases in time required to complete monitoring of patients during or after participation in a clinical trial; and
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Any of these delays could significantly
impact the timing, approval and commercialization of our drug candidates and could significantly increase our overall costs of
drug development.
We cannot predict whether regulatory
agencies will determine that the data from our clinical trials support marketing approval.
The FDA’s and other regulatory agencies’ decision
to approve our depression product candidate will depend on our ability to demonstrate with substantial clinical evidence through
adequate well-controlled clinical trials, that the product candidate is effective, as measured statistically by comparing the overall
improvement in depression in actively-treated patients against improvement in depression in the control group (usually a placebo
control). However, there is a possibility that our data may fail to show a statistically significant difference from the placebo
control or the active control. Alternatively, there is a possibility that our data may be statistically significant, but that the
actual clinical benefit of the product candidates may not be considered to be clinically significant, clinically relevant or clinically
meaningful. Even if we believe that the data from our trials will support marketing approval in the United States or in Europe,
we cannot predict whether the agencies will agree with our analysis and approve our applications.
Developments by competitors may establish
standards of care that affect our ability to conduct our clinical trials as planned.
Changes in standards related to clinical trial design could
affect our ability to design and conduct clinical trials as planned. In that case, both the cost and the amount of time required
to conduct a clinical trial could increase.
The DEA through its quota system
limits the availability of the active ingredients in certain of our current drug candidates and, as a result, the Company’s
quotas for these ingredients may not be sufficient to complete clinical trials, or to meet commercial demand or may result in clinical
delays.
The U.S. Drug Enforcement Administration,
or DEA, regulates certain controlled substance chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances
considered to present the highest risk of abuse and Schedule V substances the lowest risk. Certain active ingredients in our current
drug candidates, such as oxycodone, are listed by the DEA as Schedule II. Consequently, their handling (including manufacture,
research, shipment, storage, sale and use) are subject to a high degree of federal and state oversight and regulation. For example,
all Schedule II drug prescriptions other than electronic prescriptions must be signed by a physician, physically presented to a
pharmacist and may not be refilled. A new prescription is necessary to receive additional amounts of the drug product. Furthermore,
the amount of Schedule II substances that can be obtained for clinical trials and commercial distribution is limited by the DEA
through its quota system. Quotas for these substances may not be sufficient to complete clinical trials or meet commercial demand.
There is a risk that federal statutes and DEA regulations concerning applicable quotas may interfere with the supply of the drugs
used in clinical trials for our product candidates, and, in the future, the ability to manufacture and distribute our products
in the volume needed to meet commercial demand.
Conducting clinical trials of our
drug candidates or commercial sales of a drug candidate may expose us to expensive product liability claims and we may not be able
to maintain product liability insurance on reasonable terms or at all.
The risk of product liability is inherent in the testing of
pharmaceutical products. If we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities or be required to limit or terminate testing of one or more of our drug candidates. Our inability to obtain sufficient
product liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the commercialization
of our drug candidates. We currently carry clinical trial insurance but do not carry product liability insurance. If we successfully
commercialize our drug candidates, we may face product liability claims, regardless of FDA approval for commercial manufacturing
and sale. We may not be able to obtain such insurance at a reasonable cost, if at all. Even if our agreements with any current
or future corporate collaborators entitle us to indemnification against product liability losses, such indemnification may not
be available or adequate should any claim arise.
If our drug candidates receive regulatory
approval, we and our collaborators will also be subject to ongoing FDA obligations and continued regulatory review, such as continued
safety reporting requirements, and we and our collaborators may also be subject to additional FDA post-marketing obligations or
new regulations, all of which may result in significant expense and limit our and our collaborators’ ability to commercialize
our drugs.
Any regulatory approvals that our drug candidates receive may
also be subject to limitations on the indicated uses for which the drug may be marketed or contain requirements for costly post-marketing
follow-up studies. In addition, if the FDA approves any of our drug candidates, the manufacturing processes, labeling, packaging,
distribution, post-approval monitoring and adverse event reporting, storage, import, export, advertising, promotion and record
keeping for the drug will be subject to extensive and ongoing regulatory requirements. The FDA has significant post-market authority,
including the authority to require labeling changes based on new safety information and to require post-market studies or clinical
trials to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market. The manufacturing
facilities used to manufacture our product candidates will also be subject to periodic review and inspection by the FDA and other
regulatory agencies, including for continued compliance with current good manufacturing practices (cGMPs) requirements. The discovery
of any new or previously unknown problems with our third-party manufacturers, manufacturing processes or facilities may result
in restrictions on the product, manufacturer or facility, including withdrawal of the product from the market. Any product promotion
and advertising will also be subject to regulatory requirements and continuing regulatory review. 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. If we
or our collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the
United States or foreign jurisdictions in which we seek to market our products, we or they may be subject to, among other things,
fines, warning or untitled letters, holds on clinical trials, suspension or withdrawal of regulatory approval, product recalls
and seizures, administrative detention of products, refusal to permit the import or export of products, operating restrictions,
injunction, civil penalties and criminal prosecution.
The FDA’s policies may change and
additional government regulations may be enacted that could prevent or delay regulatory approval of our drug candidates. For example,
on July 9, 2012, the FDA approved a risk management program, known as a Risk Evaluation and Mitigation Strategy, or REMS,
for extended-release and long-acting opioid analgesics, or ER/LA opioid analgesics. This REMS will require companies affected by
the REMS to make available training for health care professionals who prescribe ER/LA opioid analgesics on proper prescribing practices
and also to distribute educational materials to prescribers and patients on the safe use of ER/LA opioid analgesics. We cannot
predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative
action, either in the United States or abroad.
We may not succeed at in-licensing
drug candidates or technologies to expand our product pipeline.
We may not successfully in-license drug
candidates or technologies to expand our product pipeline. The number of such candidates and technologies is limited. Competition
among large pharmaceutical companies and biopharmaceutical companies for promising drug candidates and technologies is intense
because such companies generally desire to expand their product pipelines through in-licensing. If we fail to carry out such in-licensing
and expand our product pipeline, our potential future revenues may suffer.
Fast Track Designation may not
lead to a faster development or regulatory review or approval process.
We have obtained
Fast Track Designation for d-methadone for the adjunctive treatment of MDD. Fast Track Designation is granted if a drug is intended
for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs
for this condition. Fast Track Designation does not guarantee a faster development process, review or approval compared to conventional
FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data
from our clinical development program.
We may not be able to obtain or maintain
orphan drug exclusivity for our products.
The FDA has granted orphan drug designation
for mepivacaine for postherpetic neuralgia (PHN) and painful HIV neuropathy. We have also received orphan designation for d-methadone
for PHN. If a product that has orphan drug designation subsequently receives FDA approval for the indication for which it has such
designation, the product is entitled to orphan drug exclusivity, which means that for seven years, the FDA may not approve any
other applications to market the same drug for the same indication, except in limited circumstances. We may be unable to obtain
orphan drug designations for any additional product candidates or orphan drug exclusivity for any of our product candidates, or
our potential competitors may obtain orphan drug exclusivity for d-methadone or mepivacaine product candidates for the orphan indications
we are pursuing before we do, in which case our product candidates may not be approved during the exclusivity period. Even if we
obtain orphan drug exclusivity for any of our product candidates, we may not be able to maintain it if a competitive product is
shown to be clinically superior to our product. Although obtaining FDA approval to market a product with orphan drug exclusivity
can be advantageous, there can be no assurance that it would provide us with a significant commercial advantage.
We may not be able to obtain marketing
exclusivity under the Hatch-Waxman Amendments or equivalent regulatory data exclusivity protection in other jurisdictions for our
products.
We intend to rely, in part, on Hatch-Waxman
exclusivity for the commercialization of our products in the United States, if approved. The Hatch-Waxman Amendments provide marketing
exclusivity to the first applicant to gain approval of an NDA under specific provisions of the Federal Food, Drug, and Cosmetic
Act. For d-methadone, which we intend to elect to have not be considered the same active ingredient as methadone and therefore
an NCE, we anticipate obtaining 5-year exclusivity. If FDA were to determine that we do not meet the requirements to make the
election, we may not be able to obtain 5-year exclusivity for the product. In addition, under the statute, this election currently
may only be made in an NDA submitted before October 1, 2022. If we do not submit an NDA before that date or if the statute is
not amended to extend the election, we may not obtain 5-year exclusivity for d-methadone, if approved. For d-methadone, which
is an NCE, we anticipate obtaining 5-year exclusivity for a product containing an active moiety that the FDA has not previously
approved.
There can be no assurance that European
authorities will grant data exclusivity for our products, because it does not contain a new active molecule. Even if European
data exclusivity is granted for our products, that may not protect us from direct competition. Given the well-established
use of our product candidates as pain relievers, a competitor with a generic version of our products may be able to obtain approval
of their product during our product’s period of data exclusivity, by submitting a marketing authorization application (MAA)
with a less than full package of nonclinical and clinical data.
We may need to focus our future efforts
in new therapeutic areas where we have little or no experience.
Although our primary strategic interest is in the areas of depression,
d-methadone has potential benefits in other therapeutic areas. If our drug development efforts in depression fail, or if the competitive
landscape or investment climate for antidepressant drug development is less attractive, we may need to change the company’s
strategic focus to include development of our product candidates, or of newly acquired product candidates, for therapeutic areas
other than depression. We have very limited drug development experience in other therapeutic areas and we may be unsuccessful in
making this change from a depression company to a company with a focus in areas other than depression or a company with a focus
in multiple therapeutic areas including depression.
Our product candidates contain controlled
substances, the supply of which may be limited by U.S. statutes and regulations, and the use of which may generate public controversy.
The active ingredients
in d-methadone are listed by the DEA as controlled substances under the Controlled Substances Act of 1970. The DEA regulates certain
drug substances in Schedule I, II, III, IV or V, with Schedule I substances considered to present the highest risk of substance
abuse and Schedule V substances the lowest risk. These product candidates are also subject to DEA regulations relating to their
handling (i.e., manufacturing, storage, distribution, prescribing and dispensing procedures).
Products containing controlled substances
may generate public controversy. Opponents of these products may seek restrictions on marketing and withdrawal of any regulatory
approvals. In addition, these opponents may seek to generate negative publicity in an effort to persuade the medical community
to reject these products. Political pressures and adverse publicity could lead to delays in, and increased expenses for, and limit
or restrict the introduction and marketing of our product candidates.
Failure to comply with the Controlled
Substances Act or DEA regulations, or the cost of compliance with these regulations, may adversely affect our business.
A number of our products are opioids
and subject to extensive regulation by the DEA, due to their status as opioid controlled substances. Although d-methadone is
substantially devoid of opioid activity, the DEA may elect to designate it as a controlled substance falling under a DEA
controlled substance Schedule, including Schedule II. Additionally, d-methadone is produced by separation from racemic
methadone, a scheduled drug subject to extensive regulation by the DEA.
The manufacture, shipment, storage, sale
and use of controlled substances are subject to a high degree of regulation, including security, record-keeping and reporting obligations
enforced by the DEA. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist
and may not be refilled. This high degree of regulation can result in significant costs in order to comply with the required regulations,
which may have an adverse effect on the development and commercialization of our product candidates.
The DEA limits the availability and production
of all scheduled substances, including d-methadone, through a quota system. The DEA requires substantial evidence and documentation
of expected legitimate medical and scientific needs before assigning quotas to manufacturers. In future years, we may need greater
amounts of controlled substances to sustain our Phase 3 development program, and we will need significantly greater amounts to
implement our commercialization plans if the FDA approves our proposed formulations. Any delay or refusal by the DEA in establishing
the procurement quota or a reduction in our quota for scheduled controlled substances or a failure to increase it over time as
we anticipate could delay or stop the clinical development or commercial sale of some of our products or product candidates. This
could have a material adverse effect on our business, results of operations, financial condition and prospects.
Some of our products for clinical
trials are manufactured outside the United States, including Schedule II controlled substances.
DEA regulations require Scheduled II controlled
substances to be manufactured in the United States if the products are to be marketed in the United States. There is no guarantee
that we will secure a commercial supply agreement with a manufacturer based in the United States. Switching or adding commercial
manufacturing capability can involve substantial cost and require extensive management time and focus, as well as additional regulatory
filings. In addition, there is a natural transition period when a new manufacturing facility commences work. As a result, delays
may occur, which can materially impact our ability to meet our desired commercial timelines, thereby increasing our costs and reducing
our ability to generate revenue.
We manufacture some products outside the
United States for development and to conduct human clinical studies either in the US or outside the US. These products are for
development purposes only, and not for commercial manufacturing.
If a supplier of an active pharmaceutical
ingredient (API) or a pharmaceutical excipient fails to provide us sufficient quantities, we may not be able to obtain an alternative
supply on a timely or acceptable basis.
Our pharmaceutical excipients and other
APIs are multisource, although not all sources have an active Drug Master File (DMF) with the FDA. (A DMF is a submission to the
FDA used to provide confidential detailed information about facilities, processes, or articles used in the manufacturing, processing,
packaging, and storing of drugs to support drug development and approval). In addition, some of the countries for our multisource
APIs are not the same as our drug manufacturing locations. Thus, any disruption in supply from our preferred vendor could result
in significant delays with our pharmaceutical development, clinical trials, NDA submission, NDA approval or commercial sale of
the finished product due to contract delays, the need to manufacture a new batch of API, out of specification API, the need for
import and export permits, and the failure of the newly sourced API to perform to the standards of the previously sourced API.
Modifications to our products may
require new NDA approvals.
After a product candidate receives FDA
approval, expanded uses or uses in new indications of our products may require additional clinical trials and new regulatory approvals,
including additional IND submissions before we can begin clinical development and supplemental NDA approval prior to marketing
and sales. If we are required to conduct additional clinical studies, it would require additional expenditures and harm our operating
results. Delays in obtaining required future approvals could adversely affect our ability to introduce new or enhanced products
in a timely manner, which in turn would harm our future growth.
Moving from a powder dose formulation
to a tablet formulation for future Phase 3 and Phase 2 REL-1017 trials could result in product development delays.
We are currently collaborating with Patheon/ThermoFisher to
manufacture REL-1017 tablets for the clinical development program. We will propose to the FDA that we include a pharmacokinetic
(PK) analysis of the tablets as part of the anticipated Phase 3 adjunctive therapy in MDD study expected to commence in the second
half of 2020. If, however, the FDA requests that we run a separate PK bridging study prior to the initiation of our Phase 3 adjunctive
therapy in MDD study, the start of the anticipated Phase 3 and Phase 2 MDD studies could be delayed to the first quarter of
2021 or beyond.
Delays in the commencement or completion
of pharmaceutical development, manufacturing or clinical testing could result in increased costs to us and delay our ability to
generate revenues.
We do not know whether our pharmaceutical
development, manufacturing or clinical testing will begin on time or be completed on schedule, if at all. For example, we may encounter
delays during the manufacture of pilot scale batches including delays with our contract development or manufacturing organization,
sourcing satisfactory quantities of APIs, narcotic import and export permits, sourcing of excipients, contract disputes with our
third party vendors and manufacturers, or failure of the product to meet specification. Similar delays may occur a during our cGMP
manufacture of the product.
The commencement and completion of clinical
trials can be disrupted for a variety of reasons, including difficulties in:
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recruiting and enrolling patients to participate in a clinical trial;
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obtaining regulatory approval to commence a clinical trial;
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reaching agreement on acceptable terms with prospective clinical research organizations and trial sites;
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obtaining approval of the institutional review board (IRB) at each site selected for participation in our clinical trials;
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manufacturing sufficient quantities of a product candidate;
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investigator fraud, including data fabrication by clinical trial personnel;
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diversion of controlled substances by clinical trial personnel; and
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A clinical trial may also be suspended
or terminated by us, the FDA or other regulatory authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or in accordance with our clinical protocols;
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inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues; or
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inadequate patient enrollment or lack of adequate funding to continue the clinical trial.
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In addition, changes in regulatory requirements
and guidance may occur and we may need to amend clinical trial protocols to reflect these changes, which could impact the cost,
timing or successful completion of a clinical trial. If we experience delays in the commencement or completion of our clinical
trials, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenues will be
delayed. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also lead
to the denial of regulatory approval of a product candidate.
Conducting successful clinical studies
may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Patient enrollment in clinical trials and
completion of patient participation and follow-up depends on many factors, including the size of the patient population; the nature
of the trial protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled
subjects; the availability of appropriate clinical trial investigators; support staff; the number of ongoing clinical trials in
the same indication that compete for the same patients; and proximity of patients to clinical sites and ability to comply with
the eligibility and exclusion criteria for participation in the clinical trial and patient compliance. For example, patients may
be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures
or follow-up to assess the safety and effectiveness of our products or if they determine that the treatments received under the
trial protocols are not attractive or involve unacceptable risks or discomforts. Patients may also not participate in our clinical
trials if they choose to participate in contemporaneous clinical trials of competitive products.
Adverse safety outcomes could affect
our ability to conduct our clinical trials or obtain approval of our product candidates.
Serious injury or death resulting from
a failure of one of our drug candidates during current or future clinical trials could result in the FDA delaying our clinical
trials or denying or delaying clearance or approval of a product. Even though an adverse event may not be the result of the failure
of our drug candidate, FDA or an IRB could delay or halt a clinical trial for an indefinite period of time while an adverse event
is reviewed, and likely would do so in the event of multiple such events. Any delay or termination of our current or future clinical
trials as a result of the risks summarized above, including delays in obtaining or maintaining required approvals from IRBs, delays
in patient enrollment, the failure of patients to continue to participate in a clinical trial, and delays or termination of clinical
trials as a result of protocol modifications or adverse events during the trials, may cause an increase in costs and delays in
the submission of any NDAs to the FDA, delay the approval and commercialization of our products or result in the failure of the
clinical trial, which could adversely affect our business, operating results and prospects. Lengthy delays in the completion of
clinical trials of our products would adversely affect our business and prospects and could cause us to cease operations.
On November 29, 2006, the FDA required
a boxed warning to be added to the Prescribing Information for racemic methadone, a parent compound to our d-methadone related
to cardiac death. Although the decision was based on case reports and not on a controlled clinical trial, as part of the development
of d-methadone we will likely have to conduct a specific study to evaluate the effects of d-methadone on QTc interval prolongation.
QT interval is a measure of the time between the start of the Q wave and the end of the T wave in the heart’s electrical
cycle. Drugs that prolong the corrected QT interval (QTc) are associated with an increased risk of serious disturbances in heart
rhythm, potentially leading to sudden death. If we do a QT interval prolongation study in accordance with regulatory guidelines,
there is no assurance that the results of the study will demonstrate an absence of QT interval prolongation with d-methadone. An
adverse safety outcome from such study could result in a similar bolded warning on the label of d-methadone or in a decision not
to approve d-methadone, either one of which could have serious consequences for our continued operation.
Our products may never achieve market acceptance.
Products that we may develop, if approved,
may never gain market acceptance among physicians, patients and the medical community. The degree of market acceptance of any of
our products will depend on a number of factors, including the actual and perceived effectiveness and reliability of our products;
the results of any long−term clinical trials relating to use of our products; the availability, relative cost and perceived
advantages and disadvantages of alternative technologies; the degree to which treatments using our products are approved for reimbursement
by public and private insurers; the strength of our marketing and distribution infrastructure; and the level of education and awareness
among physicians and hospitals concerning our products. Failure of any of our products to significantly penetrate current or new
markets would negatively impact our business, financial condition and results of operations.
To be commercially successful, physicians
must determine that using our products for treatment of depression are effective alternatives to existing therapies and treatments.
We believe that doctors and other physicians
will not widely adopt our products, if approved, unless they determine, based on experience, clinical data, and published peer
reviewed journal articles, that the use of our products provides an effective alternative to other means of treating depression.
Patient studies or clinical experience may indicate that treatment with our products does not provide patients with sufficient
benefits in depression relief and/or quality of life. We believe that recommendations and support for the use of our products from
influential physicians will be essential for widespread market acceptance. Our products are still in the development stage and
it is premature to attempt to gain support from physicians at this time. We can provide no assurance that such support will ever
be obtained. If our products do not receive such support from these physicians and from long-term data, physicians may not use
or continue to use, and hospitals may not purchase or continue to purchase, our products.
Some of our product candidates may
require Risk Evaluation and Mitigation Strategies (REMS).
Some of our product candidates, the controlled substance-based
and maybe others, may require REMS. The REMS may include requirements for special labeling or medication guides for patients, special
communication plans to health care professionals and restrictions on distribution and use. We cannot predict the specific REMS
to be required as part of the FDA’s approval of any of our products. Depending on the extent of the REMS requirements, our
costs to commercialize our products may increase significantly. Furthermore, controlled substances risks that are not adequately
addressed through proposed REMS for our product candidates may also prevent or delay their approval for commercialization.
Our revenue stream will depend upon
third party reimbursement.
The commercial success of our products
in both domestic and international markets will be substantially dependent on whether third-party coverage and reimbursement is
available for patients that use our products. However, the availability of insurance coverage and reimbursement for newly approved
drugs to treat depression is uncertain, and therefore, third-party coverage may be particularly difficult to obtain even if our
products are approved by the FDA as safe and efficacious. Many patients using existing approved therapies are generally reimbursed
all or part of the product cost by Medicare or other third-party payors. Medicare, Medicaid, health maintenance organizations and
other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement
of new drugs, and, as a result, they may not cover or provide adequate payment for these products. Submission of applications for
reimbursement approval generally does not occur prior to the filing of an NDA for that product and may not be granted for as long
as many months after NDA approval. In order to obtain reimbursement arrangements for these products, we or our commercialization
partners may have to agree to a net sales price lower than the net sales price we might charge in other sales channels. The continuing
efforts of government and third-party payors to contain or reduce the costs of healthcare may limit our revenue. Initial dependence
on the commercial success of our products may make our revenues particularly susceptible to any cost containment or reduction efforts.
We may have conflicts with our partners
that could delay or prevent the development or commercialization of our product candidates.
We may have conflicts with our partners,
such as conflicts concerning the interpretation of nonclinical or clinical data, the achievement of milestones, the interpretation
of contractual obligations, payments for services, development obligations or the ownership of intellectual property developed
during our collaboration. If any conflicts arise with any of our partners, such partner may act in a manner that is adverse to
our best interests. Any such disagreement could result in one or more of the following, each of which could delay or prevent the
development or commercialization of our product candidates, and in turn prevent us from generating revenues: unwillingness on the
part of a partner to pay us milestone payments or royalties we believe are due to us under a collaboration; uncertainty regarding
ownership of intellectual property rights arising from our collaborative activities, which could prevent us from entering into
additional collaborations; unwillingness by the partner to cooperate in the development or manufacture of the product, including
providing us with product data or materials; unwillingness on the part of a partner to keep us informed regarding the progress
of its development and commercialization activities or to permit public disclosure of the results of those activities; initiating
of litigation or alternative dispute resolution options by either party to resolve the dispute; or attempts by either party to
terminate the agreement.
Our products will face significant
competition in the markets for such products, and if they are unable to compete successfully, our business will suffer.
Our products candidates face, and will
continue to face, intense competition from large pharmaceutical companies, specialty pharmaceutical and biotechnology companies
as well as academic and research institutions. We compete in an industry that is characterized by: (i) rapid technological change,
(ii) evolving industry standards, (iii) emerging competition and (iv) new product introductions. Our competitors have existing
products and technologies that will compete with our products and technologies and may develop and commercialize additional products
and technologies that will compete with our products and technologies. Because several competing companies and institutions have
greater financial resources than us, they may be able to: (i) provide broader services and product lines, (ii) make greater investments
in research and development, (R&D), and (iii) carry on larger R&D initiatives. Our competitors also have greater
development capabilities than we do and have substantially greater experience in undertaking nonclinical and clinical testing
of products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. They also have greater name
recognition and better access to customers than us. Our chief competitors include companies such as Johnson and Johnson, Allergan,
Pfizer, Eli Lilly, Sage Therapeutics, Axsome, Vistagen among others.
We are faced with intense competition
and rapid technological change, which may make it more difficult for us to achieve significant market penetration. If we cannot
compete successfully for market share against other drug companies, we may not achieve sufficient product revenues and our business
will suffer.
The market for our product candidates is
characterized by intense competition and rapid technological advances. If our product candidates receive FDA approval, they will
compete with a number of existing and future drugs and therapies developed, manufactured and marketed by others. If our competitors’
existing products or new products are more effective than or considered superior to our future products, the commercial opportunity
for our product candidates will be reduced or eliminated. Existing or future competing products may provide greater therapeutic
convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a
lower cost. We face competition from fully integrated pharmaceutical companies and smaller companies that are collaborating with
larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations.
If we are successful in penetrating the relevant markets for pain treatment with our product candidates, other companies may be
attracted to the market. Many of our competitors have products already approved or in development. In addition, many of these competitors,
either alone or together with their collaborative partners, are larger than we are and have substantially greater financial, technical,
research, marketing, sales, distribution and other resources than we do. Our competitors may develop or market products that are
more effective or commercially attractive than any that we are developing or marketing. Our competitors may obtain regulatory approvals,
and introduce and commercialize products before we do. These developments could have a significant negative effect on our financial
condition. Even if we are able to compete successfully, we may not be able to do so in a profitable manner.
We may be exposed to liability claims
associated with the use of hazardous materials and chemicals.
Our research and development activities
involve the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing,
handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot completely eliminate
the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable
for any resulting damages and any liability could materially adversely affect our business, financial condition and results of
operations. In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and
disposal of hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could
materially adversely affect our business and financial condition.
We may incur substantial liabilities
and may be required to limit commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products
entail an inherent risk of product liability. We may be held liable if serious adverse reactions from the use of our product candidates
occur. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be
required to limit commercialization of our product candidates. Our inability to obtain sufficient product liability insurance at
an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical
products we develop, alone or with corporate collaborators. We currently do not carry product liability insurance. We, or any corporate
collaborators, may not be able to obtain insurance at a reasonable cost, if at all. Even if our agreements with any future corporate
collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate if any claim
arises.
Risks Related to Our Intellectual Property
Our business depends upon securing
and protecting critical intellectual property.
Our commercial success will depend in part
on our obtaining and maintaining patent, trade secret, copyright and trademark protection of our technologies in the United States
and other jurisdictions as well as successfully enforcing this intellectual property and defending this intellectual property against
third-party challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent that
valid and enforceable intellectual property protection, such as patents or trade secrets, cover them. In particular, we place considerable
emphasis on obtaining patent and trade secret protection for significant new technologies, products and processes. Furthermore,
the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage. Moreover, the degree of future protection
of our proprietary rights is uncertain for products that are currently in the early stages of development because we cannot predict
which of these products will ultimately reach the commercial market or whether the commercial versions of these products will incorporate
proprietary technologies.
Our patent position is highly uncertain
and involves complex legal and factual questions.
Accordingly, we cannot predict the breadth
of claims that may be allowed or enforced in our patents or in third-party patents. For example, we or our licensors might not
have been the first to make the inventions covered by each of our pending patent applications and issued patents; we or our licensors
might not have been the first to file patent applications for these inventions; others may independently develop similar or alternative
technologies or duplicate any of our technologies; it is possible that none of our pending patent applications or the pending patent
applications of our licensors will result in issued patents; our issued patents and issued patents of our licensors may not provide
a basis for commercially viable technologies, or may not provide us with any competitive advantages, or may be challenged and invalidated
by third parties; and, we may not develop additional proprietary technologies that are patentable.
As a result, our owned and licensed patents
may not be valid and we may not be able to obtain and enforce patents and to maintain trade secret protection for the full commercial
extent of our technology. The extent to which we are unable to do so could materially harm our business.
We or our licensors have applied for and
will continue to apply for patents for certain products. Such applications may not result in the issuance of any patents, and any
patents now held or that may be issued may not provide us with adequate protection from competition. Furthermore, it is possible
that patents issued or licensed to us may be challenged successfully. In that event, if we have a preferred competitive position
because of such patents, any preferred position held by us would be lost. If we are unable to secure or to continue to maintain
a preferred position, we could become subject to competition from the sale of generic products. Failure to receive, inability to
protect, or expiration of our patents would adversely affect our business and operations.
Patents issued or licensed to us may be
infringed by the products or processes of others. The cost of enforcing our patent rights against infringers, if such enforcement
is required, could be significant, and the Company does not currently have the financial resources to fund such litigation. Further,
such litigation can go on for years and the time demands could interfere with our normal operations. There has been substantial
litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. We may
become a party to patent litigation and other proceedings. The cost to us of any patent litigation, even if resolved in our favor,
could be substantial. Some of our competitors may be able to sustain the costs of such litigation more effectively than we can
because of their substantially greater financial resources. Litigation may also absorb significant management time.
Unpatented trade secrets, improvements,
confidential know-how and continuing technological innovation are important to our scientific and commercial success. Although
we attempt to and will continue to attempt to protect our proprietary information through reliance on trade secret laws and the
use of confidentiality agreements with our corporate partners, collaborators, employees and consultants and other appropriate means,
these measures may not effectively prevent disclosure of our proprietary information, and, in any event, others may develop independently,
or obtain access to, the same or similar information.
Certain of our patent rights are licensed
to us by third parties. If we fail to comply with the terms of these license agreements, our rights to those patents may be terminated,
and we will be unable to conduct our business.
If we are found to be infringing
on patents or trade secrets owned by others, we may be forced to cease or alter our product development efforts, obtain a license
to continue the development or sale of our products, and/or pay damages.
Our manufacturing processes and potential
products may violate proprietary rights of patents that have been or may be granted to competitors, universities or others, or
the trade secrets of those persons and entities. As the pharmaceutical industry expands and more patents are issued, the risk increases
that our processes and potential products may give rise to claims that they infringe the patents or trade secrets of others. These
other persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing
of the affected product or process. If any of these actions are successful, in addition to any potential liability for damages,
we could be required to obtain a license in order to continue to conduct clinical tests, manufacture or market the affected product
or use the affected process. Required licenses may not be available on acceptable terms, if at all, and the results of litigation
are uncertain. If we become involved in litigation or other proceedings, it could consume a substantial portion of our financial
resources and the efforts of our personnel.
Our ability to protect and enforce
our patents does not guaranty that we will secure the right to commercialize our patents.
A patent is a limited monopoly right conferred
upon an inventor, and his successors in title, in return for the making and disclosing of a new and non-obvious invention. This
monopoly is of limited duration but, while in force, allows the patent holder to prevent others from making and/or using his invention.
While a patent gives the holder this right to exclude others, it is not a license to commercialize the invention, where other permissions
may be required for permissible commercialization to occur. For example, a drug cannot be marketed without the appropriate authorization
from the FDA, regardless of the existence of a patent covering the product. Further, the invention, even if patented itself, cannot
be commercialized if it infringes the valid patent rights of another party.
Changes in U.S. patent law or the
patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing our ability to
protect our products.
The United States has enacted and implemented
wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing
the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.
In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has
created uncertainty with respect to the value of patents, once obtained. Depending on actions by Congress, the federal courts,
and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain
new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law
and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the
relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce
patents that we have licensed or that we may obtain in the future.
We may not be able to protect our
intellectual property rights throughout the world, which could impair our business.
Filing, prosecuting, and defending patents
covering our product candidates and any future product candidate throughout the world would be prohibitively expensive. Competitors
may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further,
may export otherwise infringing products to territories where we may have or obtain patent protection, but where patent enforcement
is not as strong as that in the United States. These unauthorized products may compete with our products in such jurisdictions
and take away our market share where we do not have any issued or licensed patents and any future patent claims or other intellectual
property rights may not be effective or sufficient to prevent them from so competing.
If our future trademarks and trade
names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business
may be adversely affected.
We intend to use registered or unregistered
trademarks or trade names to brand and market ourselves and our products. Our trademarks or trade names may be challenged, infringed,
circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these
trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest.
At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity
and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought
by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names.
Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be
able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third
parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may
be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in
or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights
related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and
could result in substantial costs and diversion of resources and could adversely affect our financial condition or results of operations.
Intellectual property rights do not
necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded
by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately
protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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others may be able to make product that is similar to our current and future product candidates we intend to commercialize that is not covered by the patents that we own or license and have the right to enforce;
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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
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it is possible that our future patent applications will not lead to issued patents;
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issued patents that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
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our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; and we may not develop additional proprietary technologies that are patentable.
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We rely on confidentiality agreements
to protect our trade secrets. If these agreements are breached by our employees or other parties, our trade secrets may become
known to our competitors.
We rely on trade secrets that we seek to
protect through confidentiality agreements with our employees and other parties. If these agreements are breached, our competitors
may obtain and use our trade secrets to gain a competitive advantage over us. We may not have any remedies against our competitors
and any remedies that may be available to us may not be adequate to protect our business or compensate us for the damaging disclosure.
In addition, we may have to expend resources to protect our interests from possible infringement by others.
If we are unable to obtain the statutory
patent extension related to the review time in the United States, we may need to rely on marketing exclusivity under the Hatch-Waxman
Amendments, the six month pediatric exclusivity, any 7- year Orphan Drug exclusivity, potential future formulation patents and
up to ten years of data exclusivity in Europe.
Risks Related to Government Regulation
We may undertake international operations,
which will subject us to risks inherent with operations outside of the United States.
Although we do not have any foreign operations
at this time, we intend to seek to obtain market clearances in foreign markets that we deem to generate significant opportunities.
However, even with the cooperating of a commercialization partner, conducting drug development in foreign countries involves inherent
risks, including, but not limited to: difficulties in staffing, funding and managing foreign operations; unexpected changes in
regulatory requirements; export restrictions; tariffs and other trade barriers; difficulties in protecting, acquiring, enforcing
and litigating intellectual property rights; fluctuations in currency exchange rates; and potentially adverse tax consequences.
If we were to experience any of the difficulties
listed above, or any other difficulties, any international development activities and our overall financial condition may suffer
and cause us to reduce or discontinue our international development and registration efforts.
We depend on our information technology
systems and those of our third-party collaborators, service providers, contractors or consultants. Our internal computer systems,
or those of our third-party collaborators, service providers, contractors or consultants, may fail or suffer security breaches,
disruptions, or incidents, which could result in a material disruption of our development programs or loss of data or compromise
the privacy, security, integrity or confidentiality of sensitive information related to our business and have a material adverse
effect on our reputation, business, financial condition or results of operations.
In the ordinary course of our business,
we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business
information and personal information. Our internal technology systems and infrastructure, and those of our current or future third-party
collaborators, service providers, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access
or use resulting from malware, natural disasters, terrorism, war and telecommunication and electrical failures, denial-of-service
attacks, cyber-attacks or cyber-intrusions over the Internet, hacking, phishing and other social engineering attacks, persons inside
our organizations (including employees or contractors), loss or theft, or persons with access to systems inside our organization.
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 foreign governments, groups and individuals with a wide
range of motives and expertise. In addition to extracting or accessing sensitive information, such 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 security, confidentiality, integrity and availability of information. The prevalent use of mobile devices that access
sensitive information also increases the risk of data security incidents which could lead to the loss of confidential information
or other intellectual property. While to our knowledge we have not experienced any material system failure, accident or security
breach to date, if such an event were to occur and cause interruptions in our operations or the operations of third-party collaborators,
service providers, contractors and consultants, it could result in a material disruption of our development programs and significant
reputational, financial, legal, regulatory, business or operational harm. The costs to us to mitigate, investigate and respond
to potential security incidents, breaches, disruptions, network security problems, bugs, viruses, worms, malicious software programs
and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security
and information technology systems, our efforts to address these problems may not be successful, and these problems could result
in unexpected interruptions, delays, cessation of service and other harm to our business and our competitive position.
For example, the loss of clinical trial
data from completed, ongoing or planned clinical trials for our product candidates could result in delays in our regulatory approval
efforts and significantly increase our costs to recover or reproduce the data. To the extent that any real or perceived security
breach affects our systems (or those of our third-party collaborators, service providers, contractors or consultants), or results
in the loss of or accidental, unlawful or unauthorized access to, use of, release of, or other processing of personally identifiable
information or damage to our data or applications or other data or applications relating to our technology or product candidates,
or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development
of our product candidates could be delayed. Such a breach may require notification to governmental agencies, the media or individuals
pursuant to various foreign, domestic (federal and state) privacy and security laws, if applicable, including the U.S. Health Insurance
Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health
Act of 2009 (HITECH), and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission
and state breach notification laws. In addition, our liability insurance may not be sufficient in type or amount to cover us against
claims related to security breaches, cyberattacks and other related incidents.
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, or any data security incidents or other security breaches that result in the accidental, unlawful
or unauthorized access to, use of, release of, processing of, or transfer of sensitive information, including personally identifiable
information, may result in negative publicity, harm to our reputation, 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, including those that assert 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. To
the extent we maintain individually identifiable health information, we could be subject to fines and penalties (including civil
and criminal) under HIPAA for any failure by us or our business associates to comply with HIPAA’s requirements. 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, data, information technology systems,
applications and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or
data security incidents.
Failure to comply with existing or
future laws and regulations related to privacy or data security could lead to government enforcement actions (which could include
civil or criminal fines or penalties), private litigation, other liabilities, and/or adverse publicity. Compliance or the failure
to comply with such laws could increase the costs of our products and services, could limit their use or adoption, and could otherwise
negatively affect our operating results and business.
Regulation of data processing is evolving,
as federal, state, and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy
and security, and the collection, processing, storage, transfer, and use of data. We and our partners may be subject to current,
new, or modified federal, state, and foreign data privacy and protection laws and regulations (e.g., laws and regulations that
address data privacy and data security including, without limitation, health data). These new or proposed laws and regulations
are subject to differing interpretations and may be inconsistent among jurisdictions, and guidance on implementation and compliance
practices are often updated or otherwise revised, which adds to the complexity of processing personal data. These and other requirements
could require us or our partners to incur additional costs to achieve compliance, limit our competitiveness, necessitate the acceptance
of more onerous obligations in our contracts, restrict our ability to use, store, transfer, and process data, impact our or our
partners’ ability to process or use data in order to support the provision of our products or services, affect our or our
partners’ ability to offer our products and services in certain locations, or cause regulators to reject, limit or disrupt
our clinical trial activities.
In the United States, numerous federal
and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal
and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure,
and protection of health-related and other personal information could apply to our operations or the operations of our partners.
Furthermore, in June 2018, California enacted the California Consumer Privacy Act of 2018, or CCPA, which takes effect on January
1, 2020. The CCPA gives California residents certain rights related to their personal information, including the right to access
and require deletion of their personal information, the right to opt out of certain personal information sharing, and the right
to detailed information about how their personal information is collected, used and shared. The CCPA provides for civil penalties
for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Although
the CCPA includes exemptions for certain clinical trials data, the law may increase our compliance costs and potential liability
with respect to other personal information we collect about California residents. The CCPA has prompted a wave of proposals for
new federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs
and adversely affect our business.
International data protection laws, including,
without limitation, the General Data Protection Regulation ((EU) 2016/679)) (the “GDPR”), that took effect in May 2018,
and member state data protection legislation, may also apply to health-related and other personal information obtained outside
of the United States. These laws impose strict obligations on the ability to process health-related and other personal information
of data subjects in the EU, including in relation to use, collection, analysis, and transfer of such personal information. These
laws include several requirements relating to obtaining the consent of the individuals to whom the personal data relates, limitations
on data processing, establishing a legal basis for processing, notification of data processing obligations or security incidents
to appropriate data protection authorities or data subjects, the security and confidentiality of the personal data and various
rights that data subjects may exercise.
The GDPR prohibits the transfer, without
an appropriate legal basis, of personal data to countries outside of the European Economic Area, or EEA, such as the United States,
which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar
restrictions. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to the
United States, uncertainty about compliance with EU data protection laws remains and such mechanisms may not be available or applicable
with respect to the personal data processing activities necessary to research, develop and market our products and services. For
example, ongoing legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the EEA to the
United States could result in further limitations on the ability to transfer personal data across borders, particularly if governments
are unable or unwilling to reach new or maintain existing agreements that support cross-border data transfers, such as the European
Union-U.S. and Swiss-U.S. Privacy Shield framework. Additionally, other countries have passed or are considering passing laws requiring
local data residency and/or restricting the international transfer of data.
Under the GDPR, regulators may impose substantial
fines and penalties for non-compliance. Companies that violate the GDPR can face fines of up to the greater of 20 million Euros
or 4% of their worldwide annual turnover (revenue). The GDPR has increased our responsibility and liability in relation to personal
data that we process, requiring us to put in place additional mechanisms to ensure compliance with the GDPR and other EU and international
data protection rules.
Failure to comply with U.S. and international
data privacy and protection laws and regulations could result in government enforcement actions (which could include civil or criminal
penalties, fines or sanctions), private litigation, and/or adverse publicity and could negatively affect our operating results
and business. Moreover, patients about whom we or our partners obtain information, as well as the providers who share this information
with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals’
privacy rights, failed to comply with data protection laws, or breached our contractual obligations related to security or privacy,
even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could
harm our business. Compliance with data protection laws may be time-consuming, require additional resources and could result in
increased expenses, reduce overall demand for our products and services and make it more difficult to meet expectations of or commitments
to customers or partners.
Any of these matters could materially adversely
affect our business, financial condition, or operational results.
Our relationships with customers
and payors will be subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations,
which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens, and
diminished profits and future earnings.
Healthcare providers, physicians and payors
play a primary role in the recommendation and prescription of any product candidates for which we may obtain marketing approval.
Our arrangements with healthcare providers, payors, customers and others may expose us to broadly applicable fraud and abuse and
other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which
we research, market, sell and distribute any product candidates for which we may obtain marketing approval. Restrictions under
applicable federal, state and foreign healthcare laws and regulations may affect our ability to operate, including:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;
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the federal False Claims Act, which imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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state and foreign anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental payors, including private insurers;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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State and local laws which require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restricting payments that may be made to healthcare providers and report certain information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and drug pricing; and
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federal laws requiring drug manufacturers to report information related to payments and other transfers of value made to physicians and other healthcare providers, as well as ownership or investment interests held by physicians and their immediate family members, including under the federal Open Payments program, as well as other state and foreign laws regulating marketing activities.
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If our operations are found to be in violation
of any of the federal and state laws described above or any other government laws that apply to us, we may be subject to significant
civil, criminal, and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation
in government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity
agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment of restricting of our
operations, any of which could adversely affect our ability to operate our business and our results of operations.
Healthcare legislative reform measures
may have a negative impact on our business and results of operations.
The U.S. and some foreign jurisdictions
are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could
affect our ability to sell our future products profitably. Among policy makers and payors in the United States and elsewhere, there
is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving
quality and/or expanding access. For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health
Care and Education Reconciliation Act of 2010, or collectively, or collectively the ACA, was passed in March 2010 and substantially
changed the way healthcare is financed and continues to significantly impact the U.S. pharmaceutical industry. Since the ACA’s
enactment, there have been, and continue to be, Congressional, executive branch, judicial, and regulatory challenges to the ACA.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted, and we expect
that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products.
Risks Related to Our Reliance on Third
Parties
We have no manufacturing capabilities
and depend on other parties for our manufacturing operations. If these manufacturers fail to meet our requirements and strict regulatory
requirements, our product development and commercialization efforts may be materially harmed.
We do not own or operate facilities for
drug manufacturing, storage, distribution or quality testing. We currently rely, and may continue to rely, on third-party contract
manufacturers to manufacture APIs, drug products and other components of our product candidates. Reliance on third-party manufacturers
may expose us to different risks than if we were to manufacture product candidates ourselves.
The manufacturing process for a product
candidate is subject to FDA and foreign regulatory authority review. We, and our suppliers and manufacturers, must meet applicable
manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order
to comply with regulatory standards, such as cGMPs. Securing marketing approval also requires the submission of information about
the product manufacturing process to, and inspection of manufacturing facilities by, the FDA and foreign regulatory authorities.
If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory
requirements of the FDA or comparable foreign regulatory authorities, we may not be able to rely on their manufacturing facilities
for the manufacture of our product candidates. Moreover, we do not control the manufacturing process at our contract manufacturers
and are completely dependent on them for compliance with current regulatory requirements. In the event that any of our manufacturers
fails to comply with such requirements or to perform its obligations in relation to quality, timing or otherwise, or if our supply
of components or other materials becomes limited or interrupted for other reasons, we may be forced to enter into an agreement
with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills or
technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may
have difficulty transferring such to another third party. These factors would increase our reliance on such manufacturer or require
us to obtain a license from such manufacturer in order to enable us, or to have another third party, manufacture our product candidates.
If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities
and procedures that comply with quality standards and with all applicable regulations and guidelines; and we may be required to
repeat some of the development program. The delays associated with the verification of a new manufacturer could negatively affect
our ability to develop product candidates in a timely manner or within budget.
We expect to continue to rely on third-party
manufacturers if we receive regulatory approval for any product candidate. To the extent that we have existing, or enter into future,
manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner
consistent with contractual and regulatory requirements, including those related to quality control and assurance. Any manufacturing
facilities used to produce our products will be subject to periodic review and inspection by the FDA and foreign regulatory authorities,
including for continued compliance with cGMP requirements, quality control, quality assurance and corresponding maintenance of
records and documents. If we are unable to obtain or maintain third-party manufacturing for product candidates, or to do so on
commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully. Our or a third
party’s failure to execute on our manufacturing requirements, comply with cGMPs or maintain a compliance status acceptable
to the FDA or foreign regulatory authorities could adversely affect our business in a number of ways, including:
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an inability to initiate or continue clinical trials of product candidates under development;
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delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates;
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loss of the cooperation of existing or future collaborators;
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subjecting third-party manufacturing facilities to additional inspections by regulatory authorities;
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requirements to cease distribution or to recall batches of our product candidates; and
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in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products.
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Additionally, our contract manufacturers
may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments.
If our contract manufacturers were to encounter any of these difficulties, our ability to provide our product candidates to patients
in preclinical and clinical trials, or to provide product for treatment of patients once approved, would be jeopardized.
We intend to rely on third parties
to conduct our preclinical studies and clinical trials. If these third parties do not perform as contractually required or otherwise
expected, we may not be able to obtain regulatory approval for our product candidates.
We do not currently intend to conduct preclinical
studies or clinical trials on our own, and instead will rely on third parties, such as contract research organizations (CROs),
medical institutions, clinical investigators and contract laboratories, to assist us with our preclinical studies and clinical
trials. Accordingly, we will have less control over the timing, quality and other aspects of preclinical studies and clinical trials
than we would have had we conducted them on our own. These investigators, CROs and consultants will not be our employees and we
will have limited control over the amount of time and resources that they dedicate to our programs. These third parties may have
contractual relationships with other entities, some of which may be our competitors, which may draw time and resources from our
programs. The third parties with which we may contract might not be diligent, careful or timely in conducting our preclinical studies
or clinical trials, resulting in the preclinical studies or clinical trials being delayed or unsuccessful.
If we cannot contract with acceptable third
parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy
legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical
development programs could be delayed and otherwise adversely affected. In all events, we will be responsible for ensuring that
each of our preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols
for the trial as well as applicable legal and regulatory requirements. The FDA generally requires preclinical studies to be conducted
in accordance with good laboratory practices and clinical trials to be conducted in accordance with good clinical practices, including
for designing, conducting, recording and reporting the results of preclinical studies and clinical trials to assure that data and
reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are
protected. Our reliance on third parties that we do not control will not relieve us of these responsibilities and requirements.
Any adverse development or delay in our preclinical studies or clinical trials as a result of our reliance on third parties could
have a material and adverse effect on our business, financial condition, results of operations and prospects.
If we are unable to develop our own
sales, marketing and distribution capabilities, or if we are not successful in contracting with third parties for these services
on favorable terms, or at all, our product revenues could be disappointing.
We currently have no sales, marketing or
distribution capabilities. In order to commercialize our products, if any are approved by the FDA, we will either have to develop
such capabilities internally or collaborate with third parties who can perform these services for us. If we decide to commercialize
any of our drugs ourselves, we may not be able to hire the necessary experienced personnel and build sales, marketing and distribution
operations which are capable of successfully launching new drugs and generating sufficient product revenues. In addition, establishing
such operations will take time and involve significant expense.
If we decide to enter into new co-promotion
or other licensing arrangements with third parties, we may be unable to locate acceptable collaborators because the number of potential
collaborators is limited and because of competition from others for similar alliances with potential collaborators. Even if we
are able to identify one or more acceptable new collaborators, we may not be able to enter into any collaborative arrangements
on favorable terms, or at all.
In addition, any revenues we receive would
depend upon our collaborators’ efforts which may not be adequate due to lack of attention or resource commitments, management
turnover, change of strategic focus, business combinations or other factors outside of our control. Depending upon the terms of
our collaboration, the remedies we have against an under-performing collaborator may be limited. If we were to terminate the relationship,
it may be difficult or impossible to find a replacement collaborator on acceptable terms, or at all.
Risks Related to Ownership of Our Common
Stock
There is a limited market for our
common stock that may make it more difficult to dispose of your stock.
Our common stock is currently listed on
the Nasdaq Capital Market under the symbol “RLMD”. There is a limited trading market for our common stock. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our
common stock to sell shares of our common stock, or the prices at which holders may be able to sell their common stock.
A sale of a substantial number of
shares of our common stock may cause the price of the common stock to decline.
If our stockholders sell substantial amounts
of our common stock in the public market, the market price of our common stock could fall. These sales also may make it more difficult
for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. Stockholders
who have held their shares for at least six months are be able to sell their shares pursuant to Rule 144 under the Securities Act
of 1933, as amended (the Securities Act). We have registered under separate registration statements in aggregate up to 10,894,658
shares of our common stock for sale into the public market by certain selling stockholders named therein. These shares represent
a large number of shares of our common stock, and if sold in the market all at once or at about the same time, could depress the
market price of our common stock during the period the registration statement remains effective and could also affect our ability
to raise equity capital.
We are subject to the reporting requirements
of federal securities laws, which can be expensive and may divert resources from other projects, thus impairing our ability grow.
We are a public reporting company and,
accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including
compliance with the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). The costs of preparing and filing annual and quarterly
reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders would cause our expenses
to be higher than they would be if we remained privately held.
It may be time consuming, difficult and
costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may
need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate
internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley
Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from
keeping our filings with the SEC current.
If we fail to establish and maintain
an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any
inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading
price of our common stock.
Effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely
affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine
if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that
need improvement. In addition, as a smaller reporting company, our independent registered public accounting firm is not required
to formally attest to the effectiveness of our internal control over financial reporting so long as we remain a smaller reporting
company, which could increase the likelihood of undiscovered errors in our internal controls or reported financial statements as
compared to issuers whose independent registered public accounting firms have provided such attestations.
Public company compliance may make
it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently
implemented by the SEC have required changes in corporate governance practices of public companies. As a public company these new
rules and regulations to increase our compliance costs and make certain activities more time consuming and costly. As a public
company, these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability
insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to
serve on our board of directors or as executive officers.
Our stock price may be volatile.
The market price of our common stock is
likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control,
including the following:
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changes in our industry;
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competitive pricing pressures;
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our ability to obtain working capital financing;
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additions or departures of key personnel;
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
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sales of our common stock;
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our ability to execute our business plan;
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operating results that fall below expectations;
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loss of any strategic relationship;
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regulatory developments;
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economic and other external factors;
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period-to-period fluctuations in our financial results; and
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inability to develop or acquire new or needed technology or products.
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In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
The Nevada Revised Statutes and our
articles of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our Company,
prevent attempts to replace or remove current management and reduce the market price of our stock.
Provisions in our articles of incorporation
and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable.
For example, our articles of incorporation authorize our board of directors to issue up to 200,000,000 shares of “blank check”
preferred stock. As a result, without further stockholder approval, the board of directors has the authority to attach special
rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it
more difficult for a third party to acquire us.
We are also subject to the anti-takeover
provisions of the Nevada Revised Statutes (NRS). Depending on the number of residents in the state of Nevada who own our shares,
we could be subject to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes, which, unless otherwise provided
in the Company’s articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling
interest of 20% or more of our voting shares. Our articles of incorporation and by-laws do not contain any provision which would
currently keep the change of control restrictions of Section 78.378 from applying to us.
In addition, our articles of incorporation
and amended and restated bylaws provide that our board of directors is classified into three classes of directors with staggered
three-year terms. Only one class of directors will be elected at each annual meeting
of stockholders, with the other classes continuing for the remainder of their respective three-year terms. A
third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult
and time consuming for stockholders to replace a majority of the directors on a classified board of directors.
Our bylaws provides that a Nevada court
and the federal district courts of the United States will be the exclusive forum for substantially all disputes between us and
our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or
our directors, officers or employees.
Pursuant to our bylaws, to the fullest
extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District
Court of Clark County, Nevada, is the sole and exclusive forum for any stockholder (including a beneficial owner of stock) to bring
(a) any derivative action or proceeding brought in the name or right of the Company or on our behalf, (b) any action asserting
a claim of, or a claim based on, breach of any fiduciary duty owed by any current or former director, officer, employee, agent
or stockholder of the Company to the Company or the Company’s stockholders, (c) any action arising or asserting a claim arising
pursuant to any provision of NRS Chapters 78 or 92A or any provision of the articles of incorporation or our bylaws or (d) any
action asserting a claim against us or any current or former director, officer, employee or stockholder (including a beneficial
owner of stock) governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce
or determine the validity of our articles of incorporation or bylaws. By its terms, to the fullest extent permitted by law, our
forum selection provision applies to actions arising under the Securities Act or Exchange Act. (However, Section 27 of the Exchange
Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act
or the rules and regulations thereunder, and the Company does not intend for its exclusive forum jurisdiction provision to apply
to Exchange Act claims.) These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with us or our directors, officers or other employees. If a court were to find the choice
of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated
with resolving such action in other jurisdictions, which could harm our business.
Our common stock was formerly deemed
a “penny stock,” which imposes certain limitations on us.
Prior to our 1-for-4 reverse stock split
on September 30, 2019, and the listing of our common stock on the Nasdaq Capital Market on October 10, 2019, our common stock was
considered a “penny stock” under the Exchange Act. The penny stock rules generally apply to companies whose common
stock is not listed on a national securities exchange and trades at less than $5.00 per share, other than companies that have had
average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000
if the company has been operating for three or more years). These rules imposed certain investor suitability and other requirements
on brokers who traded our stock. Although currently our common stock is not subject to such limitations, because we offered and
sold a “penny stock” in the past, we are considered an “ineligible issuer” under rule 405 of the Securities
Act and remain subject to certain limitations until three years after our last offering of penny stock, including limitations on
our ability to use free writing prospectuses and on the ability of brokers to publish research reports on us.
You may have difficulty trading our
common stock.
There is a limited trading market for
our common stock. As a result, investors may find it difficult to dispose of shares of our common stock. Accordingly, investors
may therefore bear the economic risk of an investment in our common stock, for an indefinite period of time. Even if an active
market develops for the common stock, Rule 144 promulgated under the Securities Act (Rule 144), which provides for an exemption
from the registration requirements under the Securities Act under certain conditions, requires, among other conditions, a one-year
holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy
the registration requirements under the Securities Act. There can be no assurance that we will fulfill any reporting requirements
in the future under the Exchange Act or disseminate to the public any current financial or other information concerning us, as
is required by Rule 144 as part of the conditions of its availability.