Overview
We
are a clinical-stage biopharmaceutical company with a proprietary technology for developing novel biologic medicines we refer
to as FHAB (Fully Human Albumin Binding). FHAB utilizes a fully human single chain antibody fragment (scFv)
linked to either one or two therapeutic molecules capable of affecting single or bispecific mechanisms of action. The FHAB
construct contains a domain that is designed to bind to and “hitch hike” on human serum albumin (HSA) for transport
to targets such as solid tumors or to the lymphatic system. We designed the construct to improve drug accumulation in specific
tissues, as well as to extend the duration of activity in the body. FHAB development candidates are produced in a mammalian
cell culture, which enables glycosylation, thereby reducing the risk of immunogenicity. We believe our FHAB technology
is well suited for future drug development across a range of human disease areas, including in oncology, autoimmune, pathogenic,
inflammatory, and hematological conditions.
Our
current internal pipeline development activities are focused on cytokines, a class of cell signaling peptides that, among other
important functions, serve as potent immunomodulatory agents. Working both independently and synergistically, specific cytokines
have shown the ability to modulate the activation and maturation of immune cells that fight cancer and pathogens. However, because
they do not preferentially accumulate in specific tissues and are quickly eliminated from the body, the conventional approach
to achieving a treatment effect with cytokine therapy typically requires the administration of high and frequent doses. This can
result in a reduced treatment effect accompanied by the potential for systemic toxicity, which poses challenges to the therapeutic
application of this class of drugs.
Merger
with Chanticleer and Acquisition of Relief
This
Annual Report on Form 10-K is filed by Sonnet BioTherapeutics Holdings, Inc. (“Sonnet Holdings,” “we,”
“us,” “our,” or the “Company”), formerly known as Chanticleer Holdings, Inc. Until March 31,
2020, the Company was in the business of owning, operating and franchising fast casual dining concepts domestically and internationally.
As previously disclosed, on April 1, 2020, the Company completed its merger transaction with Sonnet BioTherapeutics, Inc. (“Sonnet”),
pursuant to which Sonnet became a wholly-owned subsidiary of the Company (the “Merger”). On April 1, 2020, in connection
with the Merger, the Company changed its name to “Sonnet BioTherapeutics Holdings, Inc.” Sonnet was incorporated as
a New Jersey corporation on April 6, 2015.
The
Merger was treated by the Company as a reverse merger and accounted for as a reverse recapitalization in accordance with U.S.
generally accepted accounting principles (“U.S. GAAP”). For accounting purposes, Sonnet is considered to have acquired
the Company.
In
connection with and prior to the Merger, the Company contributed and transferred to Amergent Hospitality Group, Inc. (“Amergent”),
a newly formed, wholly owned subsidiary of the Company, all of the assets and liabilities relating to the Company’s restaurant
business. The dividend, which together with the contribution and transfer of the Company’s
restaurant business described above, is referred to as the “Spin-Off.” Prior to the Spin-Off, Amergent engaged in
no business or operations.
As
a result of the Spin-Off and the Merger, since April 1, 2020, the Company has operated through Sonnet and its direct and
indirect subsidiaries and the ongoing business of the Company is the Sonnet business.
In
addition, in connection with and prior to the Merger, on April 1, 2020, Sonnet completed its acquisition of the global development
rights for Atexakin Alfa (low dose formulation of Interleukin-6, IL-6, now “SON-080”) from Relief Therapeutics Holding
SA (“Relief Holding”) through its acquisition of Relief Holding’s wholly-owned subsidiary, Relief Therapeutics
SA (“Relief”), in exchange for the issuance to Relief Holding of shares of Sonnet common stock that converted into
an aggregate of 757,933 shares of Company common stock in the Merger.
Pipeline
We
have a pipeline of therapeutic compounds focused primarily on oncology indications of high unmet medical need.
|
●
|
SON-080,
our most advanced candidate, is a low-dose formulation of Interleukin 6 (IL-6), in development for Chemotherapy Induced Peripheral
Neuropathy (CIPN), an indication of high unmet medical need. Through Serono SA’s original exploration of the cytokine
as a potential treatment for thrombocytopenia in cancer, Phase I and Phase I/II clinical data from over 200 patients were
generated. After observing transient therapeutic activity at doses approaching the estimated maximum tolerated dose (MTD)
for thrombocytopenia, Serono elected to pursue CIPN development using lower doses, but the program was de-prioritized by Merck
KGaA after it acquired the company in 2006. We agreed to purchase the global development rights to SON-080 in August 2019
and will be applying the Merck-Serono preclinical and clinical data package to our ongoing work in CIPN.
|
|
|
|
|
|
We
are currently requalifying the legacy clinical batch product and updating the safety
package to comply with current regulatory requirements. We are undertaking the qualification
and validation of the product prior to entering a non-human primate (NHP) preclinical
toxicology study for further refining the dosing parameters in advance of a Phase Ib/IIa
trial in CIPN patients. We are designing this trial to leverage data from previous studies.
To prepare for the production of additional preclinical material, we have begun developing
a new cell line that will comply with modern regulatory standards. Although the CIPN
program continues to progress forward, the COVID-19 pandemic has impacted workflow at
our contract research partners such that we now estimate delays pushing a trial initiation
into the first half of 2021 from late 2020.
We
are planning to advance SON-081 in Diabetic Peripheral Neuropathy (DPN) through our partnership efforts and have entered
into the negotiation of a definitive agreement with New Life Therapeutics. With a partnership in place, we believe we
can potentially initiate Phase Ib/IIa studies in 2021 in South East Asia.
|
|
|
|
|
●
|
SON-1010
(IL12- FHAB), our most advanced FHAB-derived compound, utilizes
a fully human version of Interleukin 12 (IL-12) linked to FHAB. This compound
is being developed for solid tumor indications, including non-small cell lung cancer
(NSCLC) and head and neck cancer, as well as for antiviral applications. We are targeting
an IND submission for SON-1010 for cancer in the second half of 2021.
In
virology, we are continuing work on viral challenge studies in mice using an influenza model to study SON-1010
as a potential adjuvant paired with a vaccine. We have determined from our initial review of the mouse data that further
study of the compound’s activity is warranted in enhancing immune response. If these studies are successful,
we will look to collaborate with an influenza vaccine manufacturer in 2021 to further the development of a potentially
more robust vaccine candidate.
|
|
|
|
|
●
|
SON-1210
(IL15- FHAB-IL12), our lead bispecific construct, combines FHAB with fully human IL-12 and fully human
Interleukin 15 (IL-15). This compound is being developed for solid tumor indications, including colorectal cancer, and we
expect to file an IND in the second half of 2021.
|
In
our discovery pipeline, we are investigating:
|
●
|
SON-2014
(GMcSF- FHAB-IL18), a bispecific combination of Granulocyte-macrophage Colony Stimulating Factor (GM-CSF) and Interleukin-18
(IL-18) for melanoma, lung and renal cancers; and
|
|
●
|
SON-3015
(anti-IL6- FHAB-anti-TGFβ), a bispecific combination of anti-IL6 and anti-Tumor Growth Factor Beta for tumor
and bone metastases.
|
We
face numerous challenges and uncertainties with respect to the development and commercialization of our therapeutic compounds,
including our FHAB technology. Please see “Risk Factors” contained elsewhere in this prospectus, and the
sections entitled “Risk Factors” in the documents incorporated by reference into this prospectus.
Strategy
Our
goal is to rapidly advance our pipeline and leverage our therapeutic FHAB platform to become a leader in the discovery,
development, and commercialization of biologic drugs.
Advance
our lead product candidate, SON-080, through clinical development: SON-080 is a fully human version of low dose Interleukin
6 (IL-6) being studied for chemotherapy-induced peripheral neuropathy (CIPN). SON-080 has successfully completed Phase I/II clinical
trials in cancer patients and we expect to initiate a pilot efficacy Phase Ib/IIa study in CIPN patients during 2021.
FHAB
program advancement: Preparation is underway to submit an IND for SON-1010 during the second half of 2021, followed by SON-1210.
Our goal is to advance two discovery assets per year into preclinical development, including SON-2014 in 2020. We also plan to disclose two additional discovery assets annually.
Manufacturing
platform: Sonnet compounds are produced using an industry standard mammalian cell (Chinese Hamster Ovary/CHO) host cell line
that allows for rapid scale-up and commercial manufacturing using state-of-the-art, manufacturing processes and technologies.
The mammalian cell culture system enables glycosylation, thereby reducing the risk of immunogenicity for our products.
Regulatory
strategy: We believe that Sonnet’s assets are differentiated and represent potential breakthroughs in biopharmaceutical
drug development. We will endeavor to seek breakthrough therapy designation with regulatory agencies, which could potentially
lead to accelerated clinical development timelines.
Pipeline
licensing opportunities: We are pursuing partnering opportunities with leading biopharmaceutical companies for the development
and commercialization of our pipeline assets.
FHAB
technology expansion: Sonnet is exploring FHAB technology licenses with external partners interested in expanding
its therapeutic deployment, which we believe could lead to the platform’s application to modalities such as in other immunological
areas, vaccines, antibody drug conjugates and as a supplement to chimeric antigen receptor (CAR) T-cell technology. Provisional
patents have been filed to secure exclusivity with FHAB in these fields.
The
FHAB Technology
Our
proprietary FHAB technology was engineered to address several important shortcomings of existing approaches to biopharmaceutical
drug development. We designed FHAB as a plug-and-play, modular construct for innovating new chemical entities that
does not need to be reconfigured for different therapeutic payloads. As is the case with all biologic drugs, dose level and frequency
of administration are critical variables that oftentimes present as barriers to the development process. After injection, large
molecule therapeutics, including peptides, proteins, fusion proteins, antibodies and the like, must remain intact and be capable
of reaching their designated targets inside the body, without exceeding specific toxicity thresholds. Finally, they must also
be produced using commercially attractive means.
Sonnet’s
platform technology was designed to harness human serum albumin (HSA) as a therapeutic shuttling molecule. HSA is naturally present
in the bloodstream and the predominant protein in blood plasma. Albumin is a major source of energy for inflamed, hypermetabolic
tissues, including tumors. Due to the active need for nutrients, cancer cells overexpress albumin-binding proteins such as SPARC
(Secreted Protein Acidic and Rich in Cysteine) and gp60 (Albondin glycoprotein).
Pursuant
to a Discovery Collaboration Agreement, dated July 23, 2012 and to an Amendment of Discovery Collaboration Agreement, dated May
7, 2019 (together, the “Collaboration Agreement”), XOMA (US) LLC (“XOMA”) granted to Sonnet a non-exclusive,
non-transferrable license and/or right to use certain materials, technologies and information related to the discovery, optimization
and development of antibodies and related proteins and to develop and commercialize products thereunder (each, a “Product”).
The Collaboration Agreement included a license to use a fully human bacteriophage library that was designed to generate fully
human single-chain antibody fragments (‘scFv’) comprising a full repertoire of human heavy and light chains for use
in panning biological sequences for specific functions. Applying stringent criteria, Sonnet panned millions of scFv binders to
HSA to generate Sonnet’s FHAB, which binds to HSA, a globular protein having three major domains. It is known
that albumin domains 1 and 3 are involved in the binding to FcRn. This allowed Sonnet to select and characterize scFv binders
specific to domain 2, a foundation of Sonnet’s FHAB platform.
Sonnet
is obligated to make contingent milestone payments to XOMA totaling $3.75 million on a Product-by-Product basis upon the achievement
of certain development and approval milestones related to a Product. Sonnet has also agreed to pay XOMA low single-digit royalties
on net sales of Products sold by Sonnet. Royalties on each Product are payable on a country-by-country basis until the later of
(i) twelve (12) years after the First Commercial Sale (as defined in the Collaboration Agreement), and (ii) the date of expiration
of the last valid claim in the last-to-expire of the issued patents covered by the Collaboration Agreement. In addition, Sonnet
has the right to reduce the rate of the royalty on a Product-by-Product basis by paying XOMA a specified amount. The Collaboration
Agreement may be terminated by either party for cause and contains customary indemnification provisions.
Sonnet’s
FHAB has demonstrated a high binding affinity to serum albumin across species (human, mouse and cynomolgus monkey),
with little-to-no immunogenicity, and retains the benefits of neonatal FcRn-mediated recycling of albumin for extending serum
half-life by up to four weeks. Unlike monoclonal antibodies (mAbs), this binding occurs without invoking ADCC (antibody-dependent
cellular cytotoxicity) and CDC (complement-dependent cytotoxicity). The FHAB construct physically binds serum albumin
through an ionic, hydrophobic mechanism, which we believe offers a distinct advantage over technologies that rely on chemical,
covalent binding. Once broken, a covalent bond cannot reform, whereas Sonnet’s FHAB is designed with the ability
to bind, unbind and rebind to albumin. As albumin seeks albumin receptor gp60 and SPARC, FHAB leverages innate biological
mechanisms for targeted delivery of the therapeutic payload to the tumor microenvironment.
Another
unique advantage of Sonnet’s FHAB is its linker design. Used for attaching one or two large molecule therapeutic
payloads, for single or bispecific activity, our G4S (glycine, serine) peptide linkers are flexible, while being long enough to
prevent steric hindrance, and can assume a rod-like configuration for enhanced penetration of tight tissue matrixes. In addition
to maintaining distance between the therapeutic functional domains, Sonnet linkers are fully human and non-immunogenic across
the linker structure, including at the payload binding region. In bispecific constructs, the orientation of the therapeutic payloads
can be manipulated to improve potential treatment effects.
As
a final key design component, FHAB is produced in mammalian cell culture, specifically Chinese Hamster Ovary (CHO)
cells, which enables glycosylation for reducing or potentially eliminating immunogenicity. Using CHO, we have created several
different genetic fusion constructs with various low molecular weight therapeutic proteins (e.g., recombinant cytokines such as
IL-12, IL-15, IL-18, anti-IL-6 and anti-TGFβ). Recombinant therapeutic proteins, including cytokines, have shown great therapeutic
potential, but can lack tissue specificity, which can lead to toxicity. Due to their small (<50kDa) size, cytokines also suffer
from a shorter circulation half-life (minutes-to-hours versus 21 days) versus monoclonal antibodies. In mouse and non-human primate
models, FHAB-derived compounds have demonstrated substantially greater serum half-lives, improved tissue accumulation
and marked tumor reduction activity when compared to their respective naked recombinant cytokines.
In
summary, our FHAB technology underpins a modular, versatile scaffold that can be customized to yield a broad array
of multi-targeted therapeutic candidates. Relative to existing albumin binding technologies, FHAB is differentiated
by possessing a linear, rod-like shape designed for better target tissue penetration, a fully human design to reduce immunogenicity,
mammalian glycosylation for reduced toxicity and FcRn binding for longer serum half-life. Importantly, FHAB-derived
therapeutics have the potential for targeted delivery, reduced toxicity and wider therapeutic windows, with the added benefit
of utilizing a tailored single or bispecific mechanism of action.
Applicability
of FHAB Technology beyond Oncology:
Immunotherapy:
We believe that our FHAB platform can innovate biologic drugs that target specific tissues while also increasing
therapeutic half-life. As the FHAB construct is designed to enable the simultaneous deployment of two synergistic immunotherapy
compounds, we envision a path to previously untapped immunotherapeutic advancements.
Drug
Conjugation: With the FHAB technology, various drug compounds can be linked to the FHAB scaffold in
combinations that extend beyond our first-wave pipeline of cytokines, which presents opportunities for development across myriad
disease areas.
Vaccines:
Vaccine developers are seeking to improve vaccine efficiency by conjugating vaccines to natural carriers, such as albumin.
We believe the FHAB platform, with its modular scaffold structure, could be an efficient vehicle for delivering vaccines
to lymph nodes, improving penetration and presentation, and extending half-life.
CAR
T-cell Therapy: CAR T-cell therapy involves genetically modifying a patient’s own T cells to recognize cancer cells
for more effectively targeting and killing tumors. We believe targeted Sonnet constructs utilizing interleukins could be systemically
co-administered to enhance CAR T-cell efficacy.
Pipeline
Overview
The
following table summarizes information about pipeline programs where we have disclosed specific target indications:
SON-080
Through
our pipeline discovery efforts, we have identified Interleukin 6 (IL-6) as a cytokine with important biological properties when
delivered both as a standalone molecule, as well as when jointly inhibited in a bispecific combination with anti-TGFβ, using
our FHAB technology. Our lead clinical stage asset, SON-080, is a fully human version of IL-6 manufactured in Chinese
Hamster Ovary (CHO) cells. SON-080 has completed Phase I/II clinical trials in cancer patients with thrombocytopenia and will
advance to the next stage of development in chemotherapy-induced peripheral neuropathy (CIPN), a common side effect of treatment
with antineoplastic agents in cancer. CIPN is a debilitating condition that manifests itself as pain, numbness and tingling in
the extremities. It has been reported in as many as 70% of patients undergoing specific cancer regimens and is a leading cause
of patients prematurely aborting chemotherapy. In animal experiments designed to replicate clinical symptoms of CIPN, SON-080
has presented disease-modifying characteristics, including the potential to repair damaged nerves. We are planning discussion
with regulatory authorities to finalize the design of a pilot efficacy study in patients with CIPN.
Based
on our preclinical work, we believe that SON-080 can potentially regenerate damaged nerves, thereby addressing not only the pain-related
symptoms, but also the profound discomfort and motor disability CIPN patients often experience. In the nervous system, IL-6 has
exhibited potential neurotrophic-like properties, inducing anti-apoptotic gene expression, protecting neurons from toxic injuries,
and promoting nerve regeneration and remyelination. SON-080 has demonstrated the potential to elicit nerve regrowth and to re-establish
both normal nerve function (Figure 2) and sensations (Figure 3) in various preclinical models of CIPN induced by cisplatin, taxol
or vincristine. Activity from treatment with SON-080 was also observed in preclinical models of type 2 diabetic neuropathy and
other diseases affecting the nervous system or other organs. This broad activity suggests that the SON-080 mechanism of action
might not be restricted to a given class of chemotherapeutic drugs and could elicit a universal neuroprotective-neurorestorative
response. Additionally, preclinical data point to the potential of SON-080 to elicit both preventive and curative activity in
neuropathies (Figure 3). This introduces the possibility of treating cancer survivors who still suffer from neuropathies, a population
representing between 10% and 60% of the 14 million cancer survivors in the US.
Figure
2: Activity of SON-080 (IL-6) on neuropathy induced by taxol or cisplatin in rats measured at the histological (IENFD) or physiological
(SNCV) levels
Figure
3: Data show preventive and curative activity potentiating restoration of normal sensitivity (here, using a behavioral response
to hot stimulus in cisplatin-induced peripheral neuropathy).
SON-080
has completed Phase I/II studies in 214 cancer patients with chemotherapy-induced thrombocytopenia. Trial enrollees received subcutaneous
doses ranging from 0.25 to 32 µg/kg daily, or thrice weekly. In these trials, where solid tumor cancers presented in more
than 75% of the patients treated, the cumulative doses of IL-6 averaged in the 8000 μg range (122 – 54880 μg), and
the mean duration of treatment equaled 28 days. One of the trials covered six chemotherapy cycles, with an IL-6 treatment period
extending up to 203 days. In none of these trials was an exacerbation of either cancer or neuropathy observed.
The
maximum tolerated dose (MTD) of SON-080 was determined in four studies by means of cohort dose escalations of sequential SON-080
dose groups utilizing established common toxicity criteria. When administered daily, the MTD following subcutaneous injection
was determined to be between 3 and 8 μg/kg. When given thrice weekly, the MTD was estimated to be > 10 μg/kg. The most
clinically relevant apparent toxicities that defined the treatment-limiting dose in these studies were flu-like symptoms and neurocortical
toxicity manifested by somnolence, restlessness, confusion, hallucination, and disorientation. Figure 4 below summarizes the adverse
events (AEs) and serious adverse events (SAEs) reported from the Phase I/II clinical studies that are believed to have resulted
from treatment with IL-6.
Total patients (n=214)
|
|
|
No. of AEs in at least
10% of patients treated
with IL-6
|
|
|
|
No. of SAEs in at least
2% of patients treated
with IL-6
|
|
Pyrexia
|
|
|
151 (70.6%)
|
|
|
|
19 (8.9%)
|
|
Rigors
|
|
|
120 (56.1%)
|
|
|
|
-
|
|
Neutropenia
|
|
|
31 (14.5%)
|
|
|
|
15 (7.0%)
|
|
Thrombocytopenia
|
|
|
48 (22.4%)
|
|
|
|
15 (7.0%)
|
|
Anemia
|
|
|
64 (29.9%)
|
|
|
|
13 (6.1%)
|
|
Vomiting
|
|
|
88 (41.1%)
|
|
|
|
10 (4.7%)
|
|
Nausea
|
|
|
106 (49.5%)
|
|
|
|
8 (3.7%)
|
|
Fatigue
|
|
|
82 (38.3%)
|
|
|
|
-
|
|
Dehydration
|
|
|
|
|
|
|
7 (3.3%)
|
|
Dyspnoea
|
|
|
37 (17.3%)
|
|
|
|
7 (3.3%)
|
|
Abdominal pain
|
|
|
27 (12.6%)
|
|
|
|
6 (2.8%)
|
|
Dizziness
|
|
|
41 (19.2%)
|
|
|
|
5 (2.3%)
|
|
Headache
|
|
|
68 (31.8%)
|
|
|
|
5 (2.3%)
|
|
Constipation
|
|
|
51 (23.8%)
|
|
|
|
-
|
|
Diarrhea
|
|
|
50 (23.4%)
|
|
|
|
-
|
|
Injection site erythema
|
|
|
46 (21.5%)
|
|
|
|
-
|
|
Fibrinogen increase
|
|
|
45 (21.0%)
|
|
|
|
-
|
|
Anorexia
|
|
|
45 (21.0%)
|
|
|
|
-
|
|
Hyperhidrosis
|
|
|
41 (19.2%)
|
|
|
|
-
|
|
Malaise
|
|
|
40 (18.7%)
|
|
|
|
-
|
|
Cough
|
|
|
39 (18.2%)
|
|
|
|
-
|
|
Insomnia
|
|
|
35 (16.4%)
|
|
|
|
-
|
|
Asthenia
|
|
|
34 (15.9%)
|
|
|
|
-
|
|
Blood alkaline phosphatase increase
|
|
|
33 (15.4%)
|
|
|
|
-
|
|
Flu-like symptoms
|
|
|
28 (13.1%)
|
|
|
|
-
|
|
Alopecia
|
|
|
28 (13.1%)
|
|
|
|
-
|
|
Mucosal inflammation
|
|
|
27 (12.6%)
|
|
|
|
-
|
|
Back pain
|
|
|
26 (12.1%)
|
|
|
|
-
|
|
Lethargy
|
|
|
26 (12.1%)
|
|
|
|
-
|
|
Pain
|
|
|
24 (11.2%)
|
|
|
|
-
|
|
Appetite decrease
|
|
|
24 (11.2%)
|
|
|
|
-
|
|
Bilirubin increase
|
|
|
23 (10.7%)
|
|
|
|
-
|
|
Arthralgia
|
|
|
23 (10.7%)
|
|
|
|
-
|
|
Peripheral edema
|
|
|
22 (10.3%)
|
|
|
|
-
|
|
Platelet count decrease
|
|
|
22 (10.3%)
|
|
|
|
-
|
|
Hematuria
|
|
|
22 (10.3%)
|
|
|
|
-
|
|
Veno-occlusive liver disease
|
|
|
-
|
|
|
|
5 (2.3%)
|
|
Figure
4: Summary of AEs and SAEs in cancer patients who received IL-6 either concomitantly or following chemotherapy. Doses tested included
a range from 0.25 to 26 µg/kg, for a total drug exposure that ranged from 1 to 54,880 mg.
These
data form the basis of our forthcoming clinical trials in CIPN, where dosing is expected to be significantly below MTD, as supported
by our preclinical studies. For comparison, our target dose will provide a cumulative dose that is 25 times below the mean cumulative
dose reached for similar period dosing. We also believe SON-080 has significant potential for treating other neuropathies including
diabetic peripheral neuropathy (DPN), as well as potentially other diseases of the nervous system, and we are currently evaluating
forward development paths for these opportunities.
SON-081
In
addition to our CIPN program with SON-080, our SON-081 program may, subject to data collected from our planned CIPN studies with
SON-080, explore the clinical utility of an identical formulation of IL-6 in diabetic peripheral neuropathy (DPN). DPN is currently
diagnosed in 50%-80% of the diabetic patient population. According to World Health Organization (WHO) projections, the prevalence
of diabetes is estimated to exceed 350 million people in 2030. Neuropathy is progressive and develops over the continuum of diabetes.
The condition involves intractable pain with no obvious origin, as well as non-pain-related symptoms such as loss of balance,
lack of sensation and autonomic dysfunctions, among others. These deficits impair quality of life and lead to a reduction of life
expectancy. Diabetic foot ulcers are a major cost associated with diabetic medical care and are also directly linked to the development
of DPN.
Notwithstanding
the seriousness of the condition, current treatments only address the pain component of DPN, leaving disease progression and non-pain-related
symptoms unaddressed. Furthermore, the few drugs currently used to reduce pain (i.e. Cymbalta, Lyrica, cannabinoids, opioids)
are only partially efficacious and are associated with major side effects, which typically delays their introduction into a patient’s
care. For these reasons, DPN remains a substantial unmet medical need with high commercial market potential.
Exercise
has long been recognized by WHO and caregivers as an effective means of treating and potentially preventing diabetes and several
pilot studies have provided evidence to support its role in improving DPN. However, a majority of diabetic patients are physically
unable to perform exercise. Regular exercise is known to improve diabetes-associated markers (HbA1c, glucose homeostasis), to
ameliorate heart rate variability and to stimulate recovery of both nerve function and blood flow. Recent evidence demonstrates
that IL-6 is released during exercise and mediates some of the beneficial effects of physical activity. Sonnet has completed preclinical
work in animal models of DPN in which exogenous administration of IL-6 exhibited restorative activity in epidermal nerve density,
nerve function, blood flow and reactions to painful or disturbing stimuli. In this context, IL-6 may become a future pivotal disease-modifying
therapy for the treatment of DPN.
In
vitro data on oligodendrocytes or organotypic cultures have shown that IL-6 potentially induces myelin gene expression by
Schwann cells or oligodendrocytes (Figure 5).
Figure
5: Illustration of survival (A) and differentiation of oligodendrocytes as assessed by myelin basic protein (MBP), proteolipid
protein (PLP) and its spliced variant expression (B).
Valerio
et al, Mol Cell Neurosci 21 (2002) 602-615.
Pizzi
et al, Mol Cell Neurosci 25 (2004) 301-311.
The
neuroprotective activity of IL-6 has been evaluated in various paradigms, including excitotoxicity. As well as protecting neurons,
IL-6 potentially promotes axonal regeneration and restoration of functional synapses (Figure 6).
Figure
6: Axonal regeneration activity in hemi-sectioned slices of the hippocampus (A), with increased expression of growth-associated
protein 43 (GAP43) in injured slices but not in normal slices (NL) (B). Axonal regeneration activity across the lesion (C) and
functional recovery (D) of suppressed (A) excitatory postsynaptic potential (EPSP).
Hakkoum
et al, J Neurochem 100 (2007) 747-757.
The
activity of IL-6 in preclinical models of DPN has been evaluated by three independent laboratories. This work has shown that IL-6
exhibits positive activity in neuropathy in a dose-dependent manner and may also help restore normal physiological parameters
after neuropathy is well established (i.e. four weeks after the induction of diabetes and consequential neuropathy). The beneficial
activity is observed on motor (Figure 7-A) and sensory (Figure 7-B) nerve function (conduction velocity), and behaviorally by
measuring thermal (Figure 7-C) and tactile (Figure 7-D) perceptions. In addition to the direct effects on myelin and axons previously
observed in vitro, IL-6 has also been observed to have activity in restoring microvascular blood flow in the nerve (Figure 7-E),
which is a major driver of diabetic neuropathies. Histological analyses of nerves in animals receiving preventive treatment with
IL-6 during the development of neuropathy suggest that IL-6 exhibits protective activity on myelin, and may play a role in preserving
nerve fiber integrity, as well as nerve conduction velocity and the perception of sensations.
Figure
7: Curative treatment with IL-6 in rats with established diabetic neuropathy induced by streptozotocin.
Cameron
et al, Exp Neurol 207 (2007) 23-29.
Beyond
its study in oncology, 15 pilot studies totaling 167 subjects, including 27 patients with type 2 diabetes, were conducted by independent
academic groups not affiliated with Sonnet to evaluate the role of IL-6 in exercise and metabolism. The peer-reviewed results
suggest that low dose IL-6 mimics several beneficial aspects of exercise, including expression of anti-inflammatory molecules,
increased lipid metabolism, decreased insulin secretion and activation of the STAT3 signaling pathway in muscle.
We
believe these data provide strong support for the clinical development of IL-6 in DPN. Through its mechanism of action and potential
disease modifying activity, low dose IL-6 may offer a therapeutic solution for neuropathic symptoms, as well as for cardiac autonomic
neuropathies (CAN), in diabetic patients. We intend to use data collected from our CIPN studies with SON-080 to inform our decision
about potential next development steps for SON-081 in DPN.
In
August 2020, we announced executing a letter of intent (LOI) to negotiate an agreement to license our SON-081 and SON-080 assets
for diabetic peripheral neuropathy (DPN) and chemotherapy-induced peripheral neuropathy (CIPN) to New Life Therapeutics Pte. Ltd.
(“New Life”) of Singapore. The licensed territory would include the ASEAN countries of Singapore, Malaysia, Indonesia,
Thailand, The Philippines, Cambodia, Brunei, Vietnam, Myanmar and Lao PDR. The transaction is subject to execution of a definitive
agreement to be negotiated between Sonnet and New Life. Sonnet received a $500,000 non-refundable payment from New Life upon execution
of the LOI, which outlines an agreement that could total up to $40 million in milestone payments and a royalty of 30% on commercial
sales, payable to Sonnet.
SON-1010
Interleukin
12 (IL-12) is a circulating cytokine that has been shown to exert multiple effects on innate and adaptive immunity. These immune
functions are critical in attacking cancer cells and pathogens. IL-12 is a heterodimeric cytokine produced by dendritic cells,
monocytes and macrophages, also known as antigen presenting cells (APC’s). IL-12 has been shown to induce interferon gamma
(IFN-ɣ) secretion by T cells and natural killer (NK) cells, promote the expansion and survival of activated T-cells and NK
cells, supplement the cytolytic activity of cytotoxic T cells, support the differentiation of Th1 helper effector cells and enhance
antibody dependent cellular cytotoxicity (ADCC). IL-12 has also been shown to stimulate in vitro antitumor activity of
lymphocytes from patients with cancer and in vivo anti-tumor activity in murine tumor models of melanoma, colon carcinoma,
mammary carcinoma and sarcoma.
SON-1010
has demonstrated, preclinically, a larger reduction of tumor growth compared to IL-12 without FHAB (naked/standalone
IL-12) in a mouse model of melanoma. Figure 8 below, from the mouse melanoma study, illustrates SON-1010’s 30-to-50-fold
increase in tumor reduction compared to standalone IL-12 WT (wild type).
Furthermore,
in the same model, SON-1010 accumulated in tumors in higher concentrations and remained in the serum, spleen, and tumor significantly
longer than IL-12 WT without FHAB, potentially enabling less frequent administration and at lower doses.
Figure
8: IL-12 (1µg) and IL12- FHAB (1.3µg) are molar equivalent and have similar bioactivity, in vitro; however,
in vivo, IL12- FHAB is approximately 30-fold more potent than IL-12 (at day 10, 1.3µg IL12- FHAB >
IL-12 30µg).
In
another preclinical study using a B16G tumor model, SON-1010 demonstrated an improved dose response versus standalone IL-12 WT,
along with increased survival duration (Figures 9 and 10).
Results
from this study suggest that SON-1010 may have a greater effect on reducing tumor volume and extending survival versus standalone
IL-12 WT.
Figure
9: Analysis of tumor volumes shows dose-dependent decreases in tumors in both IL-12 WT and IL12- FHAB-treated mice,
as compared to vehicle control. IL12- FHAB-treated mice showed large, statistically significant decreases in tumor
volumes when analyzed against equimolar-dosed, IL-12 WT-treated mice. Results suggest IL-12 anti-tumor activity is potentially
enhanced with the extension of serum half-life by FHAB linkage.
In
Figure 10, below, a Kaplan-Meier analysis was performed to compare survival between animals treated with either SON-1010 or IL-12
WT. These data illustrate a correlation between the percent rate decrease in tumor growth (Figure 9) and an increase in survival
duration (Figure 10). In this study, the slower growth of tumors in animals treated with SON-1010 correlates with a longer survival
time, as compared to more rapid tumor growth observed with naked IL-12 WT treatment.
Survivability
at the lowest doses of SON-1010 (3µg) was equivalent to the highest dose of IL-12 WT (30µg). All doses of SON-1010
showed a 50% survival increase over vehicle at 14 and 17.5 days.
Figure
10: Kaplan-Meier evaluation of mouse B16F tumor survivability shows an increase in survival with IL12- FHAB treatment.
Doses of 10µg and 20µg of standalone IL-12 WT exhibited 50% survival at 2 and 4 days over vehicle control (10 days).
All doses of IL12- FHAB showed 50% survival over vehicle at 14 and 17.5 days. Survivability at the lowest doses of
IL12- FHAB were equivalent to highest dose standalone IL-12.
In
immune oncology, we have completed in vitro pharmacology studies of affinity and binding kinetics that demonstrate species
cross-reactivity of SON-1010 in serum albumin for hamster, rat, cynomolgus monkey and human. The results show that SON-1010 displays
species specificity to cynomolgus monkey and human subjects, which will guide species selection for further preclinical toxicology
work. A humanized mouse model (SCID) study designed to evaluate PK/PD and dose response is completed. This work informed our decision
about dosing in a nonhuman primate (NHP) study.
The
objectives of this NHP dose range-finding study were twofold, to confirm the enhanced PK profile of SON-1010 in comparison
to recombinant human IL-12 (demonstrated previously in a humanized mouse model), and to perform a dose escalation to inform and
de-risk the design of follow-on NHP studies needed for the SON-1010 IND filing with the FDA. The data from this study indicate
that in healthy cynomolgus macaques of both sexes, a single dose of SON-1010 is well tolerated at dosage levels greater than 50
times the anticipated exposure in human clinical trials. Additionally, SON-1010 elicited a prolonged and potent on-target PD effect
as measured by, Interferon-γ (IFN-γ), a key biomarker of antitumor activity. On-target and transient changes in clinical
chemistry and pathology parameters were observed, but resolved completely within 14 to 21 days post-dosing. Signs of cytokine
imbalance, or uncontrolled increase of pro-inflammatory cytokines, including TNF-α, IL-1β, and IL-6 were notably absent
from all dose levels tested in the study. Pharmacokinetic analysis of serum samples from the study animals indicated a mean half-life
of 40.0 (±6.9) hours for the subcutaneous route of administration and 27.45 (±2.8) hours for intravenous
dosing. These results build on those from the work with the B16F10 mouse model of melanoma, where the mouse version of
SON-1010 showed a 20-fold reduction in the dosage required to achieve a similar therapeutic effect compared to mouse IL-12. Taken
together, we believe the observed extended half-life, improved therapeutic window and reduced dosing requirement, made possible
by Sonnet’s FHAB technology, represent key advantages of SON-1010 as a potential immune oncology therapeutic.
Work
on the master cell bank expressing SON-1010, formulation development and process development activities have all been completed,
in addition to drug product formulation (liquid and lyophilized). Process transfer and cGMP product manufacturing is complete.
The GLP, IND-enabling toxicology study is scheduled to begin in the first quarter of 2021. An IND submission is expected in the
second half of 2021.
Beyond
immune oncology, we have filed updated intellectual property that includes provisions for three areas of antiviral drug development:
(i) as an adjuvant to potentiate vaccine efficacy; (ii) as a broad spectrum antiviral that could be deployed against a wide array
of viruses, particularly those that do not elicit Cytokine Release Syndrome (CRS); and (iii) as a platform for configuring bispecific,
multifunctional vaccines comprising the FHAB construct conjugated with both a vaccine peptide and an immune stimulator
(e.g., IL-12) that could enhance delivery to the lymphatic system.
In
virology, we are continuing work on viral challenge studies in mice using an influenza model to study SON-1010 as a
potential adjuvant paired with a vaccine. We have determined from our initial review of the mouse data that further study
of the compound’s activity is warranted in enhancing immune response. If these studies are successful, we will look
to collaborate with an influenza vaccine manufacturer in 2021 to further the development of a potentially more robust
vaccine candidate.
SON-1210
SON-1210,
our lead bispecific construct, combines IL-12 and IL-15 conjugated to FHAB. These cytokines were selected based on
synergistic biologic activity.
IL-15
acts through its specific receptor, IL15Rα, which is expressed on antigen-presenting dendritic cells (APC), monocytes and
macrophages. In addition to the potential antitumor properties of IL-12 described above, we believe IL-15 can potentially add
the following complementary activity:
|
●
|
Induce
differentiation and proliferation of T, B and natural killer (NK) cells
|
|
●
|
Enhance
cytolytic activity of CD8+ T cells
|
|
●
|
Induce
long-lasting CD8+ memory T cells enhancing immune surveillance against cancer for month/years
|
|
●
|
Stimulates
differentiation and immunoglobulin synthesis by B cells
|
|
●
|
Induce
maturation of dendritic cells
|
|
●
|
Up
regulate IL-12b1 receptor expression
|
Summary
of the reciprocal biologic activity of Interleukins 12 and 15:
|
●
|
IL12:
Increases IL15Rα receptor, IFNɣ, NK/T cells, TH1 (tumor killing) and decreases Treg
|
|
●
|
IL15:
Increases IL12β 1 receptor, NK cells, CD8 memory and decreases apoptosis
|
Figure
11: These data suggest an enhanced reduction in tumor growth with SON-1210 compared to concomitantly administered, naked IL-12
and IL-15 in a mouse model of melanoma.
Figure
12: The combination of IL-12 and IL-15 with FHAB displayed synergistic activity, leading to improved tumor volume reduction
versus IL12-FHAB alone in a mouse model of melanoma.
Cell
line and manufacturing development for SON-1210 is underway and final clone selection is expected by the end of
2020. Early development material will be used in a xenograft mouse model study designed to evaluate PK/PD, dose
response and efficacy. This work will inform our decision about dosing in a forthcoming nonhuman primate study, expected
to be initiated by mid-2021, with an IND submission targeted around year-end.
Discovery
Assets: SON-2014 (GMCSF- FHAB-IL18) and SON-3015 (Anti IL6- FHAB-Anti TGFβ)
GM-CSF
(granulocyte-macrophage colony stimulating factor) increases the capacity of dendritic cells (DC) and antigen presenting cells
(APC) to process and present cancer antigens to naive T-cells, leading to activation of cytotoxic T cells. As a therapeutic, recombinant
human GM-CSF (Leukine®) has been shown to boost the function of PD-1 inhibitors in melanoma patients, thereby promoting increased
overall survival. IL-18 decreases IL-10 expression, which is immune suppressive, and increases IL-12 and IL-2 receptor. Additionally,
IL-18 increases CXCL9 and CXCL10 expression, which increases TH1, NK and CD8 and tumor infiltrating T cells. Regarding progress
with SON-2014, discrete GM-CSF and IL-18 for preclinical studies have been manufactured and we are currently undertaking proof-of-concept
studies in mice to evaluate the efficacy of the co-administered cytokines.
In
July 2020, we announced completing initial preclinical proof-of-concept work with both GMcSF and IL-18 and with GMcSF and
IL-12 in a xenograft mouse model of melanoma. This study was designed to evaluate preclinical activity of the concomitantly
administered cytokines as FHAB-derived molecules, using Sonnet’s Fully Human Albumin Binding (FHAB)
technology, in several groups of tumor-bearing mice. Sonnet’s FHAB-derived drug candidates all showed
statistically significant reduction in tumor growth when compared to placebo and when compared to their wild-type,
naked cytokine counterparts (Figure 13). The study included nine mice per active group and 12 mice in the placebo group.
The Company administered a single dose as a conservative method for therapeutic lead selection. The table below summarizes
the data after six days of administration of a single dose, in tumor bearing mice with an average initial cancer tumor volume
of approximately 100 mm3. P values were generated for between group comparisons (treatment vs placebo) of reduction in tumor
growth.
Figure
13: Proof-of-concept data including SON-2014, a bispecific combination of GMcSF and IL-18, as well as a bispecific combination
of GMcSF and IL-12.
The
data indicate that GMcSF-FHAB and IL18-FHAB administered as monospecific formulations demonstrated improved anti-tumor activity
(slower tumor progression) as compared with naked GMcSF or naked IL-18. In both comparisons, the FHAB-derived molecules showed
similar activity at one fifth the dose level as compared to naked, wild type cytokine. The Company also evaluated its IL12-FHAB
to investigate optimal synergies for future bispecific combinations. The data indicate that co-injection of GMcSF-FHAB and IL12-FHAB
as monospecifics resulted in a strong synergistic reduction in tumor growth with just a single dose. Importantly, for all groups
that received FHAB-derived candidates, there was no weight loss observed, which potentially implies reduced toxicity relative
to treatment with naked cytokine. Further animal studies are planned to optimize combinations for CMC development.
TGF-β1/IL-6
biology is a strong predictor of overall survival in cancer, and the combined targeting of IL-6 and TGF-β1 signaling using
SON-3015 may represent a promising strategy for treating tumor and bone metastases. TGFβ is released from degraded bone,
and enhances IL-6 production, contributing to the vicious circle of bone metastasis. High FcRn expression in the bone environment
would result in accumulation in the bone of the dual construct anti IL6- FHAB-anti TGFβ, thereby potentially inhibiting
or blocking bone metastases. Regarding progress with SON-3015, we expect to complete lead selection for this discovery-stage bispecific
molecule around year-end 2020 followed by a preclinical proof-of-concept study in mice.
We
face numerous challenges and uncertainties with respect to the development and commercialization of our therapeutic compounds,
including our FHAB technology. Please see “Risk Factors” contained elsewhere in this prospectus, and the
sections entitled “Risk Factors” in the documents incorporated by reference into this prospectus.
Competition
The
pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products. While we believe that our technology, development experience and scientific knowledge provide
us with competitive advantages, we face potential competition from many different sources, including large pharmaceutical and
biotechnology companies, academic institutions, government agencies and other public and private research organizations that conduct
research, seek patent protection and establish collaborative arrangements for the research, development, manufacturing and commercialization
of cancer immunotherapies. Any product candidates that we successfully develop and commercialize will compete with new immunotherapies
that may become available in the future.
We
compete in the segments of the pharmaceutical, biotechnology and other related markets that develop immuno-oncology treatments.
There are many other companies that have commercialized and/or are developing immuno-oncology treatments for cancer including
large pharmaceutical and biotechnology companies, such as Amgen, AstraZeneca/MedImmune, Bristol-Myers Squibb, Merck, Novartis,
Pfizer and Roche/Genentech.
We
face significant competition from pharmaceutical and biotechnology companies that target the use of specific cytokines or other
large molecules as immunomodulating therapies in the cancer setting. These generally include, single- or bi-specific antibodies,
fusion proteins, antibody drug conjugates and targeted vaccines.
With
respect to our lead product candidate, SON-080, we are aware of other companies developing products to treat CIPN, including but
not limited to Apexian Pharmaceuticals, Inc., Aphios Corporation, Asahi Kasei Corporation, MundiPharma EDO and Regenacy Pharmaceuticals,
Inc; however, we believe we are the only company studying the use of a disease-modifying cytokine for the indication.
With
respect to our first FHAB-derived candidate, SON-1010, we are aware of other competing IL-12 programs, which include,
but are not limited to those being developed by Celsion Corporation, Eli Lilly, Inovio Pharmaceuticals, Inc., Intrexon Corporation
and OncoSec Medical. We believe that our FHAB integrated IL-12 is tumor-targeted with an enhanced pK profile that differentiates
it from the competition.
With
respect to our earlier stage pipeline FHAB product candidates SON-1210, SON-2014 and SON-3105, we are not aware of
any other competing companies working on these specific bi-specific programs.
Many
of the companies against which we are competing or against which we may compete in the future have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and
diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large
and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and enrolling subjects for our clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
We
could see a reduction or elimination of our commercial opportunity if our competitors develop and commercialize products that
are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products
that we or our collaborators may develop. Our competitors also may obtain FDA or foreign regulatory approval for their products
more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position
before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all our product
candidates, if approved, are likely to be their efficacy, safety, convenience, price, the effectiveness of companion diagnostics,
if required, the level of biosimilar or generic competition and the availability of reimbursement from government and other third-party
payors.
Manufacturing
We
rely on contract manufacturing organizations, or CMOs, to produce its drug candidates in accordance with the FDA’s current
Good Manufacturing Practices, or cGMP, regulations for use in our clinical trials. The manufacture of pharmaceuticals is subject
to extensive cGMP regulations, which impose various procedural and documentation requirements and govern all areas of record keeping,
production processes and controls, personnel and quality control. Our pipeline molecules, are manufactured using the standard
industrial Chinese Hamster Overy (CHO) platform using common bio-chemical engineering from readily available raw materials.
To
meet our projected needs for clinical supplies to support our activities through regulatory approval and commercial manufacturing,
the CMOs with whom we currently work will need to increase the scale of production or we will need to secure alternate suppliers.
We believe that there are multiple potential sources for its contract manufacturing, but we have not engaged alternate suppliers
in the event that our current CMOs are unable to scale production. Our relationships with CMOs are managed by internal personnel
with extensive experience in pharmaceutical development and manufacturing.
If
we are unable to obtain sufficient quantities of drug candidates or receive raw materials in a timely manner, we could be required
to delay our ongoing clinical trials and seek alternative manufacturers, which would be costly and time-consuming.
License
and Other Commercial Arrangements
XOMA
Sonnet
(as successor-in-interest to Oncobiologics, Inc. (“Oncobiologics”), after Oncobiologics spun-off certain assets into
Sonnet and concurrently distributed all of its shares in Sonnet on a pro rata basis to Oncobiologics’s stockholders on April
6, 2015) and XOMA (US) LLC (“XOMA”) are party to a Discovery Collaboration Agreement, dated July 23, 2012 and an Amendment
of Discovery Collaboration Agreement, dated May 7, 2019 (together, the “Collaboration Agreement”) pursuant to which
XOMA granted to Sonnet a non-exclusive, non-transferrable license and/or right to use certain materials, technologies and related
information related to discovery, optimization and development of antibodies and related proteins and to develop and commercialize
products thereunder (each, a “Product”). Sonnet is obligated to make contingent milestone payments to XOMA totaling
$3.75 million on a Product-by-Product basis upon the achievement of certain development and approval milestones related to a Product.
Sonnet has also agreed to pay XOMA low single-digit royalties on net sales of Products sold by Sonnet. Royalties on each Product
are payable on a country-by-country basis until the later of (i) a specified period of time after the First Commercial Sale (as
defined in the Collaboration Agreement), and (ii) the date of expiration of the last valid claim in the last-to-expire of the
issued patents covered by the Collaboration Agreement. In addition, Sonnet has the right to reduce the rate of the royalty on
a Product-by-Product basis by paying XOMA a specified amount. The Collaboration Agreement may be terminated by either party for
cause and contains customary indemnification provisions.
ARES
On
August 28, 2015, Relief, now a wholly-owned subsidiary of Sonnet, signed a License Agreement (the “ARES License Agreement”)
with Ares Trading, a wholly-owned subsidiary of Merck KGaA (“ARES”). Under the terms of the ARES License Agreement,
ARES has granted the Company a sublicensable, exclusive, worldwide, royalty-bearing license on proprietary patents to research,
develop, use and commercialize products (each, a “Product”) using atexakin alfa (“Atexakin”), a low dose
formulation of human interleukin-6 in peripheral neuropathies and vascular complications. Three patents are included in the ARES
License Agreement that protect the use of Atexakin to treat i) diabetic neuropathy, ii) chemotherapy-induced peripheral neuropathy
and iii) vascular complications.
Pursuant
to the ARES License Agreement, we will pay ARES high single-digit royalties on net sales of Products sold by the Company.
Royalties are payable on a Product-by-Product and country-by-country basis until the later of (i) a specified period of time after
the First Commercial Sale (as defined in the ARES License Agreement) in such country, and (ii) the last date on which such product
is covered by a valid claim in such country. If a Product is not covered by a valid claim in a country or such valid claim has
expired or been invalidated before the twelfth (12th) anniversary of the date of the First Commercial Sale of such Product in
such country, then the royalty rate will be reduced by fifty percent (50%). The ARES License Agreement may be terminated by the
Company for convenience at any time or by either party upon a breach by the other party. The License agreement contains customary
indemnification provisions.
GEM
Sonnet
entered into a Common Stock Purchase Agreement with GEM Global Yield Fund LLC SCS (“GEM”) on August 6, 2019 (the “Purchase
Agreement”). The GEM Agreement was further amended on September 25, 2019 by an Amendment to Common Stock Purchase Agreement
(the “2019 GEM Amendment”), and subsequently amended again on January 31, 2020 (the “2020 GEM Amendment”
and, together with the Purchase Agreement and the 2019 GEM Amendment, the “GEM Agreement”). At the closing of the
Merger, the Company assumed all obligations and rights under the GEM Agreement. Pursuant to the GEM Agreement, GEM agreed to purchase
up to $20,000,000 of common stock (the “Aggregate Limit”) over a three-year period commencing on the date the Purchase
Agreement was executed (the “Investment Period”); provided that during any period when the Company’s public
float is less than $75,000,000, the Aggregate Limit will instead be equal to one-third of the amount of the Company’s public
float over any consecutive 12-month period. Under the GEM Agreement, during the Investment Period, the Company may, by delivering
a Draw Down Notice (as defined in the GEM Agreement) direct GEM to purchase shares of common stock in an amount up to 400% of
the average daily trading volume for the ten (10) trading days immediately preceding the date the Draw Down Notice is delivered.
GEM is not obligated to purchase any shares of common stock which would result in GEM beneficially owning, directly or indirectly,
at the time of the proposed issuance, more than 4.99% of the number of common shares issued and outstanding. GEM will pay a purchase
price per share equal to 90% of the average market closing price of the common stock during the ten consecutive trading days commencing
with the first trading day on which a Draw Down Notice is delivered (the “Draw Down Pricing Period”).
GEM
represented to Sonnet, among other things, that it was an “accredited investor” (as such term is defined in Rule
501(a) of Regulation D under the Securities Act), and the Company will rely upon an exemption from
registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder when
issuing shares of its common stock under the GEM Agreement. In order to utilize the GEM Agreement, we will need to file a
registration statement with the SEC to register the shares of common stock to be issued to GEM pursuant to the GEM Agreement.
We have not yet filed such registration statement. The GEM Agreement contains customary representations, warranties,
agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. We
have the right to terminate the GEM Agreement at any time, at no cost or penalty. Unless we inform GEM of an event resulting
in a Materially Adverse Effect or Material Change in Ownership (all defined in the GEM Agreement) GEM does not have the right
to terminate the GEM Agreement.
Intellectual
Property
With
respect to our trademark portfolio, we received international registrational approval with the World Intellectual Property Office
(WIPO) for the Sonnet BioTherapeutics and FHAB marks, each having an Effective Date of Sept. 17, 2020. Further, both marks were
published by the European Union Intellectual Property Office (EUIPO), having Effective Dates of Nov. 30, 2020 and Dec. 6, 2020,
respectively.
With
respect to our patent portfolio, we have filed patent applications directed to fusion proteins that include the Fully Human Albumin
Albumin Binding Domain (FHAB). If granted, the resulting patents would expire on dates ranging from 2038 to 2041, subject to extension
under certain circumstances. The patent application filings include:
●
National filings corresponding to WO/2018/151868 – This application is directed to Fully Human Albumin Albumin Binding Domain
(FHAB)-fusion proteins, including IL-12-FHAB, IL-15-FHAB, IL12-FHAB-IL15, GMcSF-FHAB-IL18, and anti-TGFβ-FHAB fusion proteins;
and methods of treatments using such FHAB fusion proteins. The application is pending in Australia, Brazil, Canada, China, European
Union, Hong Kong, India, Japan, New Zealand, Russia and the United States.
○
Due to a combination of the USPTO Electronic Filing System being unavailable and a private courier mistake, Sonnet’s US
and PCT applications WO/2018/151868, respectively, received a filing date four days after the one year priority date of the provisional
applications, resulting in a potential loss of priority claim to the provisional filing date. A request to restore priority was
granted in the USPTO and the PCT on the basis of that the failure to timely file was “unintentional”. Sonnet then
filed national phase applications in Australia, Brazil, Canada, China, Europe, India, Japan, New Zealand and Russia. Australia,
New Zealand and Russia accepted the PCT restoration and a petition to restore priority in the European Union was granted. However,
due to differences in the PCT rules and certain national phase rules, restoration of priority was denied in Brazil, Canada and
China. While India has accepted the restoration of priority, foreign counsel has indicated that the issue could still arise during
prosecution. Japan allows priority restoration under a more rigorous “due care” standard, and while Japan denied the
first request the JPO has invited us to submit further evidence and thus the restoration procedure is still pending.
○
Sonnet published two abstracts in October and November of 2017, the year preceding the PCT filing. These disclosures are of no
significance in countries where the priority has been or will be restored. In Canada, the loss of priority is mitigated as it
relates to these disclosures, since Canada has a year grace period for inventor disclosures. Based on discussions with foreign
counsel, we also believe that the effect of these narrow disclosures is limited in China. If priority is not restored in Japan,
these disclosures will be considered prior art to the application and may negatively affect our ability to obtain issued patents
or the scope of issued patents in the affected countries. Additionally, if priority is not restored, such as in Brazil, Canada,
China and Japan, it is possible that there may be relevant prior art of which we are currently unaware that was published during
the priority year that could affect the scope and content of patent claims in the affected countries in ways that are unforeseen.
●
US provisional application directed to anti-IL6-FHAB fusion proteins, including anti-IL6-FHAB, anti-IL6-FHAB-anti-TGFβ, and
anti-IL6-FHAB-anti-IL8 fusion proteins; and methods of treatments using such fusion proteins filed on Sept. 17, 2020.
●
US provisional application directed to Antigen/Albumin Binding Domain Conjugates, and methods of treatments using such conjugates
filed May 14, 2020.
●
US provisional application directed to Methods of Making Recombinant Cytokine and Cytokine Albumin Binding Domain Fusion Proteins
filed July 17, 2020.
Employees
As
of September 30, 2020, we had 9 full-time employees. None of our employees are represented by a labor union
or covered by a collective bargaining agreement, and we believe our relationship with our employees is good.
Additionally, we utilize independent contractors and other third parties to assist with various aspects of its business.
Government
Regulation
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,
including biological products, are extensively regulated by government authorities in the United States, at the federal, state
and local level, and other countries and jurisdictions. Some jurisdictions also regulate the pricing of pharmaceutical products.
The processes for obtaining marketing 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.
Licensure
and Regulation of Biologics in the United States
In
the United States, biological products, or biologics, are regulated under the Public Health Service Act, or PHSA, and the Federal
Food, Drug, and Cosmetic Act, or FDCA, and their implementing regulations. The failure to comply with the applicable requirements
at any time during the product development process may subject an applicant to delays in the conduct of a study, regulatory review
and approval, and/or administrative or judicial sanctions. These sanctions may include, without limitation, the FDA’s refusal
to allow an applicant to proceed with clinical testing, refusal to approve pending applications, license suspension or revocation,
withdrawal of an approval, product recalls, product seizures, suspension of production or distribution, injunctions, fines, investigations
and civil and criminal penalties. Biological product candidates must be granted a biological license by the FDA before they may
be legally marketed in the United States.
The
process required by the FDA to obtain a biological license in the United States generally involves the following:
●
Completion of extensive nonclinical, or preclinical, laboratory tests and preclinical animal trials and applicable
requirements for the humane use of laboratory animals and formulation studies in accordance with applicable regulations,
including good laboratory practices, or GLPs;
●
Submission to the FDA of an investigational new drug, or IND, application prior to initiation of any human clinical trials.
Permission to proceed must be received before the beginning of such trials;
●
Performance of adequate and well-controlled human clinical trials to establish the safety, potency and purity of the product
candidate for each proposed indication, in accordance with the FDA’s regulation generally referred to as the good
clinical practices, or GCP and any additional requirements for the protection of human research subjects and their health
information, to establish the safety and efficacy of the proposed biological product for its intended use. The FDA may also
impose clinical holds on biological product candidate at any time before or during our clinical trials due to safety concerns
or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only
under terms authorized by the FDA;
●
Preparation and submission to the FDA of a Biologic License Application, or BLA, for a biologic product requesting marketing
for one or more proposed indications, including submission of detailed information on the manufacture and composition of the
product in clinical development and proposed labeling;
●
Review of the product by an FDA advisory committee, as determined by the FDA review division;
●
Satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities, including those of third
parties, at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing
Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the
product’s identity, strength, quality and purity;
●
Satisfactory completion of one or more FDA audits of the clinical study sites to assure compliance with GCPs, and the
integrity of clinical data in support of the BLA;
●
Payment of user fees and securing FDA approval of the BLA and licensure of the new biologic product;
●
Compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and
Mitigation Strategy, or REMS, and any post-approval studies required by the FDA.
Nonclinical
Studies and Investigational New Drug Application
Each
product candidate must undergo nonclinical testing before testing in humans. These tests include laboratory evaluations of product
chemistry, formulation and stability, as well as animal studies to evaluate the potential for activity and toxicity and must be
conducted in compliance with applicable regulations. The results of the nonclinical tests, together with manufacturing information
and analytical data, are submitted to the FDA as part of an IND application. The IND automatically becomes effective 30 days after
receipt by the FDA, unless before that time the FDA raises concerns or questions about the product or conduct of the proposed
clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In that case, the
IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trial can begin.
Submission
of the IND may result in the FDA not allowing the trial to commence or on the terms originally specified by the sponsor in the
IND. If the FDA raises concerns or questions, it may choose to impose clinical holds on biological product candidates at any time
before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not
recommence without FDA authorization and only under terms authorized by the FDA.
Human
Clinical Trials in Support of a BLA
Clinical
trials involve the administration of the investigational product candidate to healthy volunteers or patients with the disease
to be treated under the supervision of a qualified principal investigator in accordance with GCP requirements. A protocol for
each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. A sponsor who wishes
to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial
under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to
the FDA in support of the BLA so long as the clinical trial is well-designed and well-conducted in accordance with GCP, including
review and approval by an independent ethics committee, and the FDA is able to validate the study data through an onsite inspection,
if necessary.
Further,
each clinical trial must be reviewed and approved by an institutional review board, or IRB, either centrally or individually at
each institution at which the clinical trial will be conducted or, for trials conducted outside of the United States, by an independent
ethics committee referred to above. The IRB will consider, among other things, clinical trial design, patient informed consent,
ethical factors and the safety of human subjects. An IRB must operate in compliance with FDA regulations. The FDA, IRB, or the
clinical trial sponsor may suspend or discontinue a clinical trial at any time for various reasons, including a finding that the
clinical trial is not being conducted in accordance with FDA requirements or the subjects or patients are being exposed to an
unacceptable health risk. Clinical testing also must satisfy extensive GCP rules and the requirements for informed consent. Additionally,
some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known
as a data safety monitoring board or committee. This group may recommend continuation of the study as planned, changes in study
conduct, or cessation of the study at designated check points based on access to certain data from the study.
Clinical
trials typically are conducted in three sequential phases that may overlap or be combined. Additional studies may be required
after approval.
●
Phase 1: the biological product candidate is initially introduced into healthy human volunteers and tested for safety. In the
case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to
ethically administer to healthy volunteers, the initial human testing is often conducted in patients, such as cancer
patients.
● Phase
2: the biological product candidate is evaluated in a limited patient population to identify possible adverse effects and
safety risks, preliminary evaluate the efficacy of the product for specific targeted diseases and determine dosage tolerance,
optimal dosage and dosing schedule.
● Phase
3: Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency and safety in an expanded
patient population and geographically dispersed clinical study sites. These trials are intended to establish the overall
risk/benefit ratio of the product and provide adequate basis for product labelling.
● Phase
4: post-approval clinical trials, or Phase 4 clinical trials, may be conducted after initial marketing approval. They
provide additional experience for the treatment of patients in the intended therapeutic indication, particularly for
long-term safety follow-up. If the FDA approves a product while a company has ongoing clinical trials that were not necessary
for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical
trial requirement or to request a change in the product labeling. Failure to exhibit due diligence with regard to conducting
required Phase 4 clinical trials could result in withdrawal of approval for products.
Compliance
with cGMP Requirements
Before
approving a BLA, the FDA will typically inspect the facility(ies) where the product is manufactured to ensure full compliance
of the manufacturing processes and facilities with cGMP requirements and consistent production with required specifications. Manufacturers
and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain
state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the
FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that
has not registered is deemed misbranded under the FDCA. Establishments may be subject to periodic unannounced inspections by government
authorities. Manufacturers may have to provide records regarding their establishments.
Review
and Approval of a BLA
Results
of product candidate development, nonclinical testing and clinical trials are submitted to the FDA as part of a BLA requesting
a license to market the product. The BLA must contain extensive and detailed information on the manufacturing and composition
of the product and proposed labeling as well as payment of a user fee. The FDA has 60 days after submission of the application
to conduct an initial review to determine whether the BLA is sufficient to accept for filing. Once the submission has been accepted
for filing, the FDA begins its in-depth review. The FDA has twelve months in which to complete its initial review of a standard
application (or six months for a priority review) and respond to the applicant. The FDA does not always meet its goal dates and
the review process may be significantly extended by FDA requests for additional information or clarification. The review process
and the goal date may be extended by three months if the FDA requests or if the applicant otherwise provides additional information
or clarification regarding information already provided in the submission within the last three months before the goal date.
On
the basis of the FDA’s evaluation of the application and accompanying information, the FDA may issue an approval letter,
denial letter, or a complete response letter. An approval letter authorizes commercial marketing of the product with specific
prescribing information for specific indications. Under the PHSA, the FDA may approve a BLA if it determines that the product
is safe, pure and potent and the facility where the product will be manufactured meets standards designed to ensure that it continues
to be safe, pure and potent. If the application is not approved, the FDA may issue a complete response letter, which will contain
the conditions that must be met in order to secure final approval of the application, and when possible will outline recommended
actions the sponsor might take to obtain approval of the application. Sponsors that receive a complete response letter may submit
to the FDA information that represents a complete response to the issues identified by the FDA. Such resubmissions are classified
under the Prescription Drug User Fee Act, or PDUFA, as either Class 1 or Class 2, based on the information submitted by an applicant
in response to an action letter. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review
a Class 1 resubmission and six months to review a Class 2 resubmission. The FDA will not approve an application until issues identified
in the complete response letter have been addressed. The FDA issues a denial letter if it determines that the establishment or
product does not meet the agency’s requirements.
The
FDA may also refer the application to an advisory committee for review, evaluation and non-binding recommendation as to whether
the application should be approved. In particular, the FDA may refer applications for novel biologic products or biologic products
that present difficult questions of safety or efficacy to an advisory committee.
If
the FDA approves a new product, the FDA may limit its approved indications for use as well as require that contraindications,
warnings or precautions be included in the product labeling. In addition, the FDA may call for post-approval studies, including
Phase 4 clinical trials, to further assess the product’s safety after approval. The FDA may also require testing and surveillance
programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other
risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. The
FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs.
After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional
labeling claims, are subject to further testing requirements and FDA review and approval.
Fast
Track, Breakthrough Therapy and Priority Review Designations
The
FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in
the treatment of a serious or life-threatening disease or condition. These programs are referred to as (i) fast track designation,
(ii) breakthrough therapy designation and (iii) priority review designation.
● Fast Track Review: The FDA may designate a product for fast track review if it is intended (alone or in
combination with one or more other products) for the treatment of a serious or life-threatening disease or condition, and it
demonstrates the potential to address unmet medical needs for such a disease or condition. Sponsors may have greater
interactions with the FDA and the FDA may initiate review of sections of a fast track product’s application before the
application is complete. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the
remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing
a fast track application does not begin until the last section of the application is submitted. Fast track designation may be
withdrawn by the FDA.
● Breakthrough
Therapy: A product may be designated as a breakthrough therapy and be eligible for expedited review if it is intended,
alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and
preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on
one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
The FDA may take certain actions with respect to breakthrough therapies.
● Priority
Review: The FDA may designate a product for priority review if such product treats a serious condition and, if approved,
would provide a significant improvement in safety or effectiveness when compared with other available therapies. This
assessment is made by the FDA on a case-by-case basis. A priority designation is intended to direct overall attention and
resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing
application from 10 to six months.
Accelerated
Approval Pathway
The
FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic
advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint
that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the
product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity
or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account
the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Products granted
accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
For
the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image,
physical sign, or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate
endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement
of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a product, such as an effect on
IMM. The accelerated approval pathway is most often used in settings in which the course of a disease is long, and an extended
period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate
clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products
for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and
the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit.
The
accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional
post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate
approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval
clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm
a clinical benefit during post-marketing studies, would allow the FDA to withdraw the product from the market on an expedited
basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by
the FDA.
Post-Approval
Regulation
Even
if regulatory approval is granted, a marketed product is subject to continuing comprehensive requirements under federal, state
and foreign laws and regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing,
and compliance with cGMP. Adverse events reported after approval of a drug can result in additional restrictions on the use of
a marketed product or requirements for additional post-marketing studies or clinical trials.
Maintaining
substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial
time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly
with respect to cGMP requirements. Biological product manufacturers and other entities involved in the manufacture and distribution
of approved biological products are required to register their establishments with the FDA and certain state agencies and are
subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other
laws. We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities
of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in
the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval
requirements applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting
updated safety and efficacy information.
Discovery
of previously unknown problems or the failure to comply with the applicable regulatory requirements relating to the manufacturer
or promotion of an approved product may result in restrictions on the marketing of a product or withdrawal of the product from
the market as well as significant administrative, civil or criminal sanctions.
Orphan
Drug Designation
Orphan
drug designation in the United States is designed to encourage sponsors to develop products intended for rare diseases or conditions.
In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000 individuals
in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation
that the cost of developing and making available the product for the disease or condition will be recovered from sales of the
product in the United States.
Orphan
drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the product’s
marketing approval if granted by the FDA. An application for designation as an orphan product can be made any time prior to the
filing of an application for approval to market the product. A product may be designated as an orphan drug by the FDA Office of
Orphan Products Development, or OOPD, based on an acceptable application. The product must then go through the review and approval
process like any other product. Orphan drug designations may be revoked based on a change in the incidence of the disease.
A
sponsor may request orphan drug designation of a previously unapproved product or a new orphan indication for an already marketed
product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and
obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible
hypothesis that its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation
for the same product for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete
request for designation.
The
period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication
for which the product has been designated. The FDA may approve a second application for the same product for a different use or
a second application for a clinically superior version of the product for the same use. The FDA cannot, however, approve the same
product made by another manufacturer for the same indication during the market exclusivity period unless it has the consent of
the sponsor or the sponsor is unable to provide sufficient quantities.
Pediatric
Research
Under
the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study
data, of the safety and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement
for a pediatric assessment, either at the company’s request or by the FDA’s initiative. The FDA may determine that
a Risk Evaluation and Mitigation Strategy are necessary to ensure that the benefits of a new product outweigh its risks. REMS
may include various elements, ranging from a medication guide or patient package insert to limitations on who may prescribe or
dispense the drug, depending on what the FDA considers necessary for the safe use of the drug. Sponsors are required to submit
an initial pediatric study plan to their IND after their end-of-phase 2 meeting with the FDA
Regulation
and Procedures Governing Approval of Medicinal Products in the European Union
In
order to market any product outside of the United States, a company also must comply with numerous regulatory requirements of
other countries and jurisdictions. Whether or not it obtains FDA approval for a product, an applicant will need to obtain the
necessary approvals by the comparable foreign regulatory authorities before it can initiate clinical trials or marketing of the
product in those countries or jurisdictions.
Clinical
Trial Approval
Pursuant
to the currently applicable Clinical Trials Directive 2001/20/EC and the Directive 2005/28/EC on GCP, a system for the approval
of clinical trials in the European Union has been implemented through national legislation of the Member States. Under this system,
an applicant must obtain approval from the competent national authority of a European Union Member State in which the clinical
trial is to be conducted or in multiple Member States if the clinical trial is to be conducted in a number of Member States. Furthermore,
the applicant may only start a clinical trial at a specific study site after the independent ethics committee has issued a favorable
opinion. The clinical trial application, or CTA, must be accompanied by an investigational medicinal product dossier with supporting
information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and corresponding national laws of the Member States and
further detailed in applicable guidance documents.
In
April 2014, the European Union adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current
Clinical Trials Directive 2001/20/EC. It is expected that the new Clinical Trials Regulation will apply in 2019 or 2020. It will
overhaul the current system of approvals for clinical trials in the European Union. Specifically, the new regulation, which will
be directly applicable in all Member States, aims at simplifying and streamlining the approval of clinical trials in the European
Union. For instance, the new Clinical Trials Regulation provides for a streamlined application procedure using a single entry
point and strictly defined deadlines for the assessment of clinical trial applications.
Marketing
Authorization
To
obtain a marketing authorization for a product under the European Union regulatory system, an applicant must submit an MAA, either
under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in European
Union Member States (decentralized procedure, national procedure, or mutual recognition procedure). A marketing authorization
may be granted only to an applicant established in the European Union. An applicant must demonstrate compliance with all measures
included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the
EMA has granted a product-specific waiver, class waiver, or a deferral for one or more of the measures included in the PIP.
The
centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for
all European Union Member States. It is compulsory for specific products, including for medicines produced by certain biotechnological
processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance
indicated for the treatment of certain diseases, including products for the treatment of cancer. For products with a new active
substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process
is in the interest of patients, the centralized procedure may be optional.
Under
the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA is responsible
for conducting the assessment of a product to define its risk/benefit profile. Under the centralized procedure, the maximum timeframe
for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is
to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional
cases, when a medicinal product is of major interest from the point of view of public health and, in particular, from the viewpoint
of therapeutic innovation.
Periods
of Authorization and Renewals
A
marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation
of the risk benefit balance by the EMA or by the competent authority of the authorizing Member State. Once renewed, the marketing
authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified
grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not
followed by the placement of the drug on the European Union market (in the case of the centralized procedure) or on the market
of the authorizing Member State within three years after authorization ceases to be valid.
Regulatory
Requirements after Marketing Authorization
Following
approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing,
marketing, promotion and sale of the medicinal product. These include compliance with the European Union’s stringent pharmacovigilance
or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed.
In addition, the manufacturing of authorized products, for which a separate manufacturer’s license is mandatory, must also
be conducted in strict compliance with the EMA’s GMP requirements and comparable requirements of other regulatory bodies
in the European Union, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs
to assure their safety and identity. Finally, the marketing and promotion of authorized products, including industry-sponsored
continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly
regulated in the European Union under Directive 2001/83EC, as amended.
Orphan
Drug Designation and Exclusivity
Regulation
(EC) No. 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan drug by the European
Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening
or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application
is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without
incentives it is unlikely that the marketing of the drug in the European Union would generate sufficient return to justify the
necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method
of diagnosis, prevention, or treatment of the condition in question that has been authorized in the European Union or, if such
method exists, the drug has to be of significant benefit compared to products available for the condition. An orphan drug designation
provides benefits such as fee reductions, regulatory assistance and the possibility to apply for a centralized European Union
marketing authorization. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. The market
exclusivity period may however be reduced to six years if, at the end of the fifth year, it is established that the product no
longer meets the criteria for orphan drug designation.
Combination
Products in the United States
Certain
products, the combination products, may be comprised of components that would normally be regulated under different types of regulatory
authorities and frequently by different centers at the FDA. A combination product may be (i) a product comprised of two or more
regulated components that are physically, chemically, or otherwise combined or mixed and produced as a single entity; (ii) two
or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device
and biological products, or biological and drug products; (iii) drug, or device, or biological product packaged separately that
according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug,
or device, or biological product where both are required to achieve the intended use, indication, or effect and where upon approval
of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use,
dosage form, strength, route of administration, or significant change in dose; or (iv) any investigational drug, device, or biological
product packaged separately that according to its proposed labeling is for use only with another individually specified investigational
drug, device, or biological product where both are required to achieve the intended use, indication, or effect. The FDA is charged
with assigning a center with primary jurisdiction, or a lead center, for review of a combination product, this determination being
based on the “primary mode of action” of the combination product. Sponsors may request a jurisdiction determination
by submitting a Request for Designation to the office of Combination Drug Products.
Corporate
and Available Information
The
Company was organized on October 21, 1999, under its original name, Tulvine Systems, Inc., under the laws of the State of Delaware.
On April 25, 2005, Tulvine Systems, Inc. formed a wholly owned subsidiary, Chanticleer Holdings, Inc., and on May 2, 2005, Tulvine
Systems, Inc. merged with, and changed its name to, Chanticleer Holdings, Inc. On April 1, 2020, the Company completed its business
combination with Sonnet BioTherapeutics, Inc. (“Sonnet”), in accordance with the terms of the Agreement and Plan of
Merger, dated as of October 10, 2019, as amended, by and among the Company, Sonnet and Biosub Inc., a wholly-owned subsidiary
of the Company (“Merger Sub”) (the “Merger Agreement”), pursuant to which Merger Sub merged with and into
Sonnet, with Sonnet surviving as a wholly owned subsidiary of the Company (the “Merger”). In connection with, and
immediately prior to the completion of, the Merger, the Company effected a reverse stock split of its common stock, at a ratio
of 1-for-26 (the “Reverse Stock Split”). Under the terms of the Merger Agreement, after taking into account the Reverse
Stock Split, the Company issued shares of common stock to Sonnet’s stockholders at an exchange rate of 0.106572 shares for
each share of Sonnet common stock outstanding immediately prior to the Merger. In connection with the Merger, the Company changed
its name from “Chanticleer Holdings, Inc.” to “Sonnet BioTherapeutics Holdings, Inc.,” and the business
conducted by the Company became the business conducted by Sonnet.
Our
principal executive offices are located at 100 Overlook Center, Suite 102, Princeton, New Jersey 08540. Our telephone number is
(609) 375-2227 and the corporate website address is https://www.sonnetbio.com/. We included the website address in this annual
report on Form 10-K only as an inactive textual reference and do not intend it to be an active link to our website. The information
on the website is not incorporated by reference in this annual report on Form 10-K.
This
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, as
well as other documents we file with the U.S. Securities and Exchange Commission (“SEC”), are available free of charge
through the Investors section of our website as soon as reasonably practicable after such material is electronically filed with
or furnished to the SEC. The public can obtain documents that we file with the SEC at www.sec.gov.
An
investment in our common stock involves a high degree of risk including the risk of a loss of your entire investment. You should
carefully consider the risks and uncertainties described below and the other information contained in this report and the other
reports filed by us with the Securities and Exchange Commission. The risks set forth below are not the only ones facing us. Additional
risks and uncertainties may exist that could also adversely affect our business, operations and financial condition. If any of
the following risks actually materialize, our business, financial condition and/or operations could suffer. In such event, the
value of our common stock could decline, and you could lose all or a substantial portion of the money that you pay for our common
stock.
Summary
of Risk Factors
|
●
|
We
have a history of significant operating losses and expect to incur significant and increasing losses for the foreseeable future,
and we may never achieve or maintain profitability.
|
|
●
|
Our
recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern.
|
|
●
|
We
will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay,
reduce or eliminate our product discovery and development programs or commercialization efforts.
|
|
●
|
The
coronavirus COVID-19 pandemic or the widespread outbreak of any other communicable disease could materially and adversely
affect our business, financial condition and results of operations.
|
|
●
|
We
are substantially dependent on the success of our internal development programs and our product pipeline candidates may not
successfully complete clinical trials, receive regulatory approval or be successfully commercialized.
|
|
●
|
We
are at a very early stage in our development efforts, our product candidates represent a new category of medicines and may
be subject to heightened regulatory scrutiny until they are established as a therapeutic modality.
|
|
●
|
Even
if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time consuming
and uncertain and may prevent us or any collaborators from obtaining approvals for the commercialization of some or all of
our product candidates. As a result, we cannot predict when or if, and in which territories, we, or any collaborators, will
obtain marketing approval to commercialize a product candidate.
|
|
●
|
We
face significant competition and if our competitors develop and market products that are more effective, safer or less expensive
than the product candidates we develop, our commercial opportunities will be negatively impacted.
|
|
●
|
The
commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians,
patients, payors and others in the medical community.
|
|
●
|
For
certain product candidates, we may depend on development and commercialization collaborators to develop and conduct clinical
trials with, obtain regulatory approvals for, and if approved, market and sell product candidates. If such collaborators fail
to perform as expected, the potential for us to generate future revenue from such product candidates would be significantly
reduced and our business would be harmed.
|
|
●
|
We
will rely on third parties, including independent clinical investigators and CROs, to conduct and sponsor some of the clinical
trials of our product candidates. Any failure by a third party to meet its obligations with respect to the clinical development
of our product candidates may delay or impair our ability to obtain regulatory approval for our product candidates.
|
|
●
|
If
we are unable to obtain and maintain patent and other intellectual property protection for our products and product candidates,
or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors
could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products
and product candidates may be adversely affected.
|
|
●
|
We
expect to expand our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt
our operations.
|
|
●
|
We
do not expect to pay cash dividends in the foreseeable future and therefore investors should not anticipate cash dividends
on their investment.
|
Risks
Related to Our Financial Position and Need for Additional Capital
We
have a history of significant operating losses and expect to incur significant and increasing losses for the foreseeable future,
and we may never achieve or maintain profitability.
We
do not expect to generate revenue or profitability that is necessary to finance our operations in the short term. Our net losses
for the years ended September 30, 2020 and 2019 were $24.3 million and $4.9 million, respectively.
As of September 30, 2020, we had an accumulated deficit of $36.7 million.
To
date, we have not commercialized any products or generated any revenues from the sale of products, and absent the realization
of sufficient revenues from product sales, we may never attain profitability in the future. We have devoted substantially all
of our financial resources and efforts to research and development, including preclinical studies and our clinical trials. Our
net losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had,
and will continue to have, an adverse effect on our shareholders’ (deficit) equity and working capital.
We
anticipate that our expenses will increase substantially if and as we:
●
continue to develop and conduct clinical trials with respect to our lead product candidate, SON-080, and our other product candidates;
●
initiate and continue research, preclinical and clinical development efforts for any future product candidates;
●
seek to discover and develop additional product candidates and further expand our clinical product pipeline;
●
seek marketing and regulatory approvals for any product candidates that successfully complete clinical trials;
●
require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization;
●
maintain, expand and protect our intellectual property portfolio;
●
expand our research and development infrastructure, including hiring and retaining additional personnel, such as clinical, quality
control and scientific personnel;
●
establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize products for which
we obtain marketing approval, if any;
●
add operational, financial and management information systems and personnel, including personnel to support our product development
and commercialization and help us comply with our obligations as a public company; and
●
add equipment and physical infrastructure to support our research and development.
Our
ability to become and remain profitable depends on our ability to license our products and generate revenue. Generating product
revenue will depend on our ability to obtain marketing approval for, and successfully commercialize, one or more of our product
candidates.
Successful
commercialization will require achievement of key milestones, including completing clinical trials of our product candidates,
obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or
any collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our
products from private insurance or government payors. Because of the uncertainties and risks associated with these activities,
we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve profitability. We and any
collaborators may never succeed in these activities and, even if we do, or any collaborators do, we may never generate revenues
that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
Our
failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise
capital, expand our business, diversify our product offerings or continue our operations. If we continue to suffer losses, investors
may not receive any return on their investment and may lose their entire investment.
Our
limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
Our
business commenced operations in 2015. Our operations to date have been limited to financing and staffing our company, developing
our technology, conducting preclinical research and early-stage clinical trials for our product candidates and pursuing strategic
collaborations to advance our product candidates. We have not yet demonstrated an ability to successfully conduct late-stage clinical
trials, obtain marketing approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf,
or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should consider
our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages
of development, especially clinical-stage biopharmaceutical companies such as ours. Any predictions you make about our future
success or viability may not be as accurate as they would be if we had a longer operating history or a history of successfully
developing and commercializing pharmaceutical products.
We
may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business
objectives. We will eventually need to transition from a company with a development focus to a company capable of supporting commercial
activities. We may not be successful in such a transition.
We
expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to
year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any
quarterly or annual periods as indications of future operating performance.
Our
recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern.
We
have incurred recurring losses and negative cash flows from operations activities since inception and we expect to generate
losses and negative cash flows from operations for the foreseeable future primarily due to research and development costs for
our potential product candidates. As of September 30, 2020, we had cash of $7.3 million and stockholders’ equity of
$3.0 million. We believe our cash at September 30, 2020 will fund our projected operations into March 2021. Substantial
additional financing will be needed by us to fund our operations. These factors raise substantial doubt about our ability to
continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
We
will require additional capital in the future through equity or debt financings, partnerships, collaborations, or other sources
to carry out our planned development activities. If additional capital is not secured when required, we may need to delay or curtail
our operations until such funding is received. Various internal and external factors will affect whether and when our product
candidates become approved for marketing and successful commercialization. The regulatory approval and market acceptance of our
products candidates, length of time and cost of developing and commercializing these product candidates and/or failure of them
at any stage of the approval process will materially affect our financial condition and future operations.
Operations
since inception have consisted primarily of organizing us, securing financing, developing its technologies through performing
research and development and conducting preclinical studies. We face risks associated with companies whose products are
in development. These risks include the need for additional financing to complete its research and development, achieving its
research and development objectives, defending its intellectual property rights, recruiting and retaining skilled personnel, and
dependence on key members of management.
Our
ability to continue as a going concern is dependent on our ability to raise additional equity or debt capital or spin-off non-core
assets to raise additional cash. Should we be unable to raise sufficient additional capital, we may be required to undertake cost-cutting
measures including delaying or discontinuing certain clinical activities.
The
source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically,
on the progress of our clinical development programs. Funding may not be available when needed, at all, or on terms acceptable
to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our planned
clinical trials. These factors among others create a substantial doubt about our ability to continue as a going concern.
While
the potential economic impact brought by, and the duration of, COVID-19, discussed further below, 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.
We
will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce
or eliminate our product discovery and development programs or commercialization efforts.
Developing
pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and
uncertain process that takes years to complete. For example, for the years ended September 30, 2020 and 2019, we used $15.6
million and $2.2 million, respectively, in net cash for our operating activities, substantially all of which related to
research and development activities. We expect our expenses to increase in connection with our ongoing activities, particularly
as we initiate new clinical trials of, initiate new research and preclinical development efforts for and seek marketing approval
for, our current product candidates or any future product candidates. In addition, if we obtain marketing approval for any of
our product candidates, we may incur significant commercialization expenses related to product sales, marketing, manufacturing
and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a collaborator.
Furthermore, as a result of the Merger, we will continue to incur significant costs associated with operating as a public
company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we
are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and
development programs or any future commercialization efforts.
We
will be required to expend significant funds in order to advance the development of the product candidates in our pipeline, as
well as other product candidates we may seek to develop. In addition, while we may seek one or more collaborators for future development
of our product candidates, we may not be able to enter into a collaboration for any of our product candidates for such indications
on suitable terms, on a timely basis or at all. In any event, our existing cash will not be sufficient to fund all of the efforts
that we plan to undertake or to fund the completion of development of any of our product candidates. Accordingly, we will be required
to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements
or other sources. We do not have any committed external source of funds. Adequate additional financing may not be available to
us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial
condition and our ability to pursue our business strategy.
Our
estimate may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing
circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently
anticipate, and we may need to seek additional funds sooner than planned. Our future funding requirements, both short-term and
long-term, will depend on many factors, including:
●
the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for, our
current and future product candidates;
●
our ability to enter into, and the terms and timing of, any collaborations, licensing or other arrangements;
●
our ability to identify one or more future product candidates for our pipeline;
●
the number of future product candidates that we pursue and their development requirements;
●
the outcome, timing and costs of seeking regulatory approvals;
●
the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such
costs are not the responsibility of any collaborators, including the costs and timing of establishing product sales, marketing,
distribution and manufacturing capabilities;
●
the receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates;
●
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
●
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights
including enforcing and defending intellectual property related claims; and
●
the costs of operating as a public company.
Raising
additional capital may cause dilution to our existing shareholders, restrict our operations or cause us to relinquish valuable
rights.
We
may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships
and alliances, licensing arrangements or monetization transactions. To the extent that we raise additional capital through the
sale of equity, convertible debt securities or other equity-based derivative securities, your ownership interest will be diluted
and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Any indebtedness
we incur would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. Furthermore, the issuance of additional securities,
whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline
and existing shareholders may not agree with our financing plans or the terms of such financings. If we raise additional funds
through strategic partnerships and alliances, licensing arrangements or monetization transactions with third parties, we may have
to relinquish valuable rights to our technologies, or our product candidates, or grant licenses on terms unfavorable to us. Adequate
additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when
needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or
grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks
Related to the Discovery, Development and Regulatory Approval of Our Product Candidates
The
coronavirus COVID-19 pandemic or the widespread outbreak of any other communicable disease could materially and adversely affect
our business, financial condition and results of operations.
We
face risks related to health epidemics or outbreaks of communicable diseases, for example, the recent outbreak around the world
of the highly transmissible and pathogenic coronavirus COVID-19. The outbreak of such communicable diseases could result in a
widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many
countries.
In
December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China and on March 11, 2020 was
declared a pandemic by the World Health Organization. The extent to which COVID-19 may impact our preclinical and clinical trial
operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the
duration and geographic reach of the outbreak, the severity of COVID-19, and the effectiveness of actions to contain and treat
COVID-19.
To
date, many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread
of COVID-19 and have closed non-essential businesses. As countries and state and 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,
supply and drug product manufacturing disruption, and in reduced operations, any of which could materially affect our business,
financial condition and results of operations.
This
pandemic or outbreak could result in difficulty securing clinical trial site locations, CROs, and/or trial monitors and other
critical vendors and consultants supporting the trial. In addition, outbreaks or the perception of an outbreak near a clinical
trial site location could impact our ability to enroll patients. These situations, or others associated with Covid-19,
could cause delays in our clinical trial plans and could increase expected costs, all of which could have a material adverse
effect on our business and its financial condition.
In
particular, although our CIPN program with SON-080 continues to progress forward, the COVID-19 pandemic has impacted workflow
at our contract research partners such that we now estimate delays pushing a trial initiation into 2021 from our previous plan
of late 2020.
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
COVID-19 outbreak may also affect the ability of our staff and the parties we work with to carry out our non-clinical, clinical,
and drug manufacturing activities. We rely or may in the future rely on clinical sites, investigators and other study staff, consultants,
independent contractors, contract research organizations and other third-party service providers to assist us in managing, monitoring
and otherwise carrying out our nonclinical studies and clinical trials. We also rely or may in the future rely on consultants,
independent contractors, contract manufacturing organizations, and other third-party service providers to assist us in managing,
monitoring and otherwise carrying out our API production, formulation, and drug manufacturing activities. COVID-19 may affect
the ability of any of these external people, organizations, or companies to devote sufficient time and resources to our programs
or to travel to perform work for us.
Potential
negative impacts of the COVID-19 outbreak on the conduct of current or future clinical studies include delays in gaining feedback
from regulatory agencies, starting new clinical studies, and recruiting subjects to studies that are enrolling. The potential
negative impacts also include inability to have study visits at study sites, incomplete collection of safety and efficacy data,
and higher rates of drop-out of subjects from ongoing studies, delays in site entry of study data into the data base, delays in
monitoring of study data because of restricted physical access to study sites, delays in site responses to queries, delays in
data-base lock, delays in data analyses, delays in time to top-line data, and delays in completing study reports. New or worsening
COVID-19 disruptions or restrictions could have the potential to further negatively impact our non-clinical studies, clinical
trials, and drug manufacturing activities.
We
are substantially dependent on the success of our internal development programs and our product pipeline candidates may not successfully
complete clinical trials, receive regulatory approval or be successfully commercialized.
Our
future success will depend heavily on the success of our internal development programs and of product candidates from our pipeline
program.
Our
ability to successfully commercialize our pipeline and our other product candidates will depend on, among other things, our ability
to:
●
successfully complete preclinical studies and clinical trials;
●
receive regulatory approvals from the FDA, the EMA and other similar regulatory authorities;
●
establish and maintain collaborations with third parties for the development and/or commercialization of our product candidates,
or otherwise build and maintain strong development, sales, distribution and marketing capabilities that are sufficient to develop
products and launch commercial sales of any approved products;
●
obtain coverage and adequate reimbursement from payors such as government health care systems and insurance companies and achieve
commercially attractive levels of pricing;
●
secure acceptance of our product candidates from physicians, health care payors, patients and the medical community;
●
produce, through a validated process, in manufacturing facilities inspected and approved by regulatory authorities, including
the FDA, sufficiently large quantities of our product candidates to permit successful commercialization;
●
manage our spending as expenses increase due to clinical trials and commercialization; and
●
obtain and enforce sufficient intellectual property rights for any approved products and product candidates.
Of
the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a
new drug application, or NDA, or biologics licensing application, or BLA, to the FDA and even fewer are approved for commercialization.
Furthermore, even if we do receive regulatory approval to market our product candidates, any such approval may be subject to limitations
on the indicated uses or patient populations for which we may market the product. Accordingly, even if we are able to obtain the
requisite financing to continue to fund our development programs, we cannot assure you that our product candidates will be successfully
developed or commercialized. If we are unable to develop, or obtain regulatory approval for, or, if approved, to successfully
commercialize our product candidates, we may not be able to generate sufficient revenue to continue our business.
We
are at a very early stage in our development efforts, our product candidates represent a new category of medicines and may be
subject to heightened regulatory scrutiny until they are established as a therapeutic modality.
Our
pipeline product candidates represent a new therapeutic modality of including engaging a Fully Human Albumin Binding Domain to
deliver therapeutic products. Our product candidates may not demonstrate in patients any or all of the pharmacological benefits
we believe they may possess. We have not yet succeeded and may never succeed in demonstrating efficacy and safety for these or
any other product candidates in clinical trials or in obtaining marketing approval thereafter.
Regulatory
authorities do not have experience with our product candidate and may require evidence of safety and efficacy that goes beyond
what we have included in our development plans. In such a case, development of our product candidates may be more costly or time-consuming
than expected, and our candidate products may not prove to be viable.
If
we are unsuccessful in our development efforts, we may not be able to advance the development of our product candidates, commercialize
products, raise capital, expand our business or continue our operations.
Our
product candidates and those of any collaborators will need to undergo preclinical and clinical trials that are time-consuming
and expensive, the outcomes of which are unpredictable, and for which there is a high risk of failure. If preclinical or clinical
trials of our or their product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA, the EMA and any other
comparable regulatory authority, additional costs may be incurred or delays experienced in completing, the development of these
product candidates, or their development may be abandoned.
The
FDA in the United States, the EMA in the European Union and the European Economic Area, and other comparable regulatory authorities
in other jurisdictions must approve new product candidates before they can be marketed, promoted or sold in those territories.
We have not previously submitted an IND or BLA to the FDA or similar drug approval filings to comparable foreign regulatory authorities
for any of our product candidates. We must provide these regulatory authorities with data from preclinical studies and clinical
trials that demonstrate that our product candidates are safe and effective for a specific indication before they can be approved
for commercial distribution. We cannot be certain that our clinical trials for our product candidates will be successful or that
any of our product candidates will receive approval from the FDA, the EMA or any other comparable regulatory authority.
Preclinical
studies and clinical trials are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot
guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. It may take several years
and require significant expenditures to complete the preclinical studies and clinical trials necessary to commercialize a product
candidate, and delays or failure are inherently unpredictable and can occur at any stage. We may also be required to conduct additional
clinical trials or other testing of our product candidates beyond the trials and testing that we contemplate, which may lead to
us incurring additional unplanned costs or result in delays in clinical development. In addition, we may be required to redesign
or otherwise modify our plans with respect to an ongoing or planned clinical trial, and changing the design of a clinical trial
can be expensive and time consuming. An unfavorable outcome in one or more trials would be a major setback for our product candidates
and for us. An unfavorable outcome in one or more trials may require us to delay, reduce the scope of or eliminate one or more
product development programs, which could have a material adverse effect on our business, financial position, results of operations
and future growth prospects.
Many
of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to
the denial of marketing approval for our product candidates. The FDA, EMA or any other comparable regulatory authority may disagree
with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval
even after it has reviewed and commented on the design for our clinical trials.
In
connection with clinical trials of our product candidates, we face a number of risks, including risks that:
●
a product candidate is ineffective or inferior to existing approved products for the same indications;
●
a product candidate causes or is associated with unacceptable toxicity or has unacceptable side effects;
●
patients may die or suffer adverse effects for reasons that may or may not be related to the product candidate being tested;
●
the results may not confirm the positive results of earlier trials;
●
the results may not meet the level of statistical significance required by the FDA, the EMA or other relevant regulatory agencies
to establish the safety and efficacy of our product candidates for continued trial or marketing approval; and
●
our collaborators may be unable or unwilling to perform under their contracts.
Furthermore,
we sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other
product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific
studies, clinical trials, the submission of regulatory filings or commercialization objectives. From time to time, we may publicly
announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation
of other clinical programs, the receipt of marketing approval or a commercial launch of a product. The achievement of many of
these milestones may be outside of our control. All of these milestones are based on a variety of assumptions, which may cause
the timing of achievement of the milestones to vary considerably from our estimates. If we fail to achieve milestones in the timeframes
we expect, the commercialization of our product candidates may be delayed, we may not be entitled to receive certain contractual
payments, which could have a material adverse effect on our business, financial position, results of operations and future growth
prospects.
We
may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical
trials of our product candidates.
Identifying
and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of
our clinical trials depends on our ability to recruit patients to participate as well as the completion of required follow-up
periods. Patients may be unwilling to participate in our clinical trials because of negative publicity from adverse events related
to novel therapeutic approaches, competitive clinical trials for similar patient populations, the existence of current treatments
or for other reasons. Enrollment risks are heightened with respect to certain indications that we may target for one or more of
our product candidates that may be rare diseases, which may limit the pool of patients that may be enrolled in our planned clinical
trials. The timeline for recruiting patients, conducting trials and obtaining regulatory approval of our product candidates may
be delayed, which could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness
of our product candidates or termination of the clinical trials altogether.
We
may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired characteristics,
to complete our clinical trials in a timely manner. For example, due to the nature of the indications that we are initially targeting,
patients with advanced disease progression may not be suitable candidates for treatment with our product candidates and may be
ineligible for enrollment in our clinical trials. Therefore, early diagnosis in patients with our target diseases is critical
to our success. Patient enrollment and trial completion is affected by factors including the:
●
size of the patient population and process for identifying subjects;
●
design of the trial protocol;
●
eligibility and exclusion criteria;
●
safety profile, to date, of the product candidate under study;
●
perceived risks and benefits of the product candidate under study;
●
perceived risks and benefits of our approach to treatment of diseases;
●
availability of competing therapies and clinical trials;
●
severity of the disease under investigation;
●
degree of progression of the subject’s disease at the time of enrollment;
●
proximity and availability of clinical trial sites for prospective subjects;
●
ability to obtain and maintain subject consent;
●
risk that enrolled subjects will drop out before completion of the trial;
●
patient referral practices of physicians; and
●
ability to monitor subjects adequately during and after treatment.
In
addition, clinical development for pilot scale feasibility study of SON-080 is currently planned to take place outside of the
U.S. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is subject to numerous
risks unique to conducting business in foreign countries, including:
●
difficulty in establishing or managing relationships with academic partners or contract research organizations, or CROs, and physicians;
●
different standards for the conduct of clinical trials;
●
the absence in some countries of established groups with sufficient regulatory expertise for review of protocols related to our
novel approach;
●
our inability to locate qualified local consultants, physicians and partners; and
●
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the
regulation of pharmaceutical and biotechnology products and treatment.
If
we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay,
limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business, financial condition,
results of operations and prospects.
Results
of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.
The
outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim
results of clinical trials do not necessarily predict success in the results of completed clinical trials. Many companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive
results in earlier development, and we could face similar setbacks. For example, the Phase IIa trial of SON-080 will be conducted
outside of the U.S., and the findings may not be replicated in future trials at global clinical trial sites in a later stage clinical
trial conducted by us or our collaborators. 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. We
may be unable to design and execute a clinical trial to support marketing approval.
Preclinical
and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates
performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the
product candidates. Even if we, or any collaborators, believe that the results of clinical trials for our product candidates warrant
marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of
our product candidates.
In
some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same
product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size
and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the
rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates,
the development timeline and regulatory approval and commercialization prospects for our most advanced product candidates, and,
correspondingly, our business and financial prospects would be negatively impacted.
Our
current or future product candidates may cause undesirable side effects or have other properties when used alone or in combination
with other approved products or investigational new drugs that could halt their clinical development, prevent their marketing
approval, limit their commercial potential or result in significant negative consequences.
Undesirable
or clinically unmanageable side effects could occur and cause us or regulatory authorities to interrupt, delay or halt clinical
trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign
regulatory authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or
unexpected characteristics.
If
unacceptable side effects arise in the development of our product candidates, we, the FDA or comparable foreign regulatory authorities,
the Institutional Review Boards, or IRBs, or independent ethics committees at the institutions in which our studies are conducted,
or the Data Safety Monitoring Board, or DSMB, could suspend or terminate our clinical trials or the FDA or comparable foreign
regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted
indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete
the trial, or result in potential product liability claims. In addition, these side effects may not be appropriately recognized
or managed by the treating medical staff. We may be required to train medical personnel using our product candidates to understand
the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training
in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of
these occurrences may prevent us from achieving or maintaining market acceptance of the affected product candidate and may harm
our business, financial condition and prospects significantly.
Moreover,
clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical
trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate
that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following
approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes
undesirable side effects that were not previously identified, any of the following consequences could occur:
●
regulatory authorities may withdraw their approval of the product or seize the product;
●
we, or any collaborators, may need to recall the product, or be required to change the way the product is administered or conduct
additional clinical trials;
●
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
●
we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
●
regulatory authorities may require the addition of labeling statements, such as a boxed warning or a contraindication;
●
we, or any collaborators, may be required to create a medication guide outlining the risks of the previously unidentified side
effects for distribution to patients;
●
we, or any collaborators, could be sued and held liable for harm caused to patients;
●
the product may become less competitive; and
●
our reputation may suffer.
If
any of our current or future product candidates fail to demonstrate safety and efficacy in clinical trials or do not gain marketing
approval, we will not be able to generate revenue and our business will be harmed. Any of these events could harm our business
and operations, and could negatively impact the price of our common stock.
We
may not be successful in our efforts to identify or discover additional product candidates.
Although
we intend to explore other therapeutic opportunities in addition to the product candidates that we are currently developing, we
may fail to identify other product candidates for clinical development for a number of reasons. For example, our research methodology
may not be successful in identifying potential product candidates or those we identify may be shown to have harmful side effects
or other characteristics that make them unmarketable or unlikely to receive regulatory approval. Additional product candidates
will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies, clinical
trials and approval by the FDA and/or applicable foreign regulatory authorities. All product candidates are prone to the risks
of failure that are inherent in pharmaceutical product development. If we fail to identify and develop additional potential product
candidates, we may be unable to grow our business and our results of operations could be materially harmed.
We
may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates
or indications that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications
that we identify as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As
a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove
to have greater commercial potential.
Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Our spending on current and future research and development programs and product candidates for specific indications may not yield
any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular
product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights
to the product candidate.
We
face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs.
If the use of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our
product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly
and damaging product liability claims.
The
use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us
to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers,
pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our product
candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial
liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
|
●
|
the
impairment of our business reputation;
|
|
|
|
|
●
|
the
withdrawal of clinical trial participants;
|
|
|
|
|
●
|
substantial
monetary awards to patients or other claimants;
|
|
|
|
|
●
|
costs
due to related litigation;
|
|
|
|
|
●
|
the
distraction of management’s attention from our primary business;
|
|
|
|
|
●
|
the
inability to commercialize our product candidates; and
|
|
|
|
|
●
|
decreased
demand for our product candidates, if approved for commercial sale.
|
We
intend to acquire product liability insurance coverage in light of our current clinical programs; however, we may not be able
to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We
intend to expand our insurance coverage each time we commercialize an additional product; however, we may be unable to obtain
product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded
in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability
claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage,
could adversely affect our results of operations and business.
Patients
with the diseases targeted by certain of our product candidates, such as our lead indications in oncology, are often already in
severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening
health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related
to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to
injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products,
or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse
event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations
may interrupt our sales efforts, delay our regulatory approval process, or impact and limit the type of regulatory approvals our
product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended,
could have a material adverse effect on our business, financial condition or results of operations.
We
may seek designations for our product candidates with the FDA and other comparable regulatory authorities that are intended to
confer benefits such as a faster development process or an accelerated regulatory pathway, but there can be no assurance that
we will successfully obtain such designations. In addition, even if one or more of our product candidates are granted such designations,
we may not be able to realize the intended benefits of such designations.
The
FDA and other comparable regulatory authorities offer certain designations for product candidates that are intended to encourage
the research and development of pharmaceutical products addressing conditions with significant unmet medical need. These designations
may confer benefits such as additional interaction with regulatory authorities, a potentially accelerated regulatory pathway and
priority review. There can be no assurance that we will successfully obtain such designation for any of our other product candidates.
In addition, while such designations could expedite the development or approval process, they generally do not change the standards
for approval. Even if we obtain such designations for one or more of our product candidates, there can be no assurance that we
will realize their intended benefits.
For
example, we may seek a Breakthrough Therapy Designation for one or more of our product candidates. A breakthrough therapy is defined
as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening
disease or condition, if preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical
development. For therapies that have been designated as breakthrough therapies, interaction and communication between the FDA
and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number
of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies by the FDA are also eligible
for accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe
one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine
not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not
result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA
procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify
as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification.
We
may also seek Fast Track Designation for some of our product candidates. If a therapy is intended for the treatment of a serious
or life-threatening condition and the therapy demonstrates the potential to address unmet medical needs for this condition, the
therapy sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so
even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would
decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or
approval compared to conventional FDA procedures, and receiving a Fast Track Designation does not provide assurance of ultimate
FDA approval. 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 seek priority review designation for one or more of our product candidates, but we might not receive such designation, and
even if we do, such designation may not lead to a faster regulatory review or approval process.
If
the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide
a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority
review designation means that the goal for the FDA to review an application is six months, rather than the standard review period
of ten months. We may request priority review for our product candidates. The FDA has broad discretion with respect to whether
or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible
for such designation or status, in particular if such product candidate has received a Breakthrough Therapy Designation, the FDA
may decide not to grant it. Moreover, a priority review designation does not result in expedited development and does not necessarily
result in expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared
to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review
cycle or at all.
Obtaining
and maintaining marketing approval of our current and future product candidates in one jurisdiction does not mean that we will
be successful in obtaining marketing approval of our current and future product candidates in other jurisdictions.
Obtaining
and maintaining marketing approval of our current and future product candidates in one jurisdiction does not guarantee that we
will be able to obtain or maintain marketing approval in any other jurisdiction, while a failure or delay in obtaining marketing
approval in one jurisdiction may have a negative effect on the marketing approval process in others. For example, even if the
FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve
the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions
and can involve requirements and administrative review periods different from, and greater than, those in the United States, including
additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory
authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for
reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our
products is also subject to approval. We do not have experience in obtaining reimbursement or pricing approvals in international
markets.
Obtaining
marketing approvals and compliance with regulatory requirements could result in significant delays, difficulties and costs for
us and could delay or prevent the introduction of our products in certain countries outside of the United States. If we fail to
comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market
will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Risks
Related to Commercialization of Our Product Candidates and Other Regulatory Compliance Matters
Even
if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time consuming
and uncertain and may prevent us or any collaborators from obtaining approvals for the commercialization of some or all of our
product candidates. As a result, we cannot predict when or if, and in which territories, we, or any collaborators, will obtain
marketing approval to commercialize a product candidate.
The
process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take
many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity
and novelty of the product candidates involved. Securing marketing approval requires the submission of extensive preclinical and
clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s
safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process
to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory authorities may determine
that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects,
toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. Any marketing
approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved
product not commercially viable.
In
addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of
additional statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause
delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process
and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical,
clinical or other studies. Varying interpretations of the data obtained from preclinical and clinical testing could delay, limit
or prevent marketing approval of a product candidate. We cannot commercialize a product until the appropriate regulatory authorities
have reviewed and approved the product candidate. Even if our product candidates demonstrate safety and efficacy in clinical trials,
the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory
approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions
on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation
or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and
the review process. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments
that render the approved product commercially unviable.
Moreover,
principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive
compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships
to the FDA or other regulatory authority. The FDA or other regulatory authority may conclude that a financial relationship between
us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA
or other regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site
and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our
marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of
marketing approval of one or more of our product candidates.
In
addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization
of our product candidates. For example, regulatory agencies may approve a product candidate for fewer or more limited indications
than requested or may grant approval subject to the performance of post-marketing studies. Regulators may approve a product candidate
for a smaller patient population, a different drug formulation or a different manufacturing process, than we are seeking. If we
are unable to obtain necessary regulatory approvals, or more limited regulatory approvals than we expect, our business, prospects,
financial condition and results of operations may suffer.
Any
delay in obtaining or failure to obtain required approvals could negatively impact our ability to generate revenue from the particular
product candidate, which likely would result in significant harm to our financial position and adversely impact the price of our
common stock.
We
currently have no marketing, sales or distribution infrastructure with respect to our product candidates. If we are unable to
develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we will
not be successful in commercializing our product candidates.
We
currently have no marketing, sales or distribution capabilities and have limited sales or marketing experience within our organization.
If one or more of our product candidates is approved, we intend either to establish a sales and marketing organization with technical
expertise and supporting distribution capabilities to commercialize that product candidate, or to outsource this function to a
third party. There are risks involved with either establishing our own sales and marketing capabilities and entering into arrangements
with third parties to perform these services.
Recruiting
and training an internal commercial organization is expensive and time consuming and could delay any product launch. Some or all
of these costs may be incurred in advance of any approval of any of our product candidates. If the commercial launch of a product
candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason,
we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly and our investment would
be lost if we cannot retain or reposition our sales and marketing personnel. In addition, we may not be able to hire a sales force
in the United States or other target market that is sufficient in size or has adequate expertise in the medical markets that we
intend to target.
Factors
that may inhibit our efforts to commercialize our product candidates on our own include:
●
the inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
●
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future
product that we may develop;
●
the lack of complementary treatments to be offered by sales personnel, which may put us at a competitive disadvantage relative
to companies with more extensive product lines; and
●
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If
we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the
profitability to us from these revenue streams is likely to be lower than if we were to market and sell any product candidates
that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and
market our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control
over such third parties and any of them may fail to devote the necessary resources and attention to sell and market our product
candidates effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration
with third parties, we may not be successful in commercializing our product candidates.
The
market opportunities for any current or future product candidate we develop, if and when approved, may be limited to those patients
who are ineligible for established therapies or for whom prior therapies have failed, and therefore may be small.
Cancer
therapies are sometimes characterized as first-line, second-line, or third-line, and the FDA often approves new therapies initially
only for third-line use. When cancer is detected early enough, first-line therapy, usually chemotherapy, hormone therapy, surgery,
radiation therapy, immunotherapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a
cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. We may initially seek
approval of SON-080 and any other product candidates we develop as a therapy for patients who have received one or more prior
treatments. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval
potentially as a first-line therapy, but there is no guarantee that product candidates we develop, even if approved, would be
approved for first-line therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.
The
number of patients who have the cancers we are targeting may turn out to be lower than expected. Additionally, the potentially
addressable patient population for our current programs or future product candidates may be limited, if and when approved. Even
if we obtain significant market share for any product candidate, if and when approved, if the potential target populations are
small, we may never achieve profitability without obtaining marketing approval for additional indications, including use as first-
or second-line therapy.
Even
if we receive marketing approval of a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory
review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory
requirements or experience unanticipated problems with our products, if approved.
Any
marketing approvals that we receive for any current or future product candidate may be subject to limitations on the approved
indicated uses for which the product may be marketed or the conditions of approval, or contain requirements for potentially costly
post-market testing and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a Risk
Evaluation and Mitigation Strategy, or REMS, as a condition of approval of any product candidate, which could include requirements
for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools. If the FDA or a comparable foreign regulatory authority approves
a product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising,
promotion, import and export and record keeping for the product candidate will be subject to extensive and ongoing regulatory
requirements. These requirements include, among others, prohibitions on the promotion of an approved product for uses not included
in the product’s approved labeling, submissions of safety and other post-marketing information and reports, registration,
as well as continued compliance with current Good Manufacturing Practice, or cGMP, and Good Clinical Practice, or GCP, for any
clinical trials that we conduct post-approval. Later discovery of previously unknown problems with any approved candidate, including
adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure
to comply with regulatory requirements, may result in, among other things:
●
restrictions on the labeling, distribution, marketing or manufacturing of the product, withdrawal of the product from the market,
or product recalls;
●
untitled and warning letters, or holds on clinical trials;
●
refusal by the FDA to approve pending applications or supplements to approved applications we filed or suspension or revocation
of license approvals;
●
requirements to conduct post-marketing studies or clinical trials;
●
restrictions on coverage by third-party payors;
●
fines, restitution or disgorgement of profits or revenues;
●
suspension or withdrawal of marketing approvals;
●
product seizure or detention, or refusal to permit the import or export of the product; and
●
injunctions or the imposition of civil or criminal penalties.
The
FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that
could prevent, limit or delay marketing approval of a product. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow
or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain
profitability.
We
face significant competition and if our competitors develop and market products that are more effective, safer or less expensive
than the product candidates we develop, our commercial opportunities will be negatively impacted.
The
life sciences industry is highly competitive. We are currently developing therapeutics that will compete, if approved, with other
products and therapies that currently exist, are being developed or will in the future be developed, some of which we may not
currently be aware.
We
have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established
biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors
have significantly greater financial, manufacturing, marketing, product development, technical and human resources than we do.
Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining marketing approvals, recruiting
patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities
than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements
in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily
to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates
that we develop obsolete. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more
resources being concentrated among a smaller number of our competitors. As a result of all of these factors, our competitors may
succeed in obtaining patent protection and/or marketing approval or discovering, developing and commercializing products in our
field before we do.
There
is a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnology
companies. These treatments consist both of small molecule drug products, such as traditional chemotherapy, as well as novel immunotherapies.
For example, a number of multinational companies as well as large biotechnology companies, including Astellas Pharma Inc., Seattle
Genetics, Inc., AstraZeneca, and GlaxoSmithKline plc, are developing programs for the targets that we are exploring for our pipeline
programs.
Our
commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer,
more effective, have fewer or less severe effects, are more convenient, have a broader label, are marketed more effectively, are
reimbursed or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other marketing
approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing
a strong market position before we are able to enter the market. Even if the product candidate we develop achieve marketing approval,
they may be priced at a significant premium over competitive products if any have been approved by then, resulting in reduced
competitiveness.
Smaller
and other early stage companies may also prove to be significant competitors. These third parties compete with us in recruiting
and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical
trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical
industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be
unable to compete effectively. Technological advances or products developed by our competitors may render our product candidates
obsolete, less competitive or not economical.
The
commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians,
patients, payors and others in the medical community.
We
have never commercialized a product, and even if we obtain any regulatory approval for our product candidates, the commercial
success of our product candidates will depend in part on the medical community, patients, and payors accepting our product candidates
as effective, safe and cost-effective. Any product that we bring to the market may not gain market acceptance by physicians, patients,
payors and others in the medical community. Physicians are often reluctant to switch their patients from existing therapies even
when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy
that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required
to switch therapies due to lack of reimbursement for existing therapies.
The
degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors,
including:
|
●
|
the
potential efficacy and potential advantages over alternative treatments;
|
|
|
|
|
●
|
the
frequency and severity of any side effects, including any limitations or warnings contained in a product’s approved
labeling;
|
|
|
|
|
●
|
the
frequency and severity of any side effects resulting from follow-up requirements for the administration of our product candidates;
|
|
●
|
the
relative convenience and ease of administration;
|
|
|
|
|
●
|
the
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
|
|
|
|
|
●
|
the
strength of marketing and distribution support and timing of market introduction of competitive products;
|
|
|
|
|
●
|
publicity
concerning our products or competing products and treatments; and
|
|
|
|
|
●
|
sufficient
third-party insurance coverage and adequate reimbursement.
|
Even
if a product candidate displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance
of the product, if approved for commercial sale, will not be known until after it is launched. Our efforts to educate the medical
community and payors on the benefits of our product candidates may require significant resources and may never be successful.
Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed
by our competitors, particularly due to the novelty of our Sonnet approach. If these products do not achieve an adequate
level of acceptance, we may not generate significant product revenue and may not become profitable.
If
the market opportunities for our product candidates are smaller than we believe they are, our product revenues may be adversely
affected and our business may suffer.
We
currently focus our research and product development on treatments for oncology indications and our product FHAB candidates
are designed to target solid tumors. Our understanding of both the number of people who have these diseases, as well as the subset
of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates.
These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases.
Patient identification efforts also influence the ability to address a patient population. If efforts in patient identification
are unsuccessful or less impactful than anticipated, we may not address the entirety of the opportunity we are seeking.
The
insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage
and reimbursement for any of our product candidates, if approved, could limit our ability to market those products and decrease
our ability to generate revenue.
We
expect the cost of our product candidates to be substantial, when and if they achieve market approval. The availability and extent
of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments.
Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our
product candidates will be paid by private payors, such as private health coverage insurers, health maintenance, managed care,
pharmacy benefit and similar healthcare management organizations, or reimbursed by government health care programs, such as Medicare
and Medicaid. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If
reimbursement is not available, or is available only at limited levels, we may not be able to successfully commercialize our product
candidates, even if approved. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow
us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States,
the principal decisions about coverage and reimbursement for new medicines are typically made by the Centers for Medicare &
Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as the CMS decides whether and to
what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.
It is difficult to predict what CMS will decide with respect to coverage and reimbursement for novel products such as ours, as
there is no body of established practices and precedents for these new products. Coverage and reimbursement by a third-party payor
may depend upon a number of factors, including the third-party payor’s determination that use of a product is: (1) a covered
benefit under its health plan; (2) safe, effective and medically necessary; (3) appropriate for the specific patient; (4) cost-effective;
and (5) neither experimental nor investigational. In the United States, no uniform policy of coverage and reimbursement for products
exists among third-party payors. 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. Even if we
obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain
profitability or may require co-payments that patients find unacceptably high. Third-party payors may limit coverage to specific
drug products on an approved list, also known as a formulary, which might not include all of the approved drugs for a particular
indication.
Additionally,
third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the
use of product candidates. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is
adequate to cover a significant portion of the cost of our product candidates. Because our product candidates may have a higher
cost of goods than conventional therapies, and may require long-term follow-up evaluations, the risk that coverage and reimbursement
rates may be inadequate for us to achieve profitability may be greater. There is significant uncertainty related to insurance
coverage and reimbursement of newly approved products. It is difficult to predict at this time what third-party payors will decide
with respect to the coverage and reimbursement for our product candidates.
Moreover,
increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may
cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they
may not cover or provide adequate payment for our product candidates. There has been increasing legislative and enforcement interest
in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional
inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing,
reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies for drugs. We expect to experience pricing pressures in connection with
the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance
organizations, cost containment initiatives and additional legislative changes.
Outside
the United States, certain countries, including a number of member states of the European Union, set prices and reimbursement
for pharmaceutical products, or medicinal products, as they are commonly referred to in the European Union. These countries have
broad discretion in setting prices and we cannot be sure that such prices and reimbursement will be acceptable to us or our collaborators.
If the regulatory authorities in these jurisdictions set prices or reimbursement levels that are not commercially attractive for
us or our collaborators, our revenues from sales by us or our collaborators, and the potential profitability of our drug products,
in those countries would be negatively affected. An increasing number of countries are taking initiatives to attempt to reduce
large budget deficits by focusing cost-cutting efforts on pharmaceuticals for their state-run health care systems. These international
price control efforts have impacted all regions of the world, but have been most drastic in the European Union. Additionally,
some countries require approval of the sale price of a product before it can be lawfully marketed. In many countries, the pricing
review period begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing approval in
some countries, we, or any collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of
our product to other available therapies. As a result, we might obtain marketing approval for a product in a particular country,
but then may experience delays in the reimbursement approval of our product or be subject to price regulations that would delay
our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we are able
to generate from the sale of the product in that particular country.
Moreover,
efforts by governments and payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations
to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate
reimbursement for our product candidates. There has been increasing legislative and enforcement interest in the United States
with respect to specialty drug practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed
federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription
drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for drugs. We expect to experience pricing pressures in connection with the sale of any of our product
candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional
legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and other treatments,
has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. If reimbursement
of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could
be harmed.
If
the FDA or comparable foreign regulatory authorities approve generic versions of any of our product candidates that receive marketing
approval, or such authorities do not grant such products appropriate periods of data exclusivity before approving generic versions
of such products, the sales of such products could be adversely affected.
In
the United States, manufacturers may seek approval of biosimilar versions of biologics approved by the FDA under a BLA through
submission of abbreviated biologic license applications, or ABLAs. In support of an ABLA, a biosimilar manufacturer generally
must show that its product is similar to the original biologic product. Biosimilar products may be less costly to bring to market
than the original biologic and companies that produce biosimilar products are sometimes able to offer them at lower prices. Thus,
following the introduction of a biosimilar product, a significant percentage of the sales of the original biologic may be lost
to the biosimilar product, and the price of the original biologic product may be lowered.
The
FDA may not accept for review or approve an ABLA for a biosimilar product until any applicable period of non-patent exclusivity
for the original biologic has expired. The Public Health Service (PHS) Act provides a period of twelve years of non-patent exclusivity
for a biologic approved under a BLA.
Competition
that our products may face from biosimilar versions of our products could negatively impact our future revenue, profitability
and cash flows and substantially limit our ability to obtain a return on our investments in those product candidates.
We
may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws health information
privacy and security laws, and other health care laws and regulations. If we are unable to comply, or have not fully complied,
with such laws, we could face substantial penalties.
If
we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations
will be directly, or indirectly through our prescribers, customers and purchasers, subject to various federal and state fraud
and abuse laws and regulations, including, without limitation, the federal Health Care Program Anti-Kickback Statute, or Anti-Kickback
Statute, the federal civil and criminal False Claims Act and Physician Payments Sunshine Act and regulations. These laws will
impact, among other things, our proposed sales, marketing and educational programs. In addition, we may be subject to patient
privacy laws by both the federal government and the states in which we conduct our business. The laws that will affect our operations
include, but are not limited to:
|
●
|
the
Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly,
in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order, arrangement,
or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal
healthcare program, such as the Medicare and Medicaid programs. “Remuneration” has been interpreted broadly to
include anything of value. A person or entity does not need to have actual knowledge of the Anti-Kickback Statute or specific
intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or
services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
federal False Claims Act, or FCA, or federal civil money penalties. The Anti-Kickback Statute has been interpreted to apply
to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on
the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;
|
|
●
|
the
federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which impose criminal and
civil penalties against individuals or entities for, among other things: knowingly presenting, or causing to be presented,
to the federal government, claims for payment that are false or fraudulent; knowingly making, using or causing to be made
or used, a false statement of record material to a false or fraudulent claim or obligation to pay or transmit money or property
to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to
government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits
a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging
violations of the FCA and to share in any monetary recovery;
|
|
|
|
|
●
|
the
beneficiary inducement provisions of the CMP Law, which prohibits, among other things, the offering or giving of remuneration,
which includes, without limitation, any transfer of items or services for free or for less than fair market value (with limited
exceptions), to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s
selection of a particular supplier of items or services reimbursable by a federal or state governmental program;
|
|
|
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes
that prohibit a person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare
benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property
owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private)
and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially
false, fictitious, or fraudulent statements or representations in connection with the delivery of, or payment for, healthcare
benefits, items or services relating to healthcare matters; 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;
|
|
|
|
|
●
|
HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing
regulations, which impose requirements on certain healthcare providers, health plans, and healthcare clearinghouses, known
as covered entities, as well as their respective business associates, individuals and entities that perform services on their
behalf that involve the use or disclosure of individually identifiable health information, relating to the privacy, security
and transmission of individually identifiable health information;
|
|
|
|
|
●
|
the
U.S. federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, or collectively, ACA, including the provision commonly referred to as the Physician Payments
Sunshine Act, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report
annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors,
dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests
held by the physicians described above and their immediate family members. Beginning in 2022, applicable manufacturers also
will be required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners,
clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives;
|
|
|
|
|
●
|
federal
government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely
manner to government programs; and
|
|
|
|
|
●
|
federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers.
|
Additionally,
we are subject to state and foreign equivalents of each of the healthcare laws and regulations described above, among others,
some of which may be broader in scope and may apply regardless of the payer. Many U.S. states have adopted laws similar to the
Anti-Kickback Statute and False Claims Act, and may apply to our business practices, including, but not limited to, research,
distribution, sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental
payors, including private insurers. In addition, some states have passed laws that require pharmaceutical companies to comply
with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical
Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other
marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities
as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement
we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health information,
many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible
that some of our business activities could be subject to challenge under one or more of such laws. Law enforcement authorities
are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under
these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally,
will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations, including our arrangements
with physicians and other healthcare providers, some of whom receive stock options as compensation for services provided, are
found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties,
including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages,
reputational harm, diminished profits and future earnings, the curtailment or restructuring of our operations, exclusion from
participation in federal and state healthcare programs (such as Medicare and Medicaid), additional reporting requirements and/or
oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance
with these laws, and individual imprisonment, any of which could adversely affect our ability to operate our business and our
financial results. Any action for violation of these laws, even if successfully defended, could cause a pharmaceutical manufacturer
to incur significant legal expenses and divert management’s attention from the operation of the business. Prohibitions or
restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.
Healthcare
legislative reform measures and constraints on national budget social security systems may have a material adverse effect on our
business and results of operations.
Payors,
whether domestic or foreign, or governmental or private, are developing increasingly sophisticated methods of controlling healthcare
costs and those methods are not always specifically adapted for new technologies such as those we are developing. In both the
United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health
care system that could impact our ability to sell our products profitably. In particular, in the United States, the ACA was enacted
in 2010 which, among other things, subjects biologic products to potential competition by lower-cost biosimilars; addresses a
new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are
inhaled, infused, instilled, implanted or injected; increases the minimum Medicaid rebates owed by most manufacturers under the
Medicaid Drug Rebate Program; extends the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled
in Medicaid managed care organizations; subjects manufacturers to new annual fees and taxes for certain branded prescription drugs;
and provides incentives to programs that increase the federal government’s comparative effectiveness research.
Since
its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts
by the current administration to repeal or replace certain aspects of the ACA. Further, since January 2017, President Trump has
signed two Executive Orders and other directives designed to delay the implementation of certain provision of the ACA or otherwise
circumvent some of the requirements for health insurance mandated by the ACA. In addition, CMS recently issued a final rule that
will give states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces,
which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
Concurrently,
Congress has considered legislation that would repeal and replace all or part of the ACA. While Congress has not passed comprehensive
repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts
and Jobs Act of 2017, or TCJA, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility
payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that
is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing
resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the
so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain
high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share,
and the medical device exercise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or BBA, among other
things, amends the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is
owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans,
commonly referred to as the “donut hole.” More recently, in July 2018, CMS published a final rule permitting further
collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment
program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.
Congress also could consider additional legislation to repeal or replace other elements of the ACA. Thus, the full impact of the
ACA, any law repealing or replacing elements of it, and the political uncertainty surrounding any repeal or replacement legislation
on our business remains unclear.
In
addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011,
the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee
on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.5 trillion for the years 2013 through
2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in
April 2013, and due to subsequent legislative amendments, including the BBA, will remain in effect through 2027 unless additional
Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012, was signed into law, which, among other
things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years.
Also,
there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed
products, which has resulted in several 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 drug products. For example, the current administration
released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals
to increase 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. For example,
in November 2018, CMS issued a proposed rule for comment that would, among other things, provide Medicare prescription drug plans
under Part D more transparency in pricing and greater flexibility to negotiate discounts for, and in certain circumstances exclude,
drugs in the six “protected” formulary classes and allow Medicare Advantage plans to use certain drug management tools
such as step therapy for physician-administered drugs. Although a number of these, and other proposed measures will require authorization
through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue
to seek new legislative and/or administrative measures to control drug costs.
There
have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed
at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives
that may be adopted in the future. The continuing efforts of these governments and other payors to contain or reduce costs of
healthcare and/or impose price controls may adversely affect:
|
●
|
the
demand for our product candidates, if we obtain regulatory approval;
|
|
|
|
|
●
|
our
ability to set a price that we believe is fair for our products;
|
|
|
|
|
●
|
our
ability to generate revenue and achieve or maintain profitability;
|
|
|
|
|
●
|
the
level of taxes that we are required to pay; and
|
|
|
|
|
●
|
the
availability of capital.
|
Any
denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar denial or
reduction in payments from private payors, which may adversely affect our future profitability.
We
are subject to the the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, and other anti-corruption laws, as
well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.
Our
operations are subject to anti-corruption laws, including the FCPA, the U.S. domestic bribery statute contained in 18 §201,
the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, the FCPA and
these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing,
directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to
obtain or retain business or gain some other business advantage. Under the Bribery Act, we may also be liable for failing to prevent
a person associated with us from committing a bribery offense. We and our commercial partners operate in a number of jurisdictions
that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with
third parties whose corrupt or illegal activities could potentially subject us to liability under the Bribery Act, FCPA or local
anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot
predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or
the manner in which existing laws might be administered or interpreted.
We
are also subject to other laws and regulations governing our international operations, including regulations administered by the
governments of the United Kingdom and the United States, and authorities in the European Union, including applicable export control
regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs
requirements and currency exchange regulations, collectively referred to as the Trade Control laws.
There
is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including
the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery
Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement
and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition,
results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other
anti-corruption laws or Trade Control laws by United Kingdom, United States or other authorities could also have an adverse impact
on our reputation, our business, results of operations and financial condition.
If
we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could have a material adverse effect on the success of our business.
We
are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could
be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties. Furthermore, environmental laws and regulations are complex, change frequently
and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure
to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Although
we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage
against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental,
health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production
efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions
or liabilities, which could materially adversely affect our business, financial condition, results of operations and prospects.
Risks
Related to Our International Operations
As
one of our subsidiaries, Relief, is based outside of the United States, we are subject to economic, political, regulatory and
other risks associated with international operations.
As
Relief is based in the Switzerland, our business is subject to risks associated with conducting business outside of the United
States. Many of our suppliers and clinical trial relationships are located outside the United States. Accordingly, our future
results could be harmed by a variety of factors, including:
|
●
|
economic
weakness, including inflation, or political instability in particular non-U.S. economies and markets;
|
|
|
|
|
●
|
differing
and changing regulatory requirements for product approvals;
|
|
|
|
|
●
|
differing
jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;
|
|
|
|
|
●
|
potentially
reduced protection for intellectual property rights;
|
|
|
|
|
●
|
difficulties
in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance
with a wide variety of foreign laws, treaties and regulations;
|
|
|
|
|
●
|
changes
in non-U.S. regulations and customs, tariffs and trade barriers;
|
|
|
|
|
●
|
changes
in non-U.S. currency exchange rates of the pound sterling, U.S. dollar, euro and currency controls;
|
|
|
|
|
●
|
trade
protection measures, import or export licensing requirements or other restrictive actions by governments;
|
|
|
|
|
●
|
differing
reimbursement regimes and price controls in certain non-U.S. markets;
|
|
|
|
|
●
|
negative
consequences from changes in tax laws;
|
|
|
|
|
●
|
compliance
with tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable
tax treatment in different jurisdictions of options granted under our share option schemes or equity incentive plans;
|
|
|
|
|
●
|
workforce
uncertainty in countries where labor unrest is more common than in the United States;
|
|
|
|
|
●
|
litigation
or administrative actions resulting from claims against us by current or former employees or consultants individually or as
part of class actions, including claims of wrongful terminations, discrimination, misclassification or other violations of
labor law or other alleged conduct;
|
|
|
|
|
●
|
difficulties
associated with staffing and managing international operations, including differing labor relations;
|
|
|
|
|
●
|
production
shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
|
|
|
|
|
●
|
business
interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes,
typhoons, floods and fires.
|
European
data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.
The
collection and use of personal health data in the European Union is was governed by the provisions of the Data Protection Directive,
and which, as of May 25, 2018, has been superseded by the GDPR. These directives impose several requirements relating to the consent
of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing
obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The
Data Protection Directive and GDPR also impose strict rules on the transfer of personal data out of the European Union to the
United States. Failure to comply with the requirements of the Data Protection Directive, the GDPR, and the related national data
protection laws of the European Union Member States may result in fines and other administrative penalties. While the Data Protection
Directive did not apply to organizations based outside the EU, the GDPR has expanded its reach to include any business, regardless
of its location, that provides goods or services to residents in the EU. This expansion would incorporate any potential clinical
trial activities in EU member states. The GDPR imposes strict requirements on controllers and processors of personal data, including
special protections for “sensitive information” which includes health and genetic information of data subjects residing
in the EU. GDPR grants individuals the opportunity to object to the processing of their personal information, allows them to request
deletion of personal information in certain circumstances, and provides the individual with an express right to seek legal remedies
in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer
of personal data out of the European Union to the United States or other regions that have not been deemed to offer “adequate”
privacy protections. Failure to comply with the requirements of the GDPR and the related national data protection laws of the
European Union Member States, which may deviate slightly from the GDPR, may result in fines of up to 4% of global revenues, or
€ 20,000,000, whichever is greater. As a result of the implementation of the GDPR, we may be required to put in place additional
mechanisms ensuring compliance with the new data protection rules.
Exchange
rate fluctuations may materially affect our results of operations and financial condition.
Owing
to the international scope of our operations, fluctuations in exchange rates, particularly between the pound sterling and the
U.S. dollar, may adversely affect us. Although we are based in the United Kingdom, we source research and development, manufacturing,
consulting and other services from the United States and the European Union. Further, potential future revenue may be derived
from abroad, particularly from the United States. As a result, our business and the price of our common stock may be affected
by fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the euro, which may
have a significant impact on our results of operations and cash flows from period to period. Currently, we do not have any exchange
rate hedging arrangements in place.
Risks
Related to Our Dependence on Third Parties
For
certain product candidates, we may depend on development and commercialization collaborators to develop and conduct clinical trials
with, obtain regulatory approvals for, and if approved, market and sell product candidates. If such collaborators fail to perform
as expected, the potential for us to generate future revenue from such product candidates would be significantly reduced and our
business would be harmed.
For
certain products candidates, we depend, or will depend, on our development and commercial collaborators to develop, conduct clinical
trials of, and, if approved, commercialize product candidates.
Our
current collaborations and any future collaborations that we enter into are subject to numerous risks, including:
|
●
|
collaborators
have significant discretion in determining the efforts and resources that they will apply to the collaborations;
|
|
|
|
|
●
|
collaborators
may not perform their obligations as expected or fail to fulfill their responsibilities in a timely manner, or at all;
|
|
●
|
collaborators
may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not
to continue or renew development or commercialization programs based on preclinical studies or clinical trial results, changes
in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert
resources or create competing priorities;
|
|
|
|
|
●
|
collaborators
may delay preclinical studies or clinical trials, provide insufficient funding for clinical trials, stop a preclinical study
or clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a
product candidate for clinical testing;
|
|
|
|
|
●
|
we
may not have access to, or may be restricted from disclosing, certain information regarding product candidates being developed
or commercialized under a collaboration and, consequently, may have limited ability to inform our shareholders about the status
of such product candidates;
|
|
|
|
|
●
|
collaborators
could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized
under terms that are more economically attractive than ours;
|
|
|
|
|
●
|
The
collaborations may not result in product candidates to develop and/or preclinical studies or clinical trials conducted as
part of the collaborations may not be successful;
|
|
|
|
|
●
|
product
candidates developed with collaborators may be viewed by our collaborators as competitive with their own product candidates
or products, which may cause collaborators to stop commercialization of our product candidates;
|
|
|
|
|
●
|
a
collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval
may not commit sufficient resources to the marketing and distribution of any such product candidate; and
|
|
|
|
|
●
|
collaborators
may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way
as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose
us to potential litigation.
|
In
addition, certain collaboration and commercialization agreements provide our collaborators with rights to terminate such agreements,
which rights may or may not be subject to conditions, and which rights, if exercised, would adversely affect our product development
efforts and could make it difficult for us to attract new collaborators. In that event, we would likely be required to limit the
size and scope of efforts for the development and commercialization of such product candidates or products; we would likely be
required to seek additional financing to fund further development or identify alternative strategic collaborations; our potential
to generate future revenue from royalties and milestone payments from such product candidates or products would be significantly
reduced, delayed or eliminated; and it could have an adverse effect on our business and future growth prospects. Our rights to
recover tangible and intangible assets and intellectual property rights needed to advance a product candidate or product after
termination of a collaboration may be limited by contract, and we may not be able to advance a program post- termination.
If conflicts arise with our development and commercialization collaborators or licensors, they may act in their own self-interest, which may be adverse to the interests of our company.
We
may in the future experience disagreements with our development and commercialization collaborators or licensors. Conflicts may
arise in our collaboration and license arrangements with third parties due to one or more of the following:
|
●
|
disputes
with respect to milestone, royalty and other payments that are believed due under the applicable agreements;
|
|
|
|
|
●
|
disagreements
with respect to the ownership of intellectual property rights or scope of licenses;
|
|
●
|
disagreements
with respect to the scope of any reporting obligations;
|
|
|
|
|
●
|
unwillingness
on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities,
or to permit public disclosure of these activities; and
|
|
|
|
|
●
|
disputes
with respect to a collaborator’s or our development or commercialization efforts with respect to our products and product
candidates.
|
Conflicts
with our development and commercialization collaborators or licensors could materially adversely affect our business, financial
condition or results of operations and future growth prospects.
We will rely on third parties, including independent clinical investigators and CROs, to conduct and sponsor some of the clinical trials of our product candidates. Any failure by a third party to meet its obligations with respect to the clinical development of our product candidates may delay or impair our ability to obtain regulatory approval for our product candidates.
We
will be relying upon and plan to continue to rely upon third parties, including independent clinical investigators, academic partners,
regulatory affairs consultants and third-party CROs, to conduct our preclinical studies and clinical trials, including in some
instances sponsoring such clinical trials, and to engage with regulatory authorities and monitor and manage data for our ongoing
preclinical and clinical programs. Given the breadth of clinical therapeutic areas for which we believe our product candidates
may have utility, we intend to continue to rely on external service providers rather than build internal regulatory expertise.
Any
of these third parties may terminate their engagements with us under certain circumstances. We may not be able to enter into alternative
arrangements or do so on commercially reasonable terms. In addition, there is a natural transition period when a new contract
research organization begins work. As a result, delays would likely occur, which could negatively impact our ability to meet our
expected clinical development timelines and harm our business, financial condition and prospects.
We
remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the applicable
protocol and legal, regulatory and scientific standards, and our reliance on these third parties does not relieve us of our regulatory
responsibilities. We and our third-party contractors and CROs are required to comply with GCP requirements, which are regulations
and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and
comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these
GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we fail to exercise
adequate oversight over any of our academic partners or CROs or if we or any of our academic partners or CROs do not successfully
carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical
data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any
other reasons, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or comparable
foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.
We cannot assure you that upon a regulatory inspection of us, our academic partners or our CROs or other third parties performing
services in connection with our clinical trials, such regulatory authority will determine that any of our clinical trials complies
with GCP regulations. In addition, our clinical trials must be conducted with product produced under applicable CGMP regulations.
Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval
process.
Furthermore,
the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under
our agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our
ongoing development programs. These contractors may also have relationships with other commercial entities, including our competitors,
for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to
devote appropriate time to our clinical programs. If these third parties, including clinical investigators, do not successfully
carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements
or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates.
If that occurs, we will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
In
addition, with respect to investigator-sponsored trials that may be conducted, we would not control the design or conduct of these
trials, and it is possible that the FDA or EMA will not view these investigator-sponsored trials as providing adequate support
for future clinical trials or market approval, whether controlled by us or third parties, for any one or more reasons, including
elements of the design or execution of the trials or safety concerns or other trial results. We expect that such arrangements
will provide us certain information rights with respect to the investigator-sponsored trials, including access to and the ability
to use and reference the data, including for our own regulatory submissions, resulting from the investigator-sponsored trials.
However, we would not have control over the timing and reporting of the data from investigator-sponsored trials, nor would we
own the data from the investigator- sponsored trials. If we are unable to confirm or replicate the results from the investigator-sponsored
trials or if negative results are obtained, we would likely be further delayed or prevented from advancing further clinical development.
Further, if investigators or institutions breach their obligations with respect to the clinical development of our product candidates,
or if the data proves to be inadequate compared to the firsthand knowledge we might have gained had the investigator-sponsored
trials been sponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be
adversely affected. Additionally, the FDA or EMA may disagree with the sufficiency of our right of reference to the preclinical,
manufacturing or clinical data generated by these investigator-sponsored trials, or our interpretation of preclinical, manufacturing
or clinical data from these investigator-sponsored trials. If so, the FDA or EMA may require us to obtain and submit additional
preclinical, manufacturing, or clinical data.
We
intend to rely on third parties to manufacture product candidates, which increases the risk that we will not have sufficient quantities
of such product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development
or commercialization efforts.
We
do not own or operate manufacturing facilities for the production of clinical or commercial supplies of the product candidates
that we are developing or evaluating in our development programs. We have limited personnel with experience in drug manufacturing
and lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We
rely on third parties for supply of our product candidates, and our strategy is to outsource all manufacturing of our product
candidates and products to third parties.
In
order to conduct clinical trials of product candidates, we will need to have them manufactured in potentially large quantities.
Our third- party manufacturers may be unable to successfully increase the manufacturing capacity for any of our product candidates
in a timely or cost- effective manner, or at all. In addition, quality issues may arise during scale-up activities and at any
other time. For example, ongoing data on the stability of our product candidates may shorten the expiry of our product candidates
and lead to clinical trial material supply shortages, and potentially clinical trial delays. If these third-party manufacturers
are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development,
testing and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch
of that product candidate may be delayed or not obtained, which could significantly harm our business.
Our
use of new third-party manufacturers increases the risk of delays in production or insufficient supplies of our product candidates
as we transfer our manufacturing technology to these manufacturers and as they gain experience manufacturing our product candidates.
Even after a third-party manufacturer has gained significant experience in manufacturing our product candidates or even if we
believe we have succeeded in optimizing the manufacturing process, there can be no assurance that such manufacturer will produce
sufficient quantities of our product candidates in a timely manner or continuously over time, or at all.
We
may be delayed if we need to change the manufacturing process used by a third party. Further, if we change an approved manufacturing
process, then we may be delayed if the FDA or a comparable foreign authority needs to review the new manufacturing process before
it may be used.
We
operate an outsourced model for the manufacture of our product candidates, and contract with good manufacturing practice, or GMP,
licensed pharmaceutical contract development and manufacturing organizations. While we have engaged several third-party vendors
to provide clinical and non-clinical supplies and fill-finish services, we do not currently have any agreements with third-party
manufacturers for long-term commercial supplies. In the future, we may be unable to enter into agreements with third-party manufacturers
for commercial supplies of any product candidate that we develop, or may be unable to do so on acceptable terms. Even if we are
able to establish and maintain arrangements with third-party manufacturers, reliance on third- party manufacturers entails risks,
including:
|
●
|
reliance
on third-parties for manufacturing process development, regulatory compliance and quality assurance;
|
|
|
|
|
●
|
limitations
on supply availability resulting from capacity and scheduling constraints of third-parties;
|
|
|
|
|
●
|
the
possible breach of manufacturing agreements by third-parties because of factors beyond our control; and
|
|
|
|
|
●
|
the
possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient
to us.
|
Third-party
manufacturers may not be able to comply with cGMP requirements or similar regulatory requirements outside the United States. Our
failure, or the failure of our third-party manufacturers, to comply with applicable requirements could result in sanctions being
imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and/or criminal prosecutions, any of which could
significantly and adversely affect supplies of our product candidates. In addition, some of the product candidates we intend to
develop, including SON-080, use toxins or other substances that can be produced only in specialized facilities with specific authorizations
and permits, and there can be no guarantee that we or our manufacturers can maintain such authorizations and permits. These specialized
requirements may also limit the number of potential manufacturers that we can engage to produce our product candidates, and impair
any efforts to transition to replacement manufacturers.
Our
future product candidates and any products that we may develop may compete with other product candidates and products for access
to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP requirements that might be capable
of manufacturing for us.
If
the third parties that we engage to supply any materials or manufacture product for our preclinical tests and clinical trials
should cease to continue to do so for any reason, we likely would experience delays in advancing these tests and trials while
we identify and qualify replacement suppliers or manufacturers and we may be unable to obtain replacement supplies on terms that
are favorable to us. In addition, if we are not able to obtain adequate supplies of our product candidates or the substances used
to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.
Our
current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future
profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on
a timely and competitive basis.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover
them or that our trade secrets will be misappropriated or disclosed.
Because
we rely on third parties to manufacture our product candidates, and because we collaborate with various organizations and academic
institutions on the development of our product candidates, we must, at times, share trade secrets with them. We seek to protect
our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements,
collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees
and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights
of the third parties to use or disclose our confidential information, such as trade secrets.
Despite
the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information
increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology
of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on
our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would
impair our competitive position and may have a material adverse effect on our business.
In
addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish
data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that
we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights
arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we
may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our
trade secrets, either through breach of these agreements, independent development or publication of information including our
trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s
discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks
Related to Our Intellectual Property
If
we are unable to obtain and maintain patent and other intellectual property protection for our products and product candidates,
or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could
develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products and
product candidates may be adversely affected.
Our
ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our technology and manufacturing
processes. We rely on research, manufacturing and other know-how, patents, trade secrets, license agreements and contractual provisions
to establish our intellectual property rights and protect our products and product candidates. These legal means, however, afford
only limited protection and may not adequately protect our rights. As of December 16, 2020, our intellectual property portfolio
includes 14 patent applications.
In
certain situations and as considered appropriate, we have sought, and we intend to continue to seek to protect our proprietary
position by filing patent applications in the United States and, in at least some cases, one or more countries outside the United
States relating to current and future products and product candidates that are important to our business. However, we cannot predict
whether the patent applications currently being pursued will issue as patents, or whether the claims of any resulting patents
will provide us with a competitive advantage or whether we will be able to successfully pursue patent applications in the future
relating to our current or future products and product candidates. Moreover, the patent application and approval process is expensive
and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost
or in a timely manner. Furthermore, we, or any future partners, collaborators, or licensees, may fail to identify patentable aspects
of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection
on them. Therefore, we may miss potential opportunities to seek additional patent protection. It is possible that defects of form
in the preparation or filing of patent applications may exist, or may arise in the future, for example with respect to proper
priority claims, inventorship, claim scope, or requests for patent term adjustments. If we fail to establish, maintain or protect
such patents and other intellectual property rights, such rights may be reduced or eliminated. If there are material defects in
the form, preparation, prosecution or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable,
and such applications may never result in valid, enforceable patents.
Even
if they are unchallenged, our patents and patent applications, if issued, may not provide us with any meaningful protection or
prevent competitors from designing around our patent claims by developing similar or alternative technologies or therapeutics
in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one
or more of our product candidates but that falls outside the scope of our patent protection. If the patent protection provided
by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede
such competition, our ability to successfully commercialize our product candidates could be negatively affected.
As
discussed under the heading “BUSINESS”, our WO/2018/151868 patent application was not timely filed in the PCT
receiving office due to a computer issue at the filing office. Despite the restoration of priority by the PCT as “unintentional”,
some countries in which this application was foreign filed did not accept this restoration. Canada and China do not allow for
such priority restoration. Brazil, Europe, India and Japan allow priority restoration under a more rigorous “due care”
standard, and such restoration procedures are pending in these jurisdictions. However, if priority is not restored, these patent
applications will face both our own publications as well as any additional prior art published by third parties in the year preceding
the PCT filing. This could affect the scope or breadth of the patent claims we are pursuing in these specific jurisdictions, or
could result in no ability to receive patents in these countries.
Other
parties, many of whom have substantially greater resources and have made significant investments in competing technologies, have
developed or may develop technologies that may be related or competitive with our approach, and may have filed or may file patent
applications and may have been issued or may be issued patents with claims that overlap or conflict with our patent applications,
either by claiming the same compositions, formulations or methods or by claiming subject matter that could dominate our patent
position. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States.
As a result, any patents we may obtain in the future may not provide us with adequate and continuing patent protection sufficient
to exclude others from commercializing products similar to our products and product candidates.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the
breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign
jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds commonly involves complex
legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope,
validity, enforceability and commercial value of our patent rights are highly uncertain. Our competitors may also seek approval
to market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to
market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that our patents are invalid,
unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, including by filing
lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find
our patents invalid or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, even if we have
valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient
to achieve our business objectives.
In
the future, one or more of our products and product candidates may be in-licensed from third parties. Accordingly, in some cases,
the availability and scope of potential patent protection is limited based on prior decisions by our licensors or the inventors,
such as decisions on when to file patent applications or whether to file patent applications at all. Our failure to obtain, maintain,
enforce or defend such intellectual property rights, for any reason, could allow third parties, in particular, other established
and better financed competitors having established development, manufacturing and distribution capabilities, to make competing
products or impact our ability to develop, manufacture and market our products and product candidates, even if approved, on a
commercially viable basis, if at all, which could have a material adverse effect on our business.
In
addition to patent protection, we expect to rely heavily on trade secrets, know-how and other unpatented technology, which are
difficult to protect. Although we seek such protection in part by entering into confidentiality agreements with our vendors, employees,
consultants and others who may have access to proprietary information, we cannot be certain that these agreements will not be
breached, adequate remedies for any breach would be available, or our trade secrets, know-how and other unpatented proprietary
technology will not otherwise become known to or be independently developed by our competitors. If we are unsuccessful in protecting
our intellectual property rights, sales of our products may suffer and our ability to generate revenue could be severely impacted.
Issued
patents covering our products and product candidates could be found invalid or unenforceable if challenged in court or in administrative
proceedings. We may not be able to protect our trade secrets in court.
If
we initiate legal proceedings against a third-party to enforce a patent covering one of our products or product candidates, should
such a patent issue, the defendant could counterclaim that the patent covering our product or product candidate is invalid or
unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are
commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including
lack of novelty, obviousness, written description or non- enablement. Grounds for an unenforceability assertion could be an allegation
that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a
misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United
States or abroad, even outside the context of litigation. Such mechanisms include re- examination, post grant review, inter partes
review and equivalent proceedings in foreign jurisdictions. An adverse determination in any of the foregoing proceedings could
result in the revocation or cancellation of, or amendment to, our patents in such a way that they no longer cover our products
or product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect
to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which the patent examiner
and we were unaware during prosecution. If a defendant or third party were to prevail on a legal assertion of invalidity or unenforceability,
we could lose at least part, and perhaps all, of the patent protection on one or more of our products and product candidates.
Such a loss of patent protection could have a material adverse impact on our business.
In
addition, our trade secrets may otherwise become known or be independently discovered by competitors. Competitors and other third
parties could purchase our products and product candidates and attempt to replicate some or all of the competitive advantages
we derive from our development efforts, willfully infringe, misappropriate or otherwise violate our intellectual property rights,
design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property
rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party,
we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete
with us. If our trade secrets are not adequately protected or sufficient to provide an advantage over our competitors, our competitive
position could be adversely affected, as could our business. Additionally, if the steps taken to maintain our trade secrets are
deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.
We
may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an ownership interest in the patents
and intellectual property that we own or that we may own or license in the future. While it is our policy to require our employees
and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual
property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property
that we regard as our own or such assignments may not be self-executing or may be breached. We could be subject to ownership disputes
arising, for example, from conflicting obligations of employees, consultants or others who are involved in developing our products
or product candidates. Litigation may be necessary to defend against any claims challenging inventorship or ownership. If we or
fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property rights, such
as exclusive ownership of, or right to use, intellectual property, which could adversely impact our business, results of operations
and financial condition.
Obtaining
and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non- compliance with these
requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be
paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of
the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has
issued. There are situations in which non- compliance can result in abandonment or lapse of the patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. The terms of one or more licenses that we
enter into the future may not provide us with the ability to maintain or prosecute patents in the portfolio, and must therefore
rely on third parties to do so.
If
we do not obtain patent term extension and data exclusivity for our products and product candidates, our business may be materially
harmed.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is
generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a
patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent
life has expired for a product candidate, we may be open to competition from competitive products. Given the amount of time required
for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire
before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient
rights to exclude others from commercializing products similar or identical to ours.
In
the future, if we obtain an issued patent covering one of our present or future product candidates, depending upon the timing,
duration and specifics of any FDA marketing approval of such product candidates, such patent may be eligible for limited patent
term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman
Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review
process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product
approval, only one patent may be extended and only those claims covering the approved drug, a method for using it or a method
for manufacturing it may be extended. A patent may only be extended once and only based on a single approved product. However,
we may not be granted an extension because of, for example, failure to obtain a granted patent before approval of a product candidate,
failure to exercise due diligence during the testing phase or regulatory review process, failure to apply within applicable deadlines,
failure to apply prior to expiration of relevant patents or otherwise our failure to satisfy applicable requirements. A patent
licensed to us by a third party may not be available for patent term extension. Moreover, the applicable time period or the scope
of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any
such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration,
and our revenue could be reduced, possibly materially.
Changes
in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our
ability to protect our products and product candidates.
Changes
in either the patent laws or the interpretation of the patent laws in the United States or other jurisdictions could increase
the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents.
On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. When implemented, the
Leahy-Smith Act included several significant changes to U.S. patent law that impacted how patent rights could be prosecuted, enforced
and defended. In particular, the Leahy-Smith Act also included provisions that switched the United States from a “first-to-invent”
system to a “first-to-file” system, allowed third- party submission of prior art to the USPTO during patent prosecution
and set forth additional procedures to attack the validity of a patent by the USPTO administered post grant proceedings. Under
a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application
generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier.
The USPTO developed new regulations and procedures governing the administration of the Leahy-Smith Act, and many of the substantive
changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective
on March 16, 2013. It remains unclear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However,
the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business.
In
addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly
uncertain. Recent rulings from the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court have narrowed the
scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations.
This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained.
Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents
could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability
to protect and enforce our intellectual property in the future.
We
cannot assure you that our efforts to seek patent protection for one or more of our products and product candidates will not be
negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the
USPTO. We cannot fully predict what impact courts’ decisions in historical and future cases may have on the ability of life
science companies to obtain or enforce patents relating to their products in the future. These decisions, the guidance issued
by the USPTO and rulings in other cases or changes in USPTO guidance or procedures could have a material adverse effect on our
existing patent rights and our ability to protect and enforce our intellectual property in the future.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting, maintaining, defending and enforcing patents on products and product candidates in all countries throughout the world
would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less
extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly in
developing countries; thus, even in countries where we do pursue patent protection, there can be no assurance that any patents
will issue with claims that cover our products. There can be no assurance that we will obtain or maintain patent rights in or
outside the United States under any future license agreements. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able
to prevent third parties from practicing our inventions in all countries outside the United States, even in jurisdictions where
we pursue patent protection, or from selling or importing products made using our inventions in and into the United States or
other jurisdictions. Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection
to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection,
but enforcement is not as strong as that in the United States. These products may compete with our products and product candidates
and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical products,
which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of
our proprietary rights generally. For example, many foreign countries have compulsory licensing laws under which a patent owner
must grant licenses to third parties. Proceedings to enforce our patent rights, even if obtained, in foreign jurisdictions could
result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at
risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties
to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if
any, may not be commercially meaningful. While we intend to protect our intellectual property rights in major markets for our
products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish
to market our products. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop.
If
we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and
could prevent or delay us from developing or commercializing our product candidates.
Our
commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing
the intellectual property and other proprietary rights of third parties. Third parties may have U.S. and non-U.S. issued patents
and pending patent applications relating to compounds, methods of manufacturing compounds and/or methods of use for the treatment
of the disease indications for which we are developing our product candidates. If any third-party patents or patent applications
are found to cover our product candidates or their methods of use or manufacture, we and our collaborators or sublicensees may
not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available
on commercially reasonable terms, or at all. We may also be required to indemnify our collaborators or sublicensees in such an
event.
There
is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become
party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect
to our products candidates, including interference and post-grant proceedings before the USPTO. There may be third-party patents
or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the
composition, use or manufacture of our product candidates. We cannot guarantee that any of our patent searches or analyses including,
but not limited to, the identification of relevant patents, the scope of patent claims or the expiration of relevant patents are
complete or thorough, nor can we be certain that we have identified each and every patent and pending application in the United
States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. Because
patent applications can take many years to issue, there may be currently pending patent applications which may later result in
issued patents that our product candidates may be accused of infringing. In addition, third parties may obtain patents in the
future and claim that use of our technologies infringes upon these patents. Accordingly, third parties may assert infringement
claims against us based intellectual property rights that exist now or arise in the future. The outcome of intellectual property
litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries
have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents
cover various types of products or methods of use or manufacture. The scope of protection afforded by a patent is subject to interpretation
by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate
that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent
claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United
States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of
our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business
and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
If
we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to
cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required
to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or
marketing the infringing product candidate or product.
However,
we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a
license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us; alternatively
or additionally it could include terms that impede or destroy our ability to compete successfully in the commercial marketplace.
In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found
to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or
force us to cease some of our business operations, which could harm our business. Claims that we have misappropriated the confidential
information or trade secrets of third parties could have a similar negative impact on our business.
We
may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property,
or claiming ownership of what we regard as our own intellectual property.
Many
of our current and former employees, including our senior management, were previously employed at universities or at other biotechnology
or pharmaceutical companies, including some which may be competitors or potential competitors. Some of these employees may be
subject to proprietary rights, non-disclosure and non- competition agreements, or similar agreements, in connection with such
previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others
in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including
trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights
or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required
to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on
commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management.
In
addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement
with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against
us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending
against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific
personnel.
We
may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive,
time-consuming and unsuccessful.
Competitors
may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of
our management and scientific personnel. In addition, our patents may become, involved in inventorship, priority, or validity
disputes. To counter or defend against such claims can be expensive and time-consuming, and our adversaries may have the ability
to dedicate substantially greater resources to prosecuting these legal actions than we can. Any claims we assert against perceived
infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition
to counterclaims asserting that our patents are invalid or unenforceable, or both.
In
an infringement proceeding, a court may decide that a patent is invalid or unenforceable, or may refuse to stop the other party
from using the technology at issue on the grounds that our patents do not cover the technology in question. Accordingly, despite
our efforts, we may not be able to prevent third parties from infringing upon or misappropriating intellectual property rights
we own or control. An adverse result in any litigation proceeding could put one or more of our owned or in-licensed patents at
risk of being invalidated or interpreted narrowly. Further, because of the substantial amount of discovery required in connection
with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure
during this type of litigation.
Even
if resolved in our favor, the court may decide not to grant an injunction against further infringing activity and instead award
only monetary damages, which may or may not be an adequate remedy. Litigation or other legal proceedings relating to intellectual
property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities.
In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments,
and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the
price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources
available for development activities or any future sales, marketing, or distribution activities.
We
may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors
may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial
resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
If
we fail to comply with our obligations under any future intellectual property licenses with third parties, we could lose license
rights that are important to our business.
In
connection with our efforts to build our product candidate pipeline, we may enter into license agreements in the future. We expect
that such license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us.
If we fail to comply with our obligations under these licenses, our licensors may have the right to terminate these license agreements,
in which event we might not be able to market any product that is covered by these agreements, or our licensors may convert the
license to a non-exclusive license, which could negatively impact the value of the product candidate being developed under the
license agreement. Termination of these license agreements or reduction or elimination of our licensed rights may also result
in our having to negotiate new or reinstated licenses with less favorable terms.
If
our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks of
interest and our business may be adversely affected.
Our
trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other
marks. We rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to
these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners
or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would
be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO
and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications
and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our
trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade
names, we may not be able to compete effectively and our business may be adversely affected.
Risks
Related to Employee Matters and Managing Growth
We
only have a limited number of employees to manage and operate our business.
As
of December 15, 2020, we had about 8 full-time U.S. employees and 1 Swiss employee on contract. Additionally, we
utilize independent contractors and other third parties to assist with various aspects of our business. Our focus on the development
of our product candidates requires us to optimize cash utilization and to manage and operate our business in a highly efficient
manner. We cannot assure you that we will be able to hire or retain adequate staffing levels to develop our product candidates
or run our operations or to accomplish all of the objectives that we otherwise would seek to accomplish.
Cyber-attacks
or other failures in telecommunications or information technology systems could result in information theft, data corruption and
significant disruption of our business operations.
We
utilize information technology, or IT, systems and networks to process, transmit and store electronic information in connection
with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and
attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats
pose a risk to the security of our systems and networks, the confidentiality and the availability and integrity of our data.
Our
future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified
personnel.
We
are highly dependent on principal members of our executive team and key employees, the loss of whose services may adversely impact
the achievement of our objectives. While we have entered into employment agreements with certain of our executive officers, any
of them could leave our employment at any time. We do not maintain “key person” insurance policies on the lives of
these individuals or the lives of any of our other employees. The loss of the services of one or more of our current employees
might impede the achievement of our research, development and commercialization objectives. Furthermore, replacing executive officers
or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in
our industry with the breadth of skills and experience required to develop, gain marketing approval of and commercialize products
successfully.
Recruiting
and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel,
will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to
continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract
and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals
with similar skill sets. In addition, failure to succeed in preclinical or clinical trials may make it more challenging to recruit
and retain qualified personnel.
In
addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research
and development and commercialization strategy. Our consultants and advisors may be employed by other entities and may have commitments
under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue
to attract and retain highly qualified personnel, our ability to develop and commercialize our product candidates will be limited.
The
inability to recruit or the loss of the services of any executive, key employee, consultant or advisor may impede the progress
of our research, development and commercialization objectives.
Our
employees, independent contractors, consultants, collaborators and contract research organizations may engage in misconduct or
other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant
liability for us and harm our reputation.
We
are exposed to the risk that our employees, independent contractors, consultants, collaborators and contract research organizations
may engage in fraudulent conduct or other illegal activity. Misconduct by those parties could include intentional, reckless and/or
negligent conduct or disclosure of unauthorized activities to us that violates: (1) FDA regulations or similar regulations of
comparable non-U.S. regulatory authorities, including those laws requiring the reporting of true, complete and accurate information
to such authorities, (2) manufacturing standards, (3) federal and state healthcare fraud and abuse laws and regulations and similar
laws and regulations established and enforced by comparable non-U.S. regulatory authorities, and (4) laws that require the reporting
of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry
are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self- dealing, bribery and other
abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. Employee or collaborator misconduct could also
involve the improper use of, including trading on, information obtained in the course of clinical trials, which could result in
regulatory sanctions and serious harm to our reputation. While we have a code of conduct and business ethics, it is not always
possible to identify and deter 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, standards 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 civil, criminal and administrative penalties, damages, monetary
fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting
requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations
of non-compliance with these laws, imprisonment, contractual damages, reputational harm, diminished profits and future earnings,
and curtailment of our operations, any of which could have a material adverse effect on our ability to operate our business and
our results of operations.
We
expect to expand our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt
our operations.
We
expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas
of drug manufacturing, regulatory affairs and sales, marketing and distribution, as well as to support our public company operations.
To manage these growth activities, we must continue to implement and improve our managerial, operational and financial systems,
expand our facilities and continue to recruit and train additional qualified personnel. Our management may need to devote a significant
amount of its attention to managing these growth activities. Moreover, our expected growth could require us to relocate to geographic
areas beyond those where we have been historically located. For example, we maintain an office in Princeton, New Jersey, at which
many of our finance, management and administrative personnel work. Due to our limited financial resources and the limited experience
of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion
or relocation of our operations, retain key employees, or identify, recruit and train additional qualified personnel. Our inability
to manage the expansion or relocation of our operations effectively may result in weaknesses in our infrastructure, give rise
to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.
Our expected growth could also require significant capital expenditures and may divert financial resources from other projects,
such as the development of additional product candidates. If we are unable to effectively manage our expected growth, our expenses
may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our business
strategy, including the successful commercialization of our product candidates.
Risks
Related to Our Common Stock
The
market price of our common stock may be significantly volatile.
The
market price for our common stock may be volatile and subject to wide fluctuations in response to factors including the following:
|
●
|
actual
or anticipated fluctuations in our quarterly or annual operating results;
|
|
●
|
changes
in financial or operational estimates or projections;
|
|
●
|
conditions
in markets generally;
|
|
●
|
changes
in the economic performance or market valuations of companies similar to ours; and
|
|
●
|
general
economic or political conditions in the United States or elsewhere.
|
In
particular, the market prices of biotechnology companies like ours have been highly volatile due to factors, including, but not
limited to:
|
●
|
any
delay or failure to conduct a clinical trial for our product or receive approval from the FDA and other regulatory agencies;
|
|
●
|
developments
or disputes concerning a company’s intellectual property rights;
|
|
●
|
technological
innovations of such companies or their competitors;
|
|
●
|
changes
in market valuations of similar companies;
|
|
●
|
announcements
by such companies or their competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital
commitments, new technologies, or patents; and
|
|
●
|
failure
to complete significant transactions or collaborate with vendors in manufacturing a product.
|
The
securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating
performance of particular companies. These market fluctuations may also materially and adversely affect the market price of shares
of our common stock.
We
do not expect to pay cash dividends in the foreseeable future and therefore investors should not anticipate cash dividends on
their investment.
Our
board of directors does not intend to pay cash dividends in the foreseeable future but instead intends to retain any and all earnings
to finance the growth of the business. To date, we have not paid any cash dividends and there can be no assurance that cash dividends
will ever be paid on our common stock.
We
incur significant costs and devote substantial management time as a result of operating as a public company, and we expect those
costs to increase.
As
a public company, we incur significant legal, accounting and other expenses. For example, we are required to comply with certain
of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules
and regulations subsequently implemented by the SEC, including the establishment and maintenance of effective disclosure and financial
controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal
and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management
and other personnel will need to divert attention from operational and other business matters to devote substantial time to these
public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward
ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. We currently do not have an internal audit
function, and we may need to hire or contract for additional accounting and financial staff with appropriate public company experience
and technical accounting knowledge.
There
may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud
may materially harm our company.
We
are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things,
the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material
weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that
a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely
basis.
Effective
internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with
adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required
new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.
Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements
and require us to incur the expense of remediation.
Moreover,
we do not expect that disclosure controls or internal control over financial reporting will prevent all error and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Failure of our control systems to detect or prevent error or fraud could materially adversely impact us.
Any
of the foregoing occurrences, should they come to pass, could negatively impact the public perception of our company, which could
have a negative impact on our stock price.
We
may be unable to complete our analysis of our internal controls over financial reporting in a timely manner, or these internal
controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result,
the value of our common stock.
We
may not be able to complete our evaluation and testing of our internal control over financial reporting. During the evaluation
and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will
be unable to assert that our internal controls are effective.
If
we are unable to assert that our internal control over financial reporting is effective, or, if applicable, our independent registered
public accounting firm is unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence
in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we
may be subject to investigation or sanctions by the SEC. We will also be required to disclose changes made in our internal control
and procedures on a quarterly basis.
Anti-takeover
provisions under Delaware law could make an acquisition of the combined company more difficult and may prevent attempts by the
combined company stockholders to replace or remove the combined company management.
Because
the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General
Corporation Law, or the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting
stock from merging or combining with the combined company. Although we believe these provisions collectively will provide for
an opportunity to receive higher bids by requiring potential acquirers to negotiate with the combined company’s board of
directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions
may frustrate or prevent any attempts by the combined company’s stockholders to replace or remove then current management
by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing
the members of management.
Director
and officer liability is limited.
As
permitted by Delaware law, our bylaws limit the liability of our directors for monetary damages for breach of a director’s
fiduciary duty except for liability in certain instances. As a result of our bylaw provisions and Delaware law, stockholders may
have limited rights to recover against directors for breach of fiduciary duty.
General
Risk Factors
Cyber-attacks
or other failures in telecommunications or information technology systems could result in information theft, data corruption and
significant disruption of our business operations.
We
utilize information technology, or IT, systems and networks to process, transmit and store electronic information in connection
with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and
attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats
pose a risk to the security of our systems and networks, the confidentiality and the availability and integrity of our data.
Our
common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities,
warrants or options.
In
the past, we have issued common stock, convertible securities (such as convertible notes) and warrants in order to raise capital.
We have also issued common stock as compensation for services and incentive compensation for our employees, directors and certain
vendors. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase
the shares reserved for these purposes in the future. Our issuance of additional common stock, convertible securities, options
and warrants could affect the rights of our stockholders, could reduce the market price of our common stock or could result in
adjustments to exercise prices of outstanding warrants (resulting in these securities becoming exercisable for, as the case may
be, a greater number of shares of our common stock), or could obligate us to issue additional shares of common stock to certain
of our stockholders.
Shares
eligible for future sale may adversely affect the market.
From
time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of
ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act, subject to
certain limitations. In general, pursuant to Rule 144, stockholders who have been non-affiliates for the preceding three
months may sell shares of our common stock freely after six months subject only to the current public information
requirement. Affiliates may sell shares of our common stock after six months subject to the Rule 144 volume, manner of sale,
current public information and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a
material adverse effect on the market price of our common stock.