PROSPECTUS SUPPLEMENT NO. 2
(to prospectus dated March 23, 2020)
This prospectus supplement is being filed
to update and supplement the information contained in the prospectus dated March 23, 2020 (the “prospectus”), covering
resales by selling stockholders of Applied Therapeutics, Inc., identified on Page 153 of the prospectus, with the information contained
in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, filed with the Securities and Exchange Commission
(the “SEC”) on May 11, 2020.
This prospectus supplement updates and
supplements the information in the prospectus and is not complete without, and may not be delivered or utilized except in combination
with, the prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction
with the prospectus and if there is any inconsistency between the information in the prospectus and this prospectus supplement,
you should rely on the information in this prospectus supplement.
Unless the context otherwise requires,
the terms “Applied Therapeutics,” “the company,” “we,” “us,” “our”
and similar references in this prospectus supplement refer to Applied Therapeutics, Inc.
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes x No ¨
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 8, 2020, the
registrant had 21,970,177 shares of common stock, $0.0001 par value per share, outstanding.
Operations and Business
Applied Therapeutics,
Inc. (the “Company”) is a clinical-stage biopharmaceutical company developing a pipeline of novel product candidates
against validated molecular targets in indications of high unmet medical need. In particular, the Company is currently targeting
treatments for cardiovascular disease, galactosemia and diabetic complications. The Company was incorporated in Delaware on January
20, 2016 and is headquartered in New York, New York.
On May 16, 2019, the Company
completed an initial public offering (“IPO”) in which the Company issued and sold 4,000,000 shares of its common stock
at a public offering price of $10.00 per share, for aggregate gross proceeds of $40.0 million. The Company received net of proceeds
$34.6 million, after deducting underwriting discounts and commissions and offering costs. Prior to the completion of the IPO, the
Company primarily funded its operations with proceeds from the sale of convertible preferred stock (see Note 8).
In connection with the
IPO, the Company effected a 55.2486-for-1 stock split of its issued and outstanding shares of common stock and convertible preferred
stock. The stock split became effective on April 26, 2019. Stockholders entitled to fractional shares as a result of the forward
stock split received cash payment in lieu of receiving fractional shares. All share and per share amounts for all periods presented
in the accompanying condensed financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect
this stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately
increased and the respective per share value and exercise prices, if applicable, were proportionately decreased in accordance with
the terms of the agreements governing such securities.
Upon the closing of the
IPO on May 16, 2019, all of the then-outstanding shares of convertible preferred stock automatically converted into 7,538,671 shares
of common stock on a one-for-one basis. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock
outstanding.
On November 12, 2019,
the Company completed a private placement (the “Private Placement”), pursuant to which it issued and sold 1,380,344
shares of the Company’s common stock at a price of $14.50 per share, for net proceeds of $18.4 million after deducting placement
agent discounts and commissions and offering costs.
On January 28, 2020, the
Company completed its secondary public offering (the “Secondary Public Offering”), pursuant to which it issued and
sold 2,741,489 shares of common stock at a public offering price of $45.50 per share, with an additional 411,223 shares sold pursuant
to the underwriters’ full exercise of their option to purchase additional shares. The aggregate net proceeds received by
the Company from the offering, after deducting underwriting discounts and commissions and offering costs, were $134.1 million.
The accompanying unaudited
condensed financial statements as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019
have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) and, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim
financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements should
be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December
31, 2019 included in the Annual Report, filed with the SEC on March 13, 2020 (the “Annual Report”).
The unaudited condensed
financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the
accompanying unaudited condensed financial statements contain all adjustments which are necessary for a fair presentation of the
Company’s financial position as of March 31, 2020, results of operations for the three months ended March 31, 2020 and 2019
and cash flows for the three months ended March 31, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results
of operations for the three months ended March 31, 2020 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 2020.
Liquidity
The Company has incurred,
and expects to continue to incur, significant operating losses and negative cash flows for at least the next several years as it
continues to develop its drug candidates. To date, the Company has not generated any revenue, and it does not expect to generate
revenue unless and until it successfully completes development and obtains regulatory approval for one of its product candidates.
Management believes that
the Company’s existing cash, cash equivalents, and investments will allow the Company to continue its operations for at least
12 months from the issuance date of these financial statements. After 12 months from the issuance of these financial statements,
the Company may need to obtain additional funding. The Company may pursue additional cash resources through public or private financings.
Risks and Uncertainties
The Company is subject
to risks common to companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies
and clinical trials, the need to obtain marketing approval for any product candidate that it may identify and develop, the need
to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of
proprietary technology, compliance with government regulations, development by competitors of technological innovations and reliance
on third-party manufacturers.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period. Actual results could differ from those estimates.
Significant Accounting Policies
The significant accounting
policies and estimates used in preparation of the condensed financial statements are described in the Company’s audited financial
statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Annual Report. Except
as detailed below, there have been no material changes to the Company’s significant accounting policies during the three
months ended March 31, 2020.
Stock-Based Compensation–Restricted
Stock Units
The Company accounts for
restricted stock units in accordance with the authoritative guidance for stock-based compensation. The fair value of restricted
stock units is measured at the grant date based on the closing market price of the Company’s common stock on the date
of grant, and is recognized as expense on a straight-line basis over the period of vesting. Forfeitures are recognized as a reduction
of stock-based compensation expense as they occur.
Recent Accounting Pronouncements
On January 1, 2020, the
Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current
expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology applies to financial
instruments measured at amortized cost, including loan receivables and held-to-maturity debt securities, off-balance sheet credit
exposures and net investments in leases recognized by a lessor. ASC 326 also made changes to the accounting for available-for-sale
debt securities, where credit losses are required to be presented as an allowance as opposed to a write-down.
The FASB issued authoritative
guidance that amends guidance on reporting credit losses for assets, including available-for-sale marketable securities and any
other financial assets not excluded from the scope that have the contractual right to receive cash. For available-for-sale marketable
securities, credit losses should be measured in a manner similar to current generally accepted accounting standards; however, ASU
2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, will
require that credit losses be presented as an allowance rather than as a write-down.
For available-for-sale
debt securities in an unrealized position, the Company assesses whether a decline in fair value resulted from credit losses or
other factors. Management considers the extent to which fair value is less than amortized cost, any changes to the credit rating
of the security, and adverse conditions specifically related to the security. If the assessment indicates a credit loss exists,
an allowance is recorded that is limited to the amount the amortized cost exceeds the fair value. Any impairment that is not recognized
through the allowance for credit loss is recognized in other comprehensive income.
The Company adopted ASC
326 using the modified retrospective method approach, where a cumulative-effect adjustment to credit loss allowance would be reflected
in retained earnings. The adoption of this standard did not have an impact on the Company’s balance sheet as there were no
credit losses identified.
In August 2018, the FASB
issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. The new guidance
is effective for fiscal years beginning after December 15, 2019. Upon the effective date, certain provisions are to be applied
prospectively, while others are to be applied retrospectively to all periods presented. The amendments eliminated certain disclosure
requirements such as the elimination of disclosing the valuation process for Level 3 fair value measurements. Other amendments
in the update did not impact the Company. The Company adopted the amendments on January 1, 2020 with no impact on our financial
statements.
In December 2019, the
FASB issued ASU 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The new standard intended to simplify
the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.
The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies
the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods
beginning after December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires
certain changes to primarily be made prospectively, with some changes to be made retrospectively. The Company is currently evaluating
the impact adoption of ASU 2019-12 will have on its financial statements.
2. LICENSE AGREEMENT
Columbia University
In October 2016, the Company
entered into a license agreement (the “2016 Columbia Agreement”) with the Trustees of Columbia University (“Columbia
University”) to obtain an exclusive royalty-bearing sublicensable license in respect to certain patents. As part of the consideration
for entering into the 2016 Columbia Agreement, the Company issued to Columbia University shares equal to 5% of its outstanding
common stock on a fully diluted basis at the time of issue. The common stock had a fair value of $0.5 million at the time
of issuance. The Company will be required to make further payments to Columbia University of up to an aggregate of $1.3 million
for the achievement of specified development and regulatory milestones, and up to an aggregate of $1.0 million for the achievement
of a specified level of aggregate annual net sales, in each case in connection with products covered by the 2016 Columbia Agreement.
The Company will also be required to pay tiered royalties to Columbia University in the low- to mid-single digit percentages on
the Company’s, its affiliates’ and its sublicensees’ net sales of licensed products, subject to specified offsets
and reductions. In addition, the Company is required to make specified annual minimum royalty payments to Columbia University,
which is contingent upon the approval of the licensed products, in the mid-six figures beginning on the 10th anniversary of
the effective date of the 2016 Columbia Agreement. The Company has not granted any sublicenses under the 2016 Columbia Agreement.
However, if the Company sublicenses the rights granted under the 2016 Columbia Agreement to one or more third parties, it will
be required to pay Columbia University a portion of the net sublicensing revenue received from such third parties, at percentages
between 10% and 20%, depending on the stage of development at the time such revenue is received from such third parties.
The 2016 Columbia Agreement
will terminate upon the expiration of all the Company’s royalty payment obligations in all countries. The Company may terminate
the 2016 Columbia Agreement for convenience upon 90 days’ written notice to Columbia University. At its election, Columbia
University may terminate the 2016 Columbia Agreement, or convert the licenses granted to the Company into non-exclusive, non-sublicensable
licenses, in the case of (a) the Company’s uncured material breach upon 30 days’ written notice (which shall
be extended to 90 days if the Company is diligently attempting to cure such material breach), (b) the Company’s
failure to achieve the specified development and funding milestone events, or (c) the Company’s insolvency.
In January 2019, the Company
entered into a second license agreement with Columbia University (the “2019 Columbia Agreement”). Pursuant to the 2019
Columbia Agreement, Columbia University granted the Company a royalty-bearing, sublicensable license that is exclusive with respect
to certain patents, and non-exclusive with respect to certain know-how, in each case to develop, manufacture and commercialize
PI3k inhibitor products. The license grant is worldwide. Under the 2019 Columbia Agreement, the Company is obligated to use commercially
reasonable efforts to research, discover, develop and market licensed products for commercial sale in the licensed territory, and
to comply with certain obligations to meet specified development and funding milestones within defined time periods. Columbia University
retains the right to conduct, and grant third parties the right to conduct, non-clinical academic research using the licensed technology;
provided that such research is not funded by a commercial entity or for-profit entity or results in rights granted to a commercial
or for-profit entity. As consideration for entering into the 2019 Columbia Agreement, the Company made a nominal upfront payment
to Columbia University. The Company will be required to make further payments to Columbia University of up to an aggregate of $1.3
million for the achievement of specified development and regulatory milestones, and up to an aggregate of $1.0 million for the
achievement of a specified level of aggregate annual net sales, in each case in connection with products covered by the 2019 Columbia
Agreement. The Company will also be required to pay tiered royalties to Columbia University in the low- to mid-single digit percentages
on the Company’s, its affiliates’ and its sublicensees’ net sales of licensed products, subject to specified
offsets and reductions. In addition, the Company is required to make specified annual minimum royalty payments to Columbia University,
which is contingent upon the approval of the licensed products, in the mid-six figures beginning on the tenth anniversary of the
effective date of the 2019 Columbia Agreement.
The Company has not granted
any sublicenses under the 2019 Columbia Agreement. However, if the Company sublicenses the rights granted under the 2019 Columbia
Agreement to one or more third parties, it will be required to pay Columbia University a portion of the net sublicensing revenue
received from such third parties, at percentages between 10% and 50%, depending on the stage of development at the time such revenue
is received from such third parties. The 2019 Columbia Agreement will terminate upon the expiration of all the Company’s
royalty payment obligations in all countries. The Company may terminate the 2019 Columbia Agreement for convenience upon 90 days’
written notice to Columbia University. At its election, Columbia University may terminate the 2019 Columbia Agreement, or convert
the licenses granted to the Company into non-exclusive, non-sublicensable licenses, in the case of (a) the Company’s uncured
material breach upon 30 days’ written notice (which shall be extended to 90 days if the Company is diligently attempting
to cure such material breach), (b) the Company’s failure to achieve the specified development and funding milestone events,
or (c) the Company’s insolvency.
In March 2019, and in
connection with the 2016 Columbia Agreement, the Company entered into a research services agreement (the “2019 Columbia Research
Agreement” and collectively with the 2016 Columbia Agreement and 2019 Columbia Agreement, the “Columbia Agreements”)
with Columbia University with the purpose of analyzing structural and functional changes in brain tissue in an animal model of
galactosemia, and the effects of certain compounds whose intellectual property rights were licensed to the Company as part of the
2016 Columbia Agreement on any such structural and functional changes. The 2019 Columbia Research Agreement has a term of 12 months
from its effective date; provided that the Company can terminate the 2019 Columbia Research Agreement without cause with at least
30 days’ prior written notice. The services covered by the 2019 Columbia Research Agreement will be performed by Columbia
University in two parts consisting of six months. The decision to proceed with Part 2 of the 2019 Columbia Research Agreement shall
be made solely by the Company and will be contingent on the success of the research performed in Part 1. In consideration for the
services performed by Columbia University in Part 1, the Company will be required to pay $0.1 million to Columbia University for
staffing, supplies and indirect costs. If the Company decides to continue the research defined in Part 2, the Company will be required
to pay an additional $0.2 million to Columbia University.
On October 3, 2019, and
in connection with the 2019 Columbia Agreement, the Company entered into a research services agreement (the “PI3k Columbia
Research Agreement” and collectively with the 2016 Columbia Agreement, 2019 Columbia Agreement and 2019 Research Agreement,
the “Columbia Agreements”) with Columbia University with the purpose of analyzing PI3k inhibitors for the treatment
of lymphoid malignancies. The research service agreement has a term of 18 months from is effective date; provided that the Company
can terminate the research service agreement without cause with at least 30 days prior written notice. Midway through the study
period, the Company and Columbia University will review the results of all completed and in progress research and determine whether
the research will continue. In consideration for the services performed by Columbia University, the Company will be required to
pay $0.4 million to Columbia University for staffing, supplies and indirect costs.
During the three months
ended March 31, 2020, the Company recorded $0.3 million in research and development expense and $40,000 in general and administrative
expense related to the Columbia Agreements. During the three months ended March 31, 2019, the Company recorded $0 million in research
and development expense and $0.2 million in general and administrative expense related to the Columbia Agreements. In aggregate,
the Company has incurred $2.2 million in expense from the execution of the Columbia Agreements through March 31, 2020.
As of March 31, 2020,
the Company had $0.3 million due to Columbia University included in accrued expenses and $52,000 included in accounts payable.
As of December 31, 2019, the Company had $0.1 million due to Columbia University included in accrued expenses and $0.1 million
included in accounts payable.
3. FAIR VALUE MEASUREMENTS
The following table summarizes,
as of March 31, 2020, the Company's financial assets and liabilities that are measured at fair value on a recurring basis, according
to the fair value hierarchy described in the significant accounting policies in the Company’s audited financial statements
as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Annual Report.
|
|
As of March 31, 2020
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
58,186
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58,186
|
|
Money market funds
|
|
|
34,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,317
|
|
Total cash and cash equivalents
|
|
$
|
92,503
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92,503
|
|
Commercial paper and corporate bonds
|
|
|
—
|
|
|
|
15,741
|
|
|
|
—
|
|
|
|
15,741
|
|
U.S. government agency debt securities
|
|
|
—
|
|
|
|
46,065
|
|
|
|
—
|
|
|
|
46,065
|
|
Total marketable securities
|
|
$
|
—
|
|
|
$
|
61,806
|
|
|
$
|
—
|
|
|
$
|
61,806
|
|
Total financial assets measured at fair value on a recurring basis
|
|
$
|
92,503
|
|
|
$
|
61,806
|
|
|
$
|
—
|
|
|
$
|
154,309
|
|
Investments in commercial
paper, corporate bonds, and U.S. government agency debt securities have been classified as Level 2 as they are valued using quoted
prices in less active markets or other directly or indirectly observable inputs. Fair values of corporate bonds and U.S. government
agency debt securities were derived from a consensus or weighted average price based on input of market prices from multiple sources
at each reporting period. With regard to commercial paper, all of the securities had high credit ratings and one year or less to
maturity; therefore, fair value was derived from accretion of purchase price to face value over the term of maturity or quoted
market prices for similar instruments if available. During the three months ended March 31, 2020, there were no transfers of financial
assets between Level 1 and Level l.
4. INVESTMENTS
Marketable Securities
Marketable securities,
which the Company classifies as available-for-sale securities, primarily consist of high quality commercial paper, corporate bonds,
and U.S. government debt obligations. The Company considers all available-for-sale securities, including those with maturity dates
beyond 12 months, as available to support current operational liquidity needs. The Company classifies its investments as current
based on the nature of the investments and their availability for use in current operations.
The following tables provide
the Company’s marketable securities by security type as of March 31, 2020 and December 31, 2019:
|
|
As of March 31, 2020
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
(in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Commercial paper and corporate bonds
|
|
$
|
15,765
|
|
|
$
|
13
|
|
|
$
|
(37
|
)
|
|
$
|
15,741
|
|
|
$
|
7,540
|
|
|
$
|
—
|
|
|
$
|
(20
|
)
|
|
$
|
7,520
|
|
US government agency debt security
|
|
|
45,952
|
|
|
|
113
|
|
|
|
—
|
|
|
|
46,065
|
|
|
|
12,466
|
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
12,484
|
|
Total
|
|
$
|
61,717
|
|
|
$
|
126
|
|
|
$
|
(37
|
)
|
|
$
|
61,806
|
|
|
$
|
20,006
|
|
|
$
|
19
|
|
|
$
|
(21
|
)
|
|
$
|
20,004
|
|
The Company adopted ASU
No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
on January 1, 2020 and applied the new modified credit impairment guidance related to available-for-sale debt securities prospectively.
Under the new guidance, at each reporting date, entities must evaluate their individual available-for-sale debt securities that
are in an unrealized loss position and determine whether the decline in fair value below the amortized cost basis from a credit
loss or other factors. The amount of the decline related to credit losses are recorded as a credit loss expense in earnings with
a corresponding allowance for credit losses and the amount of decline not related to credit losses are recorded through other comprehensive
income, net of tax. As of March 31, 2020, our corporate bond portfolio reported an unrealized net loss of $37 thousand. Based on
our evaluations, we determined that a credit loss allowance is not required since the decline was not related to underlying credit
issues of the counterparties. The counterparties to these investments have high credit quality with investment grade ratings of
at least A- or above, along with a history of no defaults. No single investment in the corporate bond portfolio had an individually
material unrealized loss and in the aggregate. The total amount of unrealized losses of $37 thousand as of March 31, 2020 was only
0.23% of the total amortized costs basis of the corporate bond portfolio. In addition, the Company does not intend to sell these
investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their
amortized cost bases. Accordingly, based on the forgoing evaluation, the Company did not record any credit losses during the three
months ended March 31, 2020 and the entire amount of the decline in fair value below the amortized cost basis was recorded as an
unrealized loss, net of tax, in other comprehensive loss in the Statements of Comprehensive Loss. Unrealized gains are also reflected,
net of tax, as other comprehensive income (loss) in the Statements of Comprehensive Loss.
Contractual maturities
of the Company’s marketable securities as of March 31, 2020 and December 31, 2019 are summarized as follows:
|
|
As of March 31, 2020
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
(in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
57,157
|
|
|
$
|
110
|
|
|
$
|
(37
|
)
|
|
$
|
57,230
|
|
|
$
|
20,006
|
|
|
$
|
19
|
|
|
$
|
(21
|
)
|
|
$
|
20,004
|
|
Due in one through two years
|
|
|
4,560
|
|
|
|
16
|
|
|
|
—
|
|
|
|
4,576
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
61,717
|
|
|
$
|
126
|
|
|
$
|
(37
|
)
|
|
$
|
61,806
|
|
|
$
|
20,006
|
|
|
$
|
19
|
|
|
$
|
(21
|
)
|
|
$
|
20,004
|
|
At March 31, 2020, the
Company had $126 thousand of gross unrealized gains and $37 thousand of gross unrealized losses primarily due to fluctuations in
the fair value of certain U.S. government agency debt securities.
During the three months
ended March 31, 2020, the Company recorded no net realized gains or losses from the sale of marketable securities.
The unrealized losses
and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater
than 12 months as of March 31, 2020 are as follows:
|
|
As of March 31, 2020
|
|
|
|
Securities in an unrealized loss position less than 12 months
|
|
|
Securities in an unrealized loss position greater than 12 months
|
|
|
Total
|
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
(in thousands)
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
Commercial paper and corporate bonds
|
|
$
|
(37
|
)
|
|
$
|
10,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(37
|
)
|
|
$
|
10,176
|
|
US government agency debt security
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
(37
|
)
|
|
$
|
10,176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(37
|
)
|
|
$
|
10,176
|
|
The unrealized losses
and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater
than 12 months as of March 31, 2020 are as follows:
|
|
As of December 31, 2019
|
|
|
|
Securities in an unrealized loss position less than 12 months
|
|
|
Securities in an unrealized loss position greater than 12 months
|
|
|
Total
|
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
(in thousands)
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
Commercial paper and corporate bonds
|
|
$
|
(20
|
)
|
|
$
|
7,520
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(20
|
)
|
|
$
|
7,520
|
|
US government agency debt security
|
|
|
(1
|
)
|
|
|
3,497
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
3,497
|
|
Total
|
|
$
|
(21
|
)
|
|
$
|
11,017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(21
|
)
|
|
$
|
11,017
|
|
As of March 31, 2020,
we did not intend to sell and it was not likely that we would be required to sell these investments before recovery of their amortized
cost basis, which may be at maturity. Unrealized losses related to these investments are primarily due to interest rate fluctuations
as opposed to changes in credit quality. Therefore, as of March 31, 2020, we have recognized no other-than-temporary impairment
loss.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other
current assets consisted of the following:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Prepaid research and development expenses
|
|
|
8,607
|
|
|
|
5,872
|
|
Prepaid rent expenses
|
|
|
111
|
|
|
|
142
|
|
Prepaid insurance expenses
|
|
|
447
|
|
|
|
1,196
|
|
Interest Receivable
|
|
|
136
|
|
|
|
10
|
|
Other prepaid expenses and current assets
|
|
|
131
|
|
|
|
81
|
|
Total prepaid expenses & other current assets
|
|
$
|
9,432
|
|
|
$
|
7,301
|
|
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other
current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Accrued pre-clinical and clinical expenses
|
|
$
|
4,836
|
|
|
$
|
4,287
|
|
Accrued professional fees
|
|
|
898
|
|
|
|
345
|
|
Accrued compensation and benefits
|
|
|
273
|
|
|
|
—
|
|
Accrued patent expenses
|
|
|
42
|
|
|
|
54
|
|
Other
|
|
|
447
|
|
|
|
264
|
|
Total accrued expenses & other current liabilities
|
|
$
|
6,496
|
|
|
$
|
4,950
|
|
7. STOCK-BASED COMPENSATION
Equity Incentive Plans
In May 2019, the Company's
board of directors (the "Board") adopted its 2019 Equity Incentive Plan ("2019 Plan"), which was subsequently
approved by its stockholders and became effective on May 13, 2019. As a result, no additional awards under the Company's 2016 Equity
Incentive Plan, as amended (the "2016 Plan") will be granted and all outstanding stock awards granted under the 2016
Plan that are repurchased, forfeited, expired or are cancelled will become available for grant under the 2019 Plan in accordance
with its terms. The 2016 Plan will continue to govern outstanding equity awards granted thereunder.
The 2019 Plan provides
for the issuance of incentive stock options ("ISOs") to employees, and for the grant of nonstatutory stock options ("NSOs"),
stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards
and other forms of stock awards to the Company's employees, officers and directors, as well as non- employees, consultants and
affiliates to the Company. Under the terms of the 2019 Plan, stock options may not be granted at an exercise price less than fair
market value of the Company's common stock on the date of the grant. The 2019 Plan will be administered by the Compensation Committee
of the Company's Board.
Initially, subject to
adjustments as provided in the 2019 Plan, the maximum number of the Company's common stock that may be issued under the 2019 Plan
is 4,530,000 shares, which is the sum of (i) 1,618,841 new shares, plus (ii) the number of shares (not to exceed 2,911,159 shares)
that remained available for the issuance of awards under the 2016 Plan, at the time the 2019 Plan became effective, and (iii) any
shares subject to outstanding stock options or other stock awards granted under the 2016 Plan that are forfeited, expired, or reacquired.
The 2019 Plan provides that the number of shares reserved and available for issuance under the 2019 Plan will automatically increase
each January 1, beginning on January 1, 2020, by 5% of the outstanding number of shares of common stock on the immediately preceding
December 31 or such lesser number of shares as determined by the Board. Subject to certain changes in capitalization of the Company,
the aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of ISOs shall be equal to 13,000,000
shares of common stock. Stock options awarded under the 2019 Plan expire 10 years after grant and typically vest over four years.
As of March 31, 2020,
there were 2,675,770 shares reserved by the Company to grant under the 2016 and 2019 Plans and an aggregate of 1,100,671 shares
remained available for future grants under the 2019 Plan.
Stock-Based Compensation Expense
Total stock-based compensation
expense recorded for employees, directors and non-employees during the three months ended March 31, 2020 and 2019 was as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
642
|
|
|
$
|
147
|
|
General and administrative
|
|
|
670
|
|
|
|
178
|
|
Total stock-based compensation expense
|
|
$
|
1,312
|
|
|
$
|
325
|
|
During the three months
ended March 31, 2020, the Company granted options to purchase 194,031 shares of common stock. The Company recorded stock-based
compensation expense for options granted during the three months ended March 31, 2020 and 2019 of $1.3 million and $0.3 million,
respectively. As of March 31, 2020 and December 31, 2019, there were 4,238,892 and 4,079,888 options outstanding, respectively.
The weighted-average fair value of options granted during the three months ended March 31, 2020 and 2019 was $21.65 and $1.54 per
share, respectively. As of March 31, 2020, and March 31, 2019, the total unrecognized stock-based compensation balance for unvested
options was $15.4 million and $5.3 million, respectively, which is expected to be recognized over a period of 1.6 years and 2.3
years, respectively.
The following table summarizes
the information about options outstanding at March 31, 2020:
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
(in thousands, except for share data)
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Term (in years)
|
|
|
Value
|
|
Outstanding at December 31, 2019
|
|
|
4,079,888
|
|
|
$
|
5.11
|
|
|
|
8.26
|
|
|
$
|
82,327
|
|
Options granted
|
|
|
194,031
|
|
|
|
35.43
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(35,027
|
)
|
|
|
2.32
|
|
|
|
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2020
|
|
|
4,238,892
|
|
|
$
|
8.16
|
|
|
|
8.83
|
|
|
$
|
104,515
|
|
Exercisable at March 31, 2020
|
|
|
2,073,735
|
|
|
$
|
3.22
|
|
|
|
8.42
|
|
|
$
|
61,123
|
|
Nonvested at March 31, 2020
|
|
|
2,165,157
|
|
|
$
|
12.89
|
|
|
|
9.23
|
|
|
$
|
43,392
|
|
Valuation of Stock
Options Granted to Employees that Contain Service Conditions Only
The fair value of each
option award granted with service-based vesting is estimated on the date of the grant using the Black-Scholes option valuation
model based on the weighted average assumptions noted in the table below for those options granted in the years ended March 31,
2020 and 2019.
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Expected term (in years)
|
|
|
6.1
|
|
|
|
6.0
|
|
Volatility
|
|
|
68.77
|
%
|
|
|
68.44
|
%
|
Risk-free interest rate
|
|
|
0.59
|
%
|
|
|
2.47
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Stock Options Granted
to Employees that Contain Service, Performance and Market Conditions
Included in the stock
options granted during the three months ended March 31, 2019 were 159,501 stock options that contain service-, performance- and
market-based vesting conditions granted to the Company's interim Chief Financial Officer ("CFO") with a fair value at
the grant date of $0.5 million, valued using the Monte-Carlo simulation model. The derived service period, calculated using the
Monte-Carlo simulation model, ranged from one day to three years. The assumptions used in the Monte-Carlo simulation model were
as follows:
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
Time to expiration (in years)
|
|
|
10.0
|
|
Volatility
|
|
|
68.54
|
%
|
Risk-free interest rate
|
|
|
2.64
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
Cost of equity
|
|
|
24.00
|
%
|
Fair value of underlying common stock (as of valuation date)
|
|
$
|
5.85
|
|
The compensation expense
for these awards is recognized over the derived service period, or, if earlier, until the vesting condition is met. The condition
for the performance-based stock options was based on the Company's completion of its IPO and the condition for the market-based
stock options was based on the future price of the Company's common stock trading at or above a specified threshold.
As of March 31, 2020 there
were no outstanding stock options containing service-, performance-, and market-based vesting conditions. The Company recorded
$0.1 million in compensation expense related to these awards for the three months ended March 31, 2019.
Issuance of Restricted Common Stock
On March 9, 2020, the
Board of Directors of the Company approved the grant of 36,464 restricted stock units (the “RSUs”) to an employee of
the Company, pursuant to the 2019 Equity Plan. One-fourth of the RSUs shall vest in four equal annual installments commencing one
year after the date of grant, subject to the employee continuing to provide services through each such date. These shares were
valued at $1.3 million, determined using price per share of $34.28, the closing price of the Company’s common stock on March
9, 2020, and will be amortized ratably over the term of the vesting periods of three years on a straight line basis. For the three
months ended March 31, 2020, amortization of deferred stock compensation of these shares amounted to $19,000. As of March
31, 2020, the unamortized deferred compensation costs associated with non-vested restricted stock awards were $1.2 million
with a weighted-average remaining amortization period of 3.9 years.
2019 Employee Stock Purchase Plan
In May 2019, the Company’s
Board and its stockholders approved the 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which became effective
as of May 13, 2019. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section
423 of the U.S. Internal Revenue Code of 1986, as amended. The number of shares of common stock initially reserved for issuance
under the ESPP was 180,000 shares. The ESPP provides for an annual increase on the first day of each year beginning in 2020 and
ending in 2029, in each case subject to the approval of the Board, equal to the lesser of (i) 1% of the shares of common stock
outstanding on the last day of the calendar month before the date of the automatic increase and (ii) 360,000 shares; provided that
prior to the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses
(i) and (ii). As of March 31, 2020, no shares of common stock had been issued under the ESPP. The first offering period has not
yet been decided by the Board.
8. STOCKHOLDERS’ EQUITY
As of March 31, 2020,
and December 31, 2019, the authorized capital stock of the Company consists of 100,000,000 shares of common stock, par value $0.0001
per share and 10,000,000 shares of preferred stock, par value $0.0001 per share.
Common Stock
Voting
The holders of the common
stock are entitled to one vote for each share of common stock held at all meetings of the stockholders. There are no cumulative
voting rights.
Preferred Stock
In February 2019, the
Company issued 442,930 shares of Series B Preferred Stock at $7.49 per share for gross proceeds of approximately $3.3 million.
Issuance costs were $0.3 million, which included the obligation to issue warrants to purchase common stock (see Note 10).
Upon completion of the
IPO, all 7,538,671 shares of outstanding Series A Preferred Stock (“Series A Preferred Stock”) and Series B Preferred
Stock (collectively , "the Preferred Stock") were converted into common stock on a one-to-one basis. As of March 31,
2020 and December 31, 2019, there were no shares of preferred stock outstanding.
9. WARRANTS
Warrants Issued with Series A Preferred
Stock
On January 26, 2017,
in connection with the sale and issuance of the Series A Preferred Stock, the Company issued equity-classified warrants to
purchase 309,389 shares of common stock (the “2017 Warrants”), valued at $0.2 million, and included in the issuance
costs of the Series A Preferred Stock. The warrants vested immediately and have an exercise price of $2.49 per share and expire
on March 13, 2027.
The fair value of warrants
issued is estimated using the Black-Scholes option pricing model with the following assumptions for the 2017 Warrants.
Contractual term (in years)
|
|
10.0
|
|
Volatility
|
|
74.48
|
%
|
Risk-free interest rate
|
|
3.20
|
%
|
Dividend yield
|
|
0.00
|
%
|
On February 21, 2020,
two warrantholders exercised 185,634 options in a cashless exercise at net, and the Company issued 176,092 shares of common stock.
On February 24, 2020, a warrantholder exercised 72,817 options in a cashless exercise at net, and the Company issued 69,094 shares
of common stock.
Warrants Issued with the 2018 Notes
On January 18, 2018,
the Company entered into a placement agent agreement through which it became obligated to issue common stock warrants in connection
with the issuance of the 2018 Notes. The obligation to issue the 2018 Notes Warrants was recorded as a liability at its fair
value, which was initially $0.1 million, and was included in the issuance costs of the 2018 Notes. On November 5, 2018,
in connection with the extinguishment of the 2018 Notes into shares of Series B Preferred Stock, the Company issued the
2018 Notes Warrants, which were equity-classified warrants upon issuance, to purchase 76,847 shares of common stock, valued
at $0.3 million. The 2018 Notes Warrants vested immediately upon issuance and have an exercise price of $6.59 per share
and expire on November 4, 2028.
On February 24, 2020,
a warrantholder exercised 386 options in a cashless exercise at net, and the Company issued 333 shares of common stock.
Warrants Issued with Series B Preferred
Stock
In November and December 2018,
in connection with the sale and issuance of the Series B Preferred Stock, the Company was obligated to issue warrants to purchase
72,261 shares of common stock (collectively the “2018 Warrants”), valued in the aggregate at $0.2 million, which
was included in the issuance costs for the Series B Preferred Stock. The warrants vest immediately upon issuance, have an
exercise price of $8.24 per share and expire 10 years from the date of issuance.
The fair value of the
2018 Warrants was estimated using the Black-Scholes option pricing model with the following assumptions:
Contractual term (in years)
|
|
10.0
|
|
Volatility
|
|
74.48
|
%
|
Risk-free interest rate
|
|
3.20
|
%
|
Dividend yield
|
|
0.00
|
%
|
In February 2019, in connection
with the sale and issuance of the Series B Preferred Stock, the Company was obligated to issue warrants to purchase 23,867
shares of common stock (collectively the “2019 Warrants”), valued in the aggregate at $0.1 million, which was included
in the issuance costs for the Series B Preferred Stock. The warrants vest immediately upon issuance, have an exercise price
of $8.24 per share and expire 10 years from the date of issuance.
The fair value of the
2019 Warrants was estimated using the Black-Scholes option pricing model with the following assumptions:
Contractual term (in years)
|
|
10.0
|
|
Volatility
|
|
73.22
|
%
|
Risk-free interest rate
|
|
2.70
|
%
|
Dividend yield
|
|
0.00
|
%
|
The inputs utilized by
management to value the warrants are highly subjective. The assumptions used in calculating the fair value of the warrants represent
the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
As a result, if factors change and the Company uses different assumptions, the fair value of the warrants may be materially different
in the future.
On January 14, 2020, a
warrantholder exercised 220 options in a cashless exercise at net, and the Company issued 146 shares of common stock. On February
24, 2020, a warrantholder exercised 5,193 options in a cashless exercise at net, and the Company issued 4,313 shares of common
stock.
A summary of the Company’s
outstanding common stock warrants as of March 31, 2020 is as follows:
|
|
Warrants
|
Outstanding as of December 31, 2019
|
|
|
462,364
|
Warrants granted and issued
|
|
|
—
|
Warrants exercised
|
|
|
(264,251)
|
Warrants exchanged
|
|
|
—
|
Balance as of March 31, 2020
|
|
|
198,113
|
10. LEASES
The following table summarizes
the Company’s lease assets and liabilities as of March 31, 2020:
ROU Assets and Liabilities
|
|
Balance Sheet Location
|
|
Operating
(in thousands)
|
ROU - Asset
|
|
Right-of-use assets
|
|
$
|
1,942
|
Lease liabilities (current)
|
|
Operating lease liabilities, current
|
|
|
364
|
Lease liabilities (non-current)
|
|
Operating lease liabilities, non-current
|
|
|
1,588
|
The following table
summarizes the Company’s lease related costs for the three months ended March 31, 2020:
Lease Cost
|
|
Statement of Operations Location
|
|
Operating
(in thousands)
|
Operating Lease Cost
|
|
General and administrative
|
|
$
|
121
|
Total Lease Cost
|
|
|
|
$
|
121
|
Average lease terms and
discount rates for the Company’s operating leases were as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Other Information
|
|
2020
|
|
Weighted-average remaining lease term
|
|
|
|
|
Operating leases
|
|
|
4.59 years
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
|
|
5.69%
|
|
The following table summarizes
the maturities of lease liabilities as of March 31, 2020:
|
|
Operating
|
Year
|
|
(in thousands)
|
2020
|
|
$
|
347
|
2021
|
|
|
474
|
2022
|
|
|
486
|
2023
|
|
|
497
|
2024
|
|
|
424
|
Thereafter
|
|
|
—
|
Total lease payments
|
|
|
2,228
|
Less: interest
|
|
|
276
|
Total lease liabilities
|
|
$
|
1,952
|
11. INCOME TAXES
On March 27, 2020, Congress
enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the Covid-19
pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative
minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact
on our financial statements for the three months ended March 31, 2020. We continue to monitor any effects that may result from
the CARES Act.
During the three months
ended March 31, 2020 and the year ended December 31, 2019, the Company recorded a full valuation allowance on federal and state
deferred tax assets since management does not forecast the Company to be in a profitable position in the near future.
12. BENEFIT PLANS
The Company established
a defined contribution savings plan under Section 401(k) of the Internal Revenue Code in 2018. This plan covers substantially
all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation
on a pre-tax basis. Matching contributions to the plan may be made at the discretion of the Company’s board of directors.
The Company made approximately $25,000 and $15,000 in matching contributions to the plan during the three months ended March 31,
2020 and 2019, respectively.
13. NET LOSS PER COMMON SHARE
Basic net loss per common
share is computed by dividing the net loss available to common stockholders by the weighted-average number of shares of common
stock outstanding during the period.
Diluted net loss per common
share is computed by giving the effect of all potential shares of common stock, including stock options, preferred shares, warrants
and instruments convertible into common stock, to the extent dilutive. Basic and diluted net loss per common share was the same
for the three months ended March 31, 2020 and 2019, as the inclusion of all potential common shares outstanding would have been
anti-dilutive.
The following table sets
forth the computation of basic and diluted net loss per common share for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands, except for share data)
|
|
2020
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,369)
|
|
$
|
(8,730)
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding
|
|
|
20,840,658
|
|
|
5,513,531
|
|
Net loss per share attributable to common stockholders - basic and diluted
|
|
$
|
(0.59)
|
|
$
|
(1.58)
|
|
The Company’s potentially
dilutive securities, which include Preferred Stock, stock options, and warrants, have been excluded from the computation of diluted
net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares
outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company
excluded the following potential common shares, presented based on amounts outstanding for the three months ended March 31, 2020
and 2019, from the computation of diluted net loss per share attributable to common stockholders because including them would have
had an anti-dilutive effect:
|
|
As of
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
Preferred Stock
|
|
—
|
|
7,538,671
|
Options to purchase common stock
|
|
4,238,892
|
|
2,552,921
|
Warrants to purchase common stock
|
|
198,113
|
|
482,364
|
14. RELATED PARTIES
In December 2018,
the Company entered into an agreement (the “LaunchLabs Agreement”) with ARE-LaunchLabs NYC LLC (“Alexandria
LaunchLabs”), a subsidiary of Alexandria Real Estate Equities, Inc. for use of specified premises within the Alexandria
LaunchLabs space. A member of the Company’s board of directors is the founder and executive chairman of Alexandria Real Estate
Equities, Inc. During the three months ended March 31, 2020 and 2019, the Company made payments to Alexandria LaunchLabs
of approximately $24,000 and $21,000, respectively under the LaunchLabs Agreement, which was recognized in research and development
expenses. As of March 31, 2020, there were no amounts due to Alexandria LaunchLabs under the LaunchLabs Agreement.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
The following information
should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report
on Form 10-Q and the audited financial information and the notes thereto included in the Annual Report. In addition,
this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but
not limited to, those described under “Special Note Regarding Forward-Looking Statements” and under “Item 1A.
Risk Factors” in this report, and in other reports we file with the SEC, that could cause actual results to differ materially
from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage
biopharmaceutical company developing a pipeline of novel product candidates against validated molecular targets in indications
of high unmet medical need. We focus on molecules and pathways whose role in the disease process is well known based on prior research,
but have previously failed to yield successful products due to poor efficacy and tolerability. Our unique approach to drug development
leverages recent technological advances to design improved drugs, employs early use of biomarkers to confirm biological activity
and focuses on potential use of expedited regulatory pathways. Our first molecular target is aldose reductase, or AR, an enzyme
that converts glucose to sorbitol under oxidative stress conditions, and is implicated in multiple diseases. Prior attempts to
inhibit this enzyme were hindered by nonselective, nonspecific inhibition, which resulted in limited efficacy and significant off-target
safety effects. The detrimental consequences of AR activation have been well established by decades of prior research. Our AR program
currently includes three small molecules, which are all potent and selective inhibitors of AR, but are engineered to have unique
tissue permeability profiles to target different disease states, including diabetic complications, heart disease and a rare pediatric
metabolic disease. Using similar strategies to our AR inhibitors, or ARI, program, we have also developed a program targeting selective
inhibition of phosphatidylinositol 3-kinase, or PI3K, subunits that produced an early-stage oncology pipeline. The result of this
unique multifaceted approach to drug development is a portfolio of highly specific and selective product candidates that we believe
are significantly de-risked and can move quickly through the development process. We plan to initiate our clinical program in these
indications in 2020 and 2021.
AT-007 is a novel central
nervous system, or CNS, penetrant ARI that we are developing for the treatment of galactosemia, a devastating rare pediatric metabolic
disease that affects how the body processes a simple sugar called galactose, and for which there is no known cure or approved treatment
available. In May 2019, the U.S. Food and Drug Administration, or FDA, granted orphan drug designation to AT-007 for the treatment
of galactosemia. We initiated a Phase 1/2 study of AT-007 in galactosemia in June 2019. The study is a double-blind placebo-controlled
trial evaluating safety and pharmacokinetics of AT-007 in healthy volunteers, as well as safety, pharmacokinetics and biomarker
effects in adult galactosemia patients over 28 days of once daily oral dosing. The key biomarker outcome of the study was reduction
in galactitol, an aberrant toxic metabolite of galactose, formed by AR in galactosemia patients.
In January 2020, we announced
positive topline results. AT-007 treatment resulted in a statistically significant and robust reduction in plasma galactitol versus
placebo in adult galactosemia patients. Reductions in galactitol were dose dependent, with higher concentrations of AT-007 resulting
in a greater magnitude of reduction in galactitol. At the highest dose tested (20mg/kg), AT-007 significantly reduced plasma galactitol
45-54% from baseline versus placebo (with a p value of less than 0.01). Galactitol reduction was rapid and sustained over time.
No substantial change from baseline was observed in placebo treated patients. AT-007 was well tolerated, with no drug-related adverse
events noted to date in galactosemia patients or in the 72 healthy volunteers treated in Part 1 of the trial.
On April 21, 2020, the
Company announced full results of the ACTION-Galactosemia study. As previously announced, once-daily 20mg/kg AT-007 reduced galactitol
levels by approximately 50% in galactosemia patients. Reduction in galactitol levels was rapid (within 6 days of consecutive AT-007
treatment) and sustained throughout the treatment period of 27 days. Reduction in galactitol from baseline was statistically significant
at the 20mg/kg vs placebo (p<0.01). The lower dose tested, 5mg/kg, demonstrated a similar trend in reducing galactitol levels
approximately 20% from baseline (p=NS from placebo). Reduction in galactitol did not result in derangement of other metabolites
in the galactose pathway, such as galactose and gal-1p. As no drug-related adverse events were seen at the once-daily 20mg/kg dose,
a once-daily 40mg/kg dose was subsequently studied in healthy volunteers and is ongoing in galactosemia patients. The 40mg/kg dose
was safe and well tolerated. Evaluation of once-daily 40mg/kg AT-007 in galactosemia patients remains ongoing. No drug-related
adverse events were reported at any dose of AT-007 in ACTION-Galactosemia.
A 90-day safety extension
study for ACTION-Galactosemia is ongoing. The extension study is open to patients from the core study and to new adult galactosemia
patients.
On April 30, 2020 the
FDA granted Pediatric Rare Disease designation to AT-007 for treatment of galactosemia. The FDA had previously granted AT-007 Orphan
Designation.
In May 2020 the Company
met with the FDA to discuss the ongoing galactosemia development program. Specifically, the design of the galactosemia pediatric
study was discussed and feedback from FDA was subsequently incorporated into the pediatric study protocol. The study is designed
similarly to ACTION-Galactosemia with a bio-marker based endpoint of galactitol reduction. We continue to work with the FDA to
finalize the study protocol, and we expect to commence the trial as planned in Q2 of this year. Both the adult extension study
and the pediatric study are designed to incorporate primarily home health visits in order to limit travel and risk of exposure
to Covid-19.
The Company is also engaged
in preclinical work on AT-007 in another pediatric rare disease, called PMM2-CDG. PMM2-CDG is a glycosylation disorder caused by
deficiencies in the enzyme phosphomannomutase 2, which leads to CNS symptoms similar to galactosemia, including low IQ, tremor,
and speech and motor problems. Aldose Reductase is over-activated in this disease as a compensatory consequence of PMM2 deficiency,
and a CNS penetrant ARI may be a compelling clinical option. Initial data in fibroblast cell lines derived from PMM2-CDG patients
demonstrates that AT-007 treatment increases phosphomannomutase 2 activity. We may pursue clinical development in this indication
in the future.
We are also working on
a rare disease caused by Sorbitol Dehydrogenase deficiency, called SORD. Aldose Reductase is the first enzyme in the polyol pathway,
converting glucose to sorbitol. AR is then followed by Sorbitol Dehydrogenase, which converts sorbitol to fructose. Patients with
SORD build up very high levels of sorbitol in their cells and tissues as a result of the enzyme deficiency, which results in tissue
toxicities such as peripheral neuropathy. Recent research in drosophila and cell models of SORD demonstrates that treatment with
an ARI that blocks sorbitol production may provide benefit in this disease. The Company is working with researchers to explore
potential benefit in SORD models of disease, and may initiate a clinical development program. Intellectual property applications
have previously been filed related to both PMM2-CDG and SORD.
AT-001 is a novel ARI
with broad systemic exposure and peripheral nerve permeability that we are developing for the treatment of diabetic cardiomyopathy,
or DbCM, a fatal fibrosis of the heart, for which no treatments are available. We completed a Phase 1/2 clinical trial evaluating
AT-001 in approximately 120 patients with type 2 diabetes, in which no drug-related adverse effects or tolerability issues were
observed. In September 2019, we announced the initiation of a Phase 3 registrational trial for AT-001 in DbCM. The study, called
ARISE-HF, will investigate AT-001’s ability to improve or prevent the decline of functional capacity in patients with DbCM
at high risk of progression to overt heart failure.
On April 2, the Company
announced that a Covid-19 IND had been opened with the FDA for AT-001. AT-001 investigator-initiated trials were initiated at Mt.
Sinai and NYU to address acute lung inflammation and cardiomyopathy in critical Covid-19 patients. The company also announced that
the drug was being provided free of charge through “Named Patient” Emergency INDs at multiple hospitals across the
US in critical Covid-19 patients.
Covid-19 can cause significant cardiac morbidities,
including cardiomyopathy. AT-001, has been shown to prevent oxidative damage to cardiomyocytes, and decrease oxidative-induced
damage. In severe cases, Covid-19 infection can lead to development of Acute Respiratory Distress Syndrome (ARDS) and Acute lung
Inflammation/Injury (ALI) resulting from inflammatory response. In an animal model of sepsis-induced ALI, Aldose Reductase inhibition
was shown to have a beneficial effect and attenuate severity of disease by reducing cytokines (such as IL-6), neutrophil infiltration
into the lungs, and activation of lung inflammatory endothelial cells. The company will make a decision as to whether to pursue
further clinical development of AT-001 in Covid-19 based on the results of these pilot studies and individual patient results.
In March 2020 the Company
hired a Chief Commercial Officer, and build-out of commercial infrastructure commenced. As such, we expect commercial expenditures
to increase in 2020 as we prepare for potential galactosemia commercial launch, including additional costs related to marketing,
market access, market research and sales and forecasting, as well as an increase in compensation expense related to several new
hires in connection with the build-out.
Since inception in 2016,
our operations have focused on developing our product candidates, organizing and staffing our company, business planning, raising
capital, establishing our intellectual property portfolio and conducting clinical trials. We do not have any product candidates
approved for sale and have not generated any revenue.
Initial Public Offering
On May 16, 2019, the Company
completed an initial public offering, or IPO, in which the Company issued and sold 4,000,000 shares of its common stock at a public
offering price of $10.00 per share, for aggregate gross proceeds of $40.0 million. The Company received approximately $34.6 million
in net proceeds after deducting underwriting discounts and commissions and offering costs. The shares began trading on The Nasdaq
Global Market on May 14, 2019. Upon completion of the IPO, all of our outstanding shares of convertible preferred stock, converted
into 7,538,671 shares of our common stock.
Prior to the completion
of the IPO, the Company primarily funded its operations with proceeds from the sale of convertible preferred stock. We have incurred
significant operating losses since inception in 2016. Our ability to generate product revenue sufficient to achieve profitability
will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was $12.4
million for the three months ended March 31, 2020. As of March 31, 2020, we had an accumulated deficit of $79.1 million. We expect
to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing
activities. Furthermore, we expect to incur additional costs associated with operating as a public company that we did not previously
incur or had previously incurred at lower rates as a private company, including significant legal, accounting, investor relations
and other expenses. As of March 31, 2020, we had cash and cash equivalents and short-term investments of $154.3 million.
November 2019 Private Placement
On November 7, 2019, we
entered into a securities purchase agreement for the Private Placement with the Purchasers. Pursuant to the securities purchase
agreement, the Purchasers purchased 1,380,344 shares of our common stock. The purchase price for each share was $14.50, with net
proceeds of approximately $18 million. The closing of the purchase and sale of the securities occurred on November 12, 2019.
January 2020 Secondary Public Offering
In January 2020, we issued
and sold 2,741,489 shares of our common stock at a public offering price of $45.50 per share, with an additional 411,223 shares
sold pursuant to the underwriters’ full exercise of their option to purchase additional shares in the Secondary Public Offering.
We received aggregate net proceeds, net of underwriting discounts and commissions and estimated offering expenses of $134.1 million.
Components of Our Results of Operations
Revenue
Since inception, we have
not generated any revenue and do not expect to generate any revenue from the sale of products in the near future. If our development
efforts for our product candidates are successful and result in regulatory approval, or if we enter into collaboration or license
agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration
or license agreements.
Operating Expenses
Research and Development
Expenses
Research and development
expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of
our product candidates, and include:
|
·
|
employee-related expenses, including salaries, related benefits and stock-based compensation expense
for employees engaged in research and development functions;
|
|
·
|
fees paid to consultants for services directly related to our product development and regulatory efforts;
|
|
·
|
expenses incurred under agreements with contract research organizations, or CROs, as well as contract
manufacturing organizations, or CMOs, and consultants that conduct and provide supplies for our preclinical studies and clinical
trials;
|
|
·
|
costs associated with preclinical activities and development activities;
|
|
·
|
costs associated with our technology and our intellectual property portfolio; and
|
|
·
|
costs related to compliance with regulatory requirements.
|
We expense research and
development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress
to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the
terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements
as prepaid or accrued research and development expenses.
Research and development
activities are central to our business model. We expect that our research and development expenses will continue to increase for
the foreseeable future as we continue clinical development for our product candidates and continue to discover and develop additional
product candidates. If any of our product candidates enter into later stages of clinical development, they will generally have
higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration
of later-stage clinical trials. Historically, we have incurred research and development expenses that primarily relate to the development
of AT-001, AT-007, and our ARI program. As we advance our product candidates, we expect to allocate our direct external research
and development costs across each of the indications or product candidates.
General and Administrative
Expenses
General and administrative
expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive
and finance functions. General and administrative expenses also include professional fees for legal, accounting, auditing, tax
and consulting services; travel expenses; and facility-related expenses, which include allocated expenses for rent and maintenance
of facilities and other operating costs.
We expect that our general
and administrative expenses will increase in the future as we increase our general and administrative headcount to support our
continued research and development and potential commercialization of our product candidates. We also expect to incur increased
expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services;
director and officer insurance costs; and investor and public relations costs.
Other Income (Expense),
Net
Other income (expense),
net consists of interest income (expense), net, and other expenses. Interest income (expense), net consists primarily of our interest
income on our cash and cash equivalents and marketable securities. Other expense consists primarily of realized gains and losses
on sales of marketable securities.
Results of Operations
Three Months Ended March 31, 2020 and
2019
The following table summarizes
our results of operations for the three months ended March 31, 2020 and 2019:
|
|
(Unaudited)
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
7,271
|
|
$
|
6,874
|
|
General and administrative
|
|
|
5,196
|
|
|
1,855
|
|
Total operating expenses
|
|
|
12,467
|
|
|
8,729
|
|
Loss from operations
|
|
|
(12,467)
|
|
|
(8,729)
|
|
Other (expense) income, net:
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
122
|
|
|
(1)
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
—
|
|
Other expense
|
|
|
(24)
|
|
|
—
|
|
Other (expense) income, net
|
|
|
98
|
|
|
(1)
|
|
Net loss
|
|
$
|
(12,369)
|
|
$
|
(8,730)
|
|
Research and Development Expenses
The following table summarizes
our research and development expenses for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
|
(in thousands)
|
|
2020
|
|
2019
|
|
Increase
|
Clinical and pre-clinical
|
|
$
|
5,162
|
|
$
|
4,333
|
|
$
|
829
|
Drug manufacturing and formulation
|
|
|
616
|
|
|
1,635
|
|
|
(1,019)
|
Personnel expenses
|
|
|
782
|
|
|
625
|
|
|
157
|
Stock-based compensation
|
|
|
642
|
|
|
147
|
|
|
495
|
Regulatory and other
|
|
|
69
|
|
|
134
|
|
|
(65)
|
Total research and development expenses
|
|
$
|
7,271
|
|
$
|
6,874
|
|
$
|
397
|
Research and development
expenses for the three months ended March 31, 2020 were $7.3 million, compared to $6.9 million for the three months ended March
31, 2019. For the three months ended March 31, 2020, the increase of $0.4 million was primarily related to the increase in clinical
and pre-clinical expenses of $0.8 million for the advancement of clinical trials, increase in personnel-related costs of $0.2 million
and $0.5 million increase in stock-based compensation expense due to an increase in headcount, which were offset by the decrease
in drug manufacturing and formulation expenses of $1.0 million and decrease in regulatory and other expenses of $0.1 million.
General and Administrative Expenses
The following table summarizes
our general and administrative expenses for the three months ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
Increase
|
|
Personnel expenses
|
|
$
|
610
|
|
|
$
|
259
|
|
|
$
|
351
|
|
Stock-based compensation
|
|
|
689
|
|
|
|
178
|
|
|
|
511
|
|
Legal and professional fees
|
|
|
2,182
|
|
|
|
921
|
|
|
|
1,261
|
|
Other expenses
|
|
|
1,715
|
|
|
|
497
|
|
|
|
1,218
|
|
Total general and administrative expenses
|
|
$
|
5,196
|
|
|
$
|
1,855
|
|
|
$
|
3,341
|
|
General and administrative
expenses were $5.2 million for the three months ended March 31, 2020, compared to $1.9 million for the three months ended March
31, 2019. For the three months ended March 31, 2020, the increase of $3.3 million was primarily related to the increase in personnel
expenses and stock-based compensation of $0.4 million and $0.5 million, respectively, due to the increase in headcount, including
the hiring of the chief financial officer and chief accounting officer, $1.3 million related to an increase in legal and professional
fees due to increased costs associated with being a public company, and $1.2 million in other expenses relating to increased costs
of insurance, rent, and other office expenses.
Interest Income (Expense), Net
Interest income was $0.1
million for the three months ended March 31, 2020, as compared to $1,000 expense for the three months ended March 31, 2019. The
change was primarily related to interest income from the Company’s marketable securities of $0.1 million for the three months
ended March 31, 2020, which did not exist for the three months ended March 31, 2019.
Other Expense
Other expense was $24,000
for the three months ended March 31, 2020, compared to zero for the three months ended March 31, 2019. The change was primarily
related to the realized loss of $25,000 related to loss on foreign exchange transactions that did not exist during the three months
ended March 31, 2019, offset by other income of $1,000.
Liquidity and Capital Resources
Since our inception through
March 31, 2020, we have not generated any revenue and have incurred significant operating losses and negative cash flows from
our operations. We expect our existing cash and cash equivalents and short-term investments of $154.3 million as of March 31,
2020 will be sufficient to fund our operating expenses and capital expenditure requirements for at least 12 months from the date
of this Quarterly Report on Form 10-Q.
Cash Flows
The following table summarizes
our cash flows for each of the periods presented:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
|
2020
|
|
|
|
2019
|
|
Net cash used in operating activities
|
|
$
|
(18,855
|
)
|
|
$
|
(7,002
|
)
|
Net cash used in investing activities
|
|
|
(41,711
|
)
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
134,219
|
|
|
|
2,940
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
73,653
|
|
|
$
|
(4,062
|
)
|
Operating Activities
Net cash used in operating
activities for the three months ended March 31, 2020, was $18.9 million. For the three months ended March 31, 2020, the increase
was primarily due to our net losses of $12.4 million from clinical and pre-clinical expenses, an increase in prepaid expenses of
$2.1 million and a decrease in accounts payable of $7.2 million, which is partially offset by an increase in accrued expenses and
other current liabilities of $1.5 million, $1.3 million in non-cash stock-based compensation expense, and $0.1 million in amortization
of operating lease right-of-use assets.
Net cash used in operating
activities for three months ended March 31, 2019, was $7.0 million and was primarily due to our net loss of $8.7 million from drug
manufacturing and formulation expenses, an increase in prepaid expenses of $0.5 million, and a decrease of $0.4 million in accounts
payable, which are partially offset by increases $2.3 million in accrued expenses and other current liabilities and $0.3 million
in non-cash stock-based compensation expense.
Investing Activities
Net cash used in investing
activities for the three months ended March 31, 2020 was $41.7 million relating to our purchase of available-for-sale securities
for $41.7 million.
During the three months
ended March 31, 2019, there were no investing activities.
Financing Activities
During the three months
ended March 31, 2020, net cash provided by financing activities was $134.2 million, primarily from the cash proceeds from the secondary
offering of $134.1 million and $0.1 million from the exercise of stock options for common stock under the Equity Incentive Plan.
During the three
months ended March 31, 2019, net cash provided by financing activities was $2.9 million, primarily from the cash proceeds from
the issuance of Series B Preferred Stock resulting in $3.1 million cash proceeds offset by payment of initial public offering costs
of $0.2 million.
Funding Requirements
We expect our expenses
to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and
clinical trials of our product candidates. We expect that our expenses will increase significantly if and as we:
|
·
|
continue the ongoing and planned development of our product candidates;
|
|
·
|
initiate, conduct and complete any ongoing, anticipated or future preclinical studies and clinical
trials for our current and future product candidates;
|
|
·
|
seek marketing approvals for any product candidates that successfully complete clinical trials;
|
|
·
|
establish a sales, marketing, manufacturing and distribution infrastructure to commercialize any current
or future product candidate for which we may obtain marketing approval;
|
|
·
|
seek to discover and develop additional product candidates;
|
|
·
|
continue to build a portfolio of product candidates through the acquisition or in-license of drugs,
product candidates or technologies;
|
|
·
|
maintain, protect and expand our intellectual property portfolio;
|
|
·
|
hire additional clinical, regulatory and scientific personnel; and
|
|
·
|
add operational, financial and management information systems and personnel, including personnel to
support our product development and planned future commercialization efforts.
|
Furthermore, we have and
expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting,
investor relations and other expenses that we did not incur as a private company.
Due to the numerous risks
and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may
enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the
timing and amounts of increased capital outlays and operating expenses associated with completing the research and development
of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:
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the initiation, scope, progress, timing, costs and results of our ongoing and planned clinical trials
for our product candidates;
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·
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the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable
foreign regulatory authorities;
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·
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the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual
property rights;
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the cost of defending potential intellectual property disputes, including patent infringement actions;
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·
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the achievement of milestones or occurrence of other developments that trigger payments under the
Columbia Agreements or other agreements we may enter into;
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·
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the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial
costs under future collaboration agreements, if any;
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the effect of competing technological and market developments;
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·
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the cost and timing of completion of clinical or commercial-scale manufacturing activities;
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the costs of operating as a public company;
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the extent to which we in-license or acquire other products and technologies;
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our ability to establish and maintain collaborations on favorable terms, if at all;
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the cost of establishing sales, marketing and distribution capabilities for our product candidates
in regions where we choose to commercialize our product candidates, if approved; and
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·
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the initiation, progress, timing and results of the commercialization our product candidates, if approved,
for commercial sale.
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A change in the outcome
of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and
timing associated with the development of that product candidate.
Until such time, if ever,
that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through offerings
of securities, private equity financing, debt financings, collaborations or other strategic transactions. The terms of financing
may adversely affect the holdings or the rights of our stockholders. Funding may not be available to us on acceptable terms, or
at all. If we are unable to obtain funding, we may be required to delay, limit, reduce or terminate some or all of our research
and product development, product portfolio expansion or future commercialization efforts. If we raise additional capital through
debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends.
Contractual Obligations and Commitments
The following table summarizes
our contractual obligations as of March 31, 2020:
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|
Payments Due By Period
|
|
|
|
|
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Less Than
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|
|
|
|
|
|
|
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More Than
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(in thousands)
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Total
|
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1 Year
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1 to 3 Years
|
|
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4 to 5 Years
|
|
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5 Years
|
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Operating lease commitments(1)
|
|
$
|
2,228
|
|
|
$
|
465
|
|
|
$
|
1,466
|
|
|
$
|
297
|
|
|
$
|
—
|
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Total
|
|
$
|
2,228
|
|
|
$
|
465
|
|
|
$
|
1,466
|
|
|
$
|
297
|
|
|
$
|
—
|
|
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(1)
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Represents future minimum lease payments under our operating lease for office space.
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Except as disclosed in
the table above, we have no long-term debt or capital leases and no material non-cancelable purchase commitments with service providers,
as we have generally contracted on a cancelable, purchase-order basis. We enter into contracts in the normal course of business
with CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services.
These contracts are cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided
or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. These payments
are not included in the preceding table as the amount and timing of such payments are not known.
We may incur potential
contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments
that we may be required to make under the 2016 and 2019 Columbia Agreements pursuant to which we have in-licensed certain intellectual
property. Due to the uncertainty of the achievement and timing of the events requiring payment under this agreement, the amounts
to be paid by us are not fixed or determinable at this time and are excluded from the table above.
Critical Accounting Policies and Significant
Judgments and Estimates
Our management’s
discussion and analysis of financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our financial
statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our
estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results
may differ from these estimates under different assumptions or conditions.
There have been no significant
changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” included in our Annual Report on Form 10-K other than what is noted below.
Stock-Based Compensation
We account for our stock-based
compensation as expense in the statements of operations based on the awards’ grant date fair values. We account for forfeitures
as they occur by reversing any expense recognized for unvested awards.
We estimate the fair value
of options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires inputs based on
certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term
of the award, (c) the risk-free interest rate and (d) expected dividends. Due to a historical lack of a public market
for our common stock and a lack of company-specific historical and implied volatility data, we have based our estimate of expected
volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is
calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is
based on the historical volatility of a representative group of companies with similar characteristics to us, including stage of
product development and life science industry focus. We use the simplified method as allowed by the SEC Staff Accounting Bulletin
No. 107, Share-Based Payment, to calculate the expected term for options granted as we do not have sufficient historical exercise
data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on a treasury
instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero
as we have never paid dividends and have no current plans to pay any dividends on our common stock. The fair value of stock-based
payments is recognized as expense over the requisite service period which is generally the vesting period.
Determination of the
Fair Value of Common Stock
As there was no public
market for our common stock prior to the IPO on May 16, 2019, the estimated fair value of our common stock prior to May 16, 2019
had been determined by our board of directors, with input from management, considering third party valuations of our common stock
as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant
and which may have changed from the date of the most recent third party valuation through the date of the option grant. These third
party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’
Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
In addition to considering
the results of these third party valuations, our board of directors considered various objective and subjective factors to determine
the fair value of our common stock as of each grant date, including:
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the prices at which we sold shares of preferred stock and the superior rights and preferences of the
preferred stock relative to our common stock at the time of each grant;
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the progress of our research and development programs, including the status and results of preclinical
studies for our product candidates;
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our stage of development and commercialization and our business strategy;
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external market conditions affecting the biotechnology industry and trends within the biotechnology
industry;
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our financial position, including cash on hand, and our historical and forecasted performance and
operating results;
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·
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the lack of an active public market for our common stock and our preferred stock;
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the likelihood of achieving a liquidity event, such as an initial public offering, or sale of our
company in light of prevailing market conditions; and
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·
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the analysis of initial public offerings and the market performance of similar companies in the biotechnology
industry.
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The assumptions underlying
these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s
judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stock-based
compensation expense could have been materially different.
Options Granted
The intrinsic value of
all outstanding options as of March 31, 2020 was $104.5 million, based on the fair value of our common stock of $32.69
per share, of which approximately $61.1 million related to vested options and approximately $43.4 million related to
unvested options.
Off-Balance Sheet Arrangements
We have not entered into
any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Recently Issued Accounting Pronouncements
Refer to Note 1,
in the accompanying notes to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q
for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
The Jumpstart Our Business
Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period
to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to
private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with
new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
We are exposed to market
risks in the ordinary course of our business. These risks primarily include interest rate sensitivities and foreign currency sensitivities.
Interest Rate Sensitivity
Our exposure to market
risk relates to our cash, cash equivalents and short-term investments of $154.3 million. The primary objective of our investment
activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk.
Some of the financial instruments in which we invest could be subject to market risk where the interest rates may cause the value
of the instruments to fluctuate. To minimize this risk, we intend to maintain a portfolio which may include cash, cash equivalents
and short-term investment securities available-for-sale in a variety of securities.
The securities in our
investment portfolio are not leveraged and are classified as available-for-sale. These available-for-sale securities are short-term
in nature and subject to minimal interest rate risk. All investments have a fixed interest rate and are carried at market value,
which approximates cost. We do not use derivative financial instruments in our investment portfolio. A change of 50 to 100 basis
points would result in a change of $0.2 to $0.3 million, respectively, on the value of our investment portfolio.
We do not believe that
our cash has significant risk of default or illiquidity. While we believe our cash and cash equivalents does not contain excessive
risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market
value. In addition, we maintain significant amounts of cash at one or more financial institutions that are in excess of federally
insured limits. Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that
inflation has had a material effect on our results of operations during the periods presented.
As of March 31, 2020,
we had cash and cash equivalents of $92.5 million. Our exposure to interest rate sensitivity is impacted by changes in the
underlying U.S. bank interest rates. Our surplus cash has been invested in interest-bearing savings accounts from time to time.
We have not entered into investments for trading or speculative purposes. We do not believe an immediate one percentage point
change in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect
our operating results or cash flows to be significantly affected by changes in market interest rates.
As of March 31, 2020,
we had no outstanding debt and are therefore not subject to interest rate risk related to debt.
Foreign Currency Sensitivity
Our primary operations
are transacted in U.S. Dollars, however, certain service agreements with third parties are denominated in currencies other than
the U.S. Dollar, primarily the Euro. As such, we are subject to foreign exchange risk and therefore, fluctuations in the value
of the U.S. Dollar against the Euro may impact the amounts reported for expenses and obligations incurred under such agreements.
We do not participate in any foreign currency hedging activities and we do not have any other derivative financial instruments.
We did not recognize any significant exchange rate loss during the three months ended March 31, 2020. A hypothetical 10% change
in foreign exchange rates during any of the periods presented would not have a material impact on our financial condition or results
of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
As of March 31, 2020,
our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness
of our disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including
our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer
concluded that, as of March 31, 2020, the design and operation of our disclosure controls and procedures were effective at a
reasonable assurance level.
Changes in Internal Control over Financial
Reporting.
There was no change in
our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d)
of the Exchange Act that occurred during the first quarter of 2020 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 1A. Risk Factors.
An investment in shares
of our common stock involves a high degree of risk. You should carefully consider the following information about these risks described
below, together with other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our financial statements
and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments
described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the
market price of our common stock could decline and you may lose all or part of your investment.
Additional risks and
uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and the market
price of our common stock.
Risks Related to Our Financial Position
and Capital Needs
We have incurred
significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the
foreseeable future and may never achieve or maintain profitability.
Since inception in January
2016, we have incurred significant operating losses. Our net loss was $45.6 million and $16.5 million for the years ended December
31, 2019 and 2018, respectively, and $12.4 million for the three months ended March 31, 2020. As of March 31, 2020, we had an accumulated
deficit of $79.1 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable
future. Since inception, we have devoted substantially all of our efforts to research and preclinical and clinical development
of our product candidates, organizing and staffing our company, business planning, raising capital, establishing our intellectual
property portfolio and conducting clinical trials. To date, we have never obtained regulatory approval for, or commercialized,
any drugs. It could be several years, if ever, before we have a commercialized drug. The net losses we incur may fluctuate significantly
from quarter to quarter and year-to-year. We anticipate that our expenses will increase substantially if, and as, we:
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continue the ongoing and planned development of our product candidates;
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initiate, conduct and complete any ongoing, anticipated or future preclinical studies and clinical
trials for our current and future product candidates;
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seek marketing approvals for any product candidates that successfully complete clinical trials;
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establish a sales, marketing, manufacturing and distribution infrastructure to commercialize any current
or future product candidate for which we may obtain marketing approval;
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seek to discover and develop additional product candidates;
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continue to build a portfolio of product candidates through the acquisition or in-license of drugs,
product candidates or technologies;
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maintain, protect and expand our intellectual property portfolio;
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meet the requirements and demands of being a public company;
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defend against any product liability claims or other lawsuits related to our products;
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hire additional clinical, regulatory and scientific personnel; and
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add operational, financial and management information systems and personnel, including personnel to
support our product development and planned future commercialization efforts.
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Furthermore, we expect
to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations
and other expenses that we did not incur as a private company.
To become and remain profitable,
we must succeed in developing and eventually commercializing drugs that generate significant revenue. This will require us to be
successful in a range of challenging activities, including completing preclinical studies and clinical trials of our current and
future product candidates, obtaining regulatory approval, procuring commercial-scale manufacturing, marketing and selling any products
for which we obtain regulatory approval (including through third parties), as well as discovering or acquiring and developing additional
product candidates. We are only in the preliminary stages of most of these activities. We may never succeed in these activities
and, even if we do, may never generate revenues that are sufficient to offset our expenses and achieve profitability.
Because of the numerous
risks and uncertainties associated with drug development, we are unable to accurately predict the timing or amount of expenses
or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to perform studies in addition
to those currently expected, or if there are any delays in the initiation and completion of our clinical trials or the development
of any of our product candidates, our expenses could increase.
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 decrease the value of our company and could impair our ability to raise capital, maintain our research
and development efforts, expand our business or continue our operations. A decline in the value of our common stock could also
cause you to lose all or part of your 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.
We are a clinical-stage
company with limited operational history, and our operations to date have been largely focused on raising capital, organizing and
staffing our company, identifying and developing our product candidates, and undertaking preclinical and clinical development for
our product candidates. As an organization, we have not yet demonstrated an ability to successfully complete clinical development,
obtain regulatory approvals, manufacture a commercial-scale product or conduct sales and marketing activities necessary for successful
commercialization, or arrange for a third party to conduct these activities on our behalf. Consequently, any predictions about
our future success or viability may not be as accurate as they could be if we had a longer operating history.
We may encounter unforeseen
expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will
need to transition at some point from a company with a research and development focus to a company capable of supporting commercial
activities. We may not be successful in such a transition.
Additionally, we expect
our financial condition and operating results to continue to fluctuate 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.
We will require
substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to
delay, reduce or terminate certain of our development programs or other operations.
As of March 31, 2020,
our cash, cash equivalents and marketable securities was $154.3 million. Based on our current operating and research and development
plans, we believe that our existing cash, cash equivalents, and marketable securities will fund our operations through at least
the next 12 months from the date the financial statements were issued. However, we will need to obtain substantial additional funding
in connection with our continuing operations and planned research and clinical development activities. Our future capital requirements
will depend on many factors, including:
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the timing, progress and results of our ongoing preclinical studies and clinical trials of our product
candidates;
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the scope, progress, results and costs of preclinical development, laboratory testing and clinical
trials of other product candidates that we may pursue;
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our ability to establish collaborations on favorable terms, if at all;
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the costs, timing and outcome of regulatory review of our product candidates;
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the costs and timing of future commercialization activities, including product manufacturing, marketing,
sales and distribution, for any of our product candidates for which we receive marketing approval;
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the revenue, if any, received from commercial sales of our product candidates for which we receive
marketing approval;
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the cost of any milestone and royalty payments with respect to any approved product candidates;
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing
our intellectual property rights and defending any intellectual property-related claims;
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the costs of operating as a public company; and
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the extent to which we acquire or in-license other product candidates and technologies.
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Identifying potential
product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process
that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval
and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial
revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for several years,
if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional
financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable
market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether terminate
our research and development programs or future commercialization efforts.
Raising additional
capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.
Until such time, if ever,
as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings,
third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing
arrangements, or any combination of these approaches. We do not have any committed external source of funds. To the extent that
we raise additional capital through the sale of equity or convertible debt securities, your ownership interest in our company may
be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as
a stockholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital
expenditures, declaring dividends or placing limitations on our ability to acquire, sell or license intellectual property rights.
If we raise additional
capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable
rights to our intellectual property, future revenue streams, research programs or product candidates, or grant licenses on terms
that may not be favorable to us. If we are unable to raise additional capital when needed, we may be required to delay, limit,
reduce or terminate our drug development or future commercialization efforts, or grant rights to develop and market product candidates
that we would otherwise develop and market ourselves.
Our ability to use
our net operating losses to offset future taxable income may be subject to certain limitations.
We have incurred substantial
losses since inception and do not expect to become profitable in the near future, if ever. In general, under Section 382 of
the United States Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change”
is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. We may have experienced
ownership changes in the past and may experience ownership changes in the future as a result of subsequent changes in our stock
ownership (some of which shifts are outside our control). As a result, if, and to the extent that we earn net taxable income, our
ability to use our pre-change NOLs to offset such taxable income may be subject to limitations.
For NOLs arising in tax
years beginning after December 31, 2017, the Code limits a taxpayer’s ability to utilize NOL carryforwards to 80% of
taxable income. In addition, NOLs arising in tax years ending after December 31, 2017 can be carried forward indefinitely,
but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be subject to
the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year
carryback and 20-year carryforward period. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in
effect when the NOL is expected to be utilized. The limitations in the carryforward/carryback periods, as well as the limitation
on use of NOLs for NOLs arising in tax years beginning after December 31, 2017 may significantly impact our ability to utilize
our NOLs to offset taxable income in the future.
In order to realize the
future tax benefits of our NOL carryforwards, we must generate taxable income, of which there is no assurance. Accordingly, we
have provided a full valuation allowance for deferred tax assets as of March 31, 2020.
Risks Related to the Development and Commercialization
of Our Product Candidates
Our future success
is substantially dependent on the successful clinical development, regulatory approval and commercialization of our product candidates.
If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates and our
ability to generate product revenue will be adversely affected.
We have invested a significant
portion of our time and financial resources in the development of AT-001, AT-003 and AT-007. Our business is dependent on our ability
to successfully complete development of, obtain regulatory approval for, and, if approved, successfully commercialize our product
candidates in a timely manner. We may face unforeseen challenges in our drug development strategy, and we can provide no assurances
that our drug design will prove to be effective, that we will be able to take advantage of expedited regulatory pathways for any
of our product candidates, or that we will ultimately be successful in our future clinical trials.
We have not obtained regulatory
approval for any product candidate, and it is possible that any product candidates we may seek to develop in the future will not
obtain regulatory approval. Neither we nor any future collaborator is permitted to market any product candidates in the United
States or abroad until we receive regulatory approval from the FDA or applicable foreign regulatory agency. The time required to
obtain approval or other marketing authorizations by the FDA and comparable foreign regulatory authorities is unpredictable and
typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the
substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical
data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among
jurisdictions.
Prior to obtaining approval
to commercialize any product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidate is
safe and effective for its intended uses. Results from preclinical studies and clinical trials can be interpreted in different
ways. Even if we believe that the preclinical or clinical data for our product candidates are promising, such data may not be sufficient
to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional preclinical
studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical
development program, requiring their alteration.
Of the large number of
products in development, only a small percentage successfully complete the FDA or comparable foreign regulatory authorities
approval processes and are commercialized. The lengthy approval or marketing authorization process as well as the unpredictability
of future clinical trial results may result in our failing to obtain regulatory approval or marketing authorization to market our
product candidates, which would significantly harm our business, financial condition, results of operations and prospects.
Even if we eventually
complete clinical testing and receive approval of a new drug application, or NDA, or foreign marketing application for our product
candidates, the FDA or the comparable foreign regulatory authorities may grant approval or other marketing authorization contingent
on the performance of costly additional clinical trials, including post-market clinical trials. The FDA or the comparable foreign
regulatory authorities also may approve or authorize for marketing a product candidate for a more limited indication or patient
population than we originally request, and the FDA or comparable foreign regulatory authorities may not approve or authorize the
labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining,
or inability to obtain, applicable regulatory approval or other marketing authorization would delay or prevent commercialization
of that product candidate and would adversely impact our business and prospects.
In addition, the FDA or
comparable foreign regulatory authorities may change their policies, adopt additional regulations or revise existing regulations
or take other actions, which may prevent or delay approval of our future product candidates under development on a timely basis.
Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals,
increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained.
Furthermore, even if we
obtain regulatory approval for our product candidates, we will still need to develop a commercial organization, establish a commercially
viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payors, including
government health administration authorities. If we are unable to successfully commercialize our product candidates, we may not
be able to generate sufficient revenue to continue our business.
The development
of additional product candidates is risky and uncertain, and we can provide no assurances that we will be able to replicate our
approach to drug development for other disease indications.
Efforts to identify, acquire
or in-license, and then develop, product candidates require substantial technical, financial and human resources, whether or not
any product candidates are ultimately identified. Our efforts may initially show promise in identifying potential product candidates,
yet fail to yield product candidates for clinical development, approved products or commercial revenues for many reasons, including
the following:
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the methodology used may not be successful in identifying potential product candidates;
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competitors may develop alternatives that render any product candidates we develop obsolete;
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any product candidates we develop may be covered by third parties’ patents or other exclusive
rights;
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a product candidate may be shown to have harmful side effects or other characteristics that indicate
it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
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a product candidate may not be capable of being produced in commercial quantities at an acceptable
cost, or at all; and
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a product candidate may not be accepted as safe and effective by physicians, patients, the medical
community or third-party payors.
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We have limited financial
and management resources and, as a result, we may forego or delay pursuit of opportunities with other product candidates or for
other indications that later prove to have greater market potential. Our resource allocation decisions may cause us to fail to
capitalize on viable commercial drugs or profitable market opportunities. 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 circumstances under which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate. In addition, we may not be successful in replicating our approach
to drug development for other disease indications. If we are unsuccessful in identifying and developing additional product candidates
or are unable to do so, our business may be harmed.
Success in preclinical
studies or earlier clinical trials may not be indicative of results in future clinical trials and we cannot assure you that any
ongoing, planned or future clinical trials will lead to results sufficient for the necessary regulatory approvals.
Success in preclinical
testing and earlier clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide
adequate data to demonstrate the efficacy and safety of a product candidate. Preclinical studies and Phase 1 clinical trials
are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of product
candidates at various doses and schedules. Success in preclinical studies and earlier clinical trials does not ensure that later
efficacy trials will be successful, nor does it predict final results. Our product candidates may fail to show the desired safety
and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through earlier
clinical trials.
In addition, the design
of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical
trial may not become apparent until the clinical trial is well advanced. As an organization, we have limited experience designing
clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. Many companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving
promising results in preclinical testing and earlier clinical trials. Data obtained from preclinical and clinical activities are
subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory
delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate
development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.
Clinical drug development involves a
lengthy and expensive process. We may incur additional costs and encounter substantial delays or difficulties in our clinical trials.
We may not commercialize,
market, promote or sell any product candidate without obtaining marketing approval from the FDA or other comparable regulatory
authority, and we may never receive such approvals. It is impossible to predict when or if any of our product candidates will prove
effective or safe in humans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities
for the sale of our product candidates, we must complete preclinical development and then conduct extensive clinical trials to
demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, is difficult to design
and implement, can take many years to complete and is uncertain as to outcome. For example, we intend to conduct an additional
Phase 1 clinical trial of AT-007 for the treatment of galactosemia in a pediatric population upon successful completion of
the Phase 1 clinical trial in adults.
A failure of one or more
clinical trials can occur at any stage of testing. Moreover, preclinical and clinical data are often susceptible to varying interpretations
and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and
clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous
unforeseen events prior to, during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing
approval or commercialize our product candidates, including the following:
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delays in reaching a consensus with regulatory authorities on the design or implementation of our
clinical trials;
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regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence
a clinical trial or conduct a clinical trial at a prospective trial site;
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delays in reaching agreement on acceptable terms with prospective clinical research organizations,
or CROs, and clinical trial sites;
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the number of patients required for clinical trials of our product candidates may be larger than we
anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials
at a higher rate than we anticipate or fail to return for post-treatment follow-up or we may fail to recruit suitable patients
to participate in a trial;
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clinical trials of our product candidates may produce negative or inconclusive results;
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imposition of a clinical hold by regulatory authorities as a result of a serious adverse event, concerns
with a class of product candidates or after an inspection of our clinical trial operations, trial sites or manufacturing facilities;
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occurrence of serious adverse events associated with the product candidate that are viewed to outweigh
its potential benefits;
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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
or
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we may decide, or regulators may require us, to conduct additional clinical trials or abandon product
development programs.
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Any inability to successfully
complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue
from future drug sales or other sources. In addition, if we make manufacturing or formulation changes to our product candidates,
we may need to conduct additional testing to bridge our modified product candidate to earlier versions. Clinical trial delays could
also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or
allow our competitors to bring competing drugs to market before we do, which could impair our ability to successfully commercialize
our product candidates and may harm our business, financial condition, results of operations and prospects.
Additionally, if the results
of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our product candidates,
we may:
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be delayed in obtaining marketing approval, or not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or safety
warnings, including in the form of a risk evaluation and mitigation strategy, or REMS;
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be subject to additional post-marketing testing requirements;
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be required to perform additional clinical trials to support approval or be subject to additional
post-marketing testing requirements;
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have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions
on its distribution in the form of a modified REMS;
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be subject to the addition of labeling statements, such as warnings or contraindications;
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experience damage to our reputation.
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Our product development
costs will also increase if we experience delays in testing or obtaining marketing approvals. We do not know whether any of our
preclinical studies or clinical trials will begin as planned, need to be restructured or be completed on schedule, if at all.
Further, we, the FDA or
an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in
accordance with regulatory requirements, including the FDA’s current Good Clinical Practice, or GCP, regulations, that we
are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our investigational new drug applications,
or INDs, or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion
of future clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate
a clinical trial prior to completion, the commercial prospects of our product candidates could be negatively impacted, and our
ability to generate revenues from our product candidates may be delayed.
All of our current
product candidates that have proceeded to clinical trials target inhibition of aldose reductase. There can be no assurance that
aldose reductase inhibitors will ever receive regulatory approval.
All of our current product
candidates that have proceeded to clinical trials target inhibition of the aldose reductase enzyme. There are no currently approved
aldose reductase inhibitors on the market outside of Japan, India and China, and there can be no assurance that aldose reductase
inhibitors will ever receive regulatory approval in all other countries, including the United States. Prior attempts to inhibit
this enzyme were hindered by nonselective, nonspecific inhibition, which resulted in limited efficacy and significant off-target
safety effects. Our current product candidates, including AT-001, AT-003 and AT-007, may face similar or different challenges that
prevent their successful commercialization.
We may not be able
to obtain or maintain rare pediatric disease designation or exclusivity for our product candidates, which could limit the potential
profitability of our product candidates.
We have obtained orphan
drug designation and rare pediatric disease designation, from the FDA for AT-007 for the treatment of galactosemia. The FDA may
grant orphan drug designation to a drug intended to treat a rare disease or condition, which is defined as a disease or condition
that either affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals, there
is no reasonable expectation that sales of the drug in the United States will be sufficient to offset the costs of developing and
making the drug available in the United States. Orphan drug designation does not convey any advantage in, or shorten the duration
of, the regulatory review and approval process.
For the purposes of the
rare pediatric disease program, a “rare pediatric disease” is a serious or life-threatening disease in which the serious
or life-threatening manifestations primarily affect individuals aged from birth to 18 years or a rare disease or conditions
within the meaning of the Orphan Drug Act. Under the FDA’s rare pediatric disease priority review voucher, or RPD-PRV, program,
upon the approval of an NDA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for
an RPD-PRV that can be used to obtain priority review for a subsequent NDA. The sponsor of the application may transfer (including
by sale) the RPD-PRV to another sponsor. The voucher may be further transferred any number of times before the voucher is used,
as long as the sponsor making the transfer has not yet submitted the application. Congress has extended the RPD-PRV program until
September 30, 2020, with potential for vouchers to be granted until 2022. This program has been subject to criticism, including
by the FDA. As such it is possible that even though we have obtained qualification for a RPD-PRV, the program may no longer be
in effect at the time of approval. Also, although priority review vouchers may be sold or transferred to third parties, there is
no guaranty that we will be able to realize any value if we obtained, and subsequently were able to sell a priority review voucher.
A breakthrough therapy
designation by the FDA for a product candidate may not lead to a faster development or regulatory review or approval process, and
it would not increase the likelihood that the product candidate will receive marketing approval.
We may seek a breakthrough
therapy designation for one or more product candidates. A breakthrough therapy is defined as a product candidate that is intended,
alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary
clinical evidence indicates that the product candidate 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 product
candidates 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. Product candidates designated as breakthrough therapies by the FDA are also eligible for priority
review if supported by clinical data at the time of the submission of the NDA.
Designation as a breakthrough
therapy is within the discretion of the FDA. Accordingly, even if we believe that 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 product candidates considered for approval under conventional FDA procedures and it would 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 the product candidate no longer meets the conditions for qualification or it may decide that the time period
for FDA review or approval will not be shortened.
We may seek fast
track designation from the FDA for AT-001 for DbCM. Even if granted, fast track designation may not actually lead to a faster development,
regulatory review or approval process.
If a product candidate
is intended for the treatment of a serious or life-threatening condition and demonstrates the potential to address unmet needs
for this condition, the sponsor may apply for FDA fast track designation. If fast track designation is obtained, the FDA may prioritize
interactions with the sponsor concerning the designated development program and initiate review of sections of an NDA before the
application is complete, known as “rolling review.” Fast track designation would not ensure that we would experience
a faster development, regulatory review or approval process compared to conventional FDA procedures or that we would ultimately
obtain regulatory approval. Additionally, 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 intend to seek
approval from the FDA through the use of accelerated registration pathways. If we are unable to obtain approval under an accelerated
pathway, we may be required to conduct additional preclinical studies or clinical trials, which could increase the expense of obtaining,
reduce the likelihood of obtaining and/or delay the timing of obtaining, necessary marketing approvals. Even if we receive approval
from the FDA to utilize an accelerated registration pathway, if our confirmatory trials do not verify clinical benefit, or if we
do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.
We intend to seek an accelerated
approval development pathway for our product candidates. Under the accelerated approval provisions of the Federal Food, Drug, and
Cosmetic Act, or the FDCA, and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product designed
to treat a serious or life-threatening condition that provides meaningful therapeutic advantage over available therapies and demonstrates
an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The
FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease.
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. An
intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or
mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The
accelerated approval development pathway may be used in cases in which the advantage of a new drug over available therapy may not
be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted,
accelerated approval is contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval
confirmatory studies to verify and describe the drug’s clinical profile or risks and benefits for accelerated approval. The
FDA may require that any such confirmatory studies be initiated or substantially underway prior to the submission of an application
for accelerated approval. If such post-approval studies fail to confirm the drug’s clinical profile or risks and benefits,
the FDA may withdraw its approval of the drug. Because we are still in early stages of our clinical trials, we can provide no assurances
that our biomarker-based approach will be successful in demonstrating a causal link to the relevant outcomes we are evaluating.
If our approach is not successful, we may be required to conduct longer clinical trials.
If we choose to pursue
accelerated approval, we intend to seek feedback from the FDA or will otherwise evaluate our ability to seek and receive such accelerated
approval. There can be no assurance that, after our evaluation of the feedback from the FDA or other factors, we will decide to
pursue or submit an NDA for accelerated approval or any other form of expedited development, review or approval. Furthermore, even
if we submit an application for accelerated approval, there can be no assurance that the application will be accepted or that approval
will be granted on a timely basis, or at all. The FDA also could require us to conduct further studies or trials prior to considering
our application or granting approval of any type. We might not be able to fulfill the FDA’s requirements in a timely manner,
which would cause delays, or approval might not be granted because our submission is deemed incomplete by the FDA. A failure to
obtain accelerated approval or any other form of expedited development, review or approval for a product candidate would result
in a longer time period to commercialize such product candidate, could increase the cost of development of such product candidate
and could harm our competitive position in the marketplace.
Even if we receive accelerated
approval from the FDA, we will be subject to rigorous post-marketing requirements, including the completion of confirmatory post-market
clinical trial(s) to verify the clinical benefit of the product, and submission to the FDA of all promotional materials prior to
their dissemination. The FDA could seek to withdraw accelerated approval for multiple reasons, including if we fail to conduct
any required post-market study with due diligence, a post-market study does not confirm the predicted clinical benefit, other evidence
shows that the product is not safe or effective under the conditions of use, or we disseminate promotional materials that are found
by the FDA to be false or misleading.
A failure to obtain accelerated
approval or any other form of expedited development, review or approval for a product candidate that we may choose to develop would
result in a longer time period prior to commercializing such product candidate, could increase the cost of development of such
product candidate and could harm our competitive position in the marketplace.
Enrollment and retention
of patients in clinical trials is an expensive and time-consuming process and could be delayed, made more difficult or rendered
impossible by multiple factors outside our control.
Identifying and qualifying
patients to participate in our clinical trials is critical to our success. We may encounter difficulties in enrolling patients
in our clinical trials, thereby delaying or preventing development and approval of our product candidates. Even once enrolled,
we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical
trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body
of safety and efficacy data, the number and nature of competing treatments and ongoing clinical trials of competing therapies for
the same indication, the proximity of patients to clinical sites and the eligibility criteria for the trial. Because our focus
includes rare disorders, there are limited patient pools from which to draw in order to complete our clinical trials in a timely
and cost-effective manner. Accordingly, enrollment of our clinical trials could take significantly longer than projected, which
would delay any potential approval of our product candidates. Furthermore, even if we are able to enroll a sufficient number of
patients for our clinical trials, we may have difficulty maintaining enrollment of such patients in our clinical trials.
For example, we intend
to conduct an additional Phase 1 clinical trial of AT-007 for the treatment of galactosemia in a pediatric population. We
are doing this in order to obtain data on patients representing the most vulnerable subset of our intended population. Such pediatric
patients may be difficult to enroll in this trial, and the lack of data on these patients may negatively impact the approvability
or labeling of galactosemia.
Our efforts to build relationships
with patient communities may not succeed, which could result in delays in patient enrollment in our clinical trials. Any negative
results we may report in clinical trials of our product candidates may make it difficult or impossible to recruit and retain patients
in other clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result
in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates
or could render further development impossible. In addition, we may rely on CROs and clinical trial sites to ensure proper and
timely conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we will be
limited in our ability to ensure their actual performance.
For additional information
regarding delays in enrollment and retention of patients, see “Risks Related to Our Business Operations, Employee Matters
and Managing Growth—Our business may be adversely affected by the recent coronavirus outbreak.”
Our product candidates
may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit their
commercial potential or result in significant negative consequences following any potential marketing approval.
During the conduct of
clinical trials, patients report changes in their health, including illnesses, injuries and discomforts, to their doctor. Often,
it is not possible to determine whether or not the product candidate being studied caused these conditions. Regulatory authorities
may draw different conclusions or require additional testing to confirm these determinations, if they occur.
In addition, it is possible
that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates
becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were
observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by
subjects or patients. Many times, side effects are only detectable after investigational drugs are tested in large-scale pivotal
trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical
experience indicates that any of our product candidates have side effects or cause serious or life-threatening side effects, the
development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such
approval may be revoked, which would harm our business, prospects, operating results and financial condition.
Interim, “top-line”
and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we
may publish interim, “top-line” or preliminary data from our clinical trials. Interim data from clinical trials that
we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues
and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification
procedures that may result in the final data being materially different from the preliminary data we previously published. As a
result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary
or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock
to fluctuate significantly.
The incidence and
prevalence for target patient populations of our product candidates have not been established with precision. If the market opportunities
for our product candidates are smaller than we believe they are or any approval we obtain is based on a narrower definition of
the patient population, our business may suffer.
We currently focus our
drug development on product candidates for the treatment of diseases with high unmet medical need. Our eligible patient population
and pricing estimates may differ significantly from the actual market addressable by our product candidates. Our estimates 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 our beliefs and analyses. These estimates have been derived from a variety
of sources, including the scientific literature, patient foundations or market research, and may prove to be incorrect. Further,
new studies may change the estimated incidence or prevalence of the diseases we are targeting. The number of patients may turn
out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may
be limited or may not be receptive to treatment with our product candidates, and new patients may become increasingly difficult
to identify or access. If the market opportunities for our product candidates are smaller than we estimate, we may not be able
to achieve our forecast revenue, which could hinder our business plan and adversely affect our business and results of operations.
We may face substantial
competition, which may result in others developing or commercializing drugs before or more successfully than us.
The development and commercialization
of new drugs is highly competitive. We may face potential competition with respect to our current product candidates and may face
competition with respect to any other product candidates that we may seek to develop or commercialize in the future from pharmaceutical
and biotechnology companies, academic institutions, government agencies and other public and private research institutions.
Our competitors may have
an advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater
experience and expertise in securing reimbursement, government contracts and relationships with key opinion leaders, conducting
testing and clinical trials, obtaining and maintaining regulatory approvals and distribution relationships to market products and
marketing approved drugs. These companies also have significantly greater research and marketing capabilities than we do. If we
are not able to compete effectively against existing and potential competitors, our business and financial condition may be harmed.
As a result of these factors,
our competitors may obtain regulatory approval of their drugs before we are able to, which may limit our ability to develop or
commercialize our product candidates. Our competitors may also develop therapies that are safer, more effective, more widely accepted
or less expensive than ours, and may also be more successful than we are in manufacturing and marketing their drugs. These advantages
could render our product candidates obsolete or non-competitive before we can recover the costs of such product candidates’
development and commercialization.
Mergers and acquisitions
in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number
of our competitors. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. These third-parties compete with us in recruiting and retaining qualified scientific,
management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as
in acquiring technologies complementary to, or necessary for, our programs.
We may explore strategic
collaborations that may never materialize or we may be required to relinquish important rights to and control over the development
and commercialization of our product candidates to any future collaborators.
Over time, our business
strategy includes acquiring or in-licensing additional product candidates for treatments of diseases with high unmet medical need.
As a result, we intend to periodically explore a variety of possible strategic collaborations in an effort to gain access to additional
product candidates or resources. These strategic collaborations may include partnerships with large strategic partners, particularly
for the development of DPN treatments using AT-001. At the current time however, we cannot predict what form such a strategic collaboration
might take. We are likely to face significant competition in seeking appropriate strategic collaborators, and strategic collaborations
can be complicated and time consuming to negotiate and document. We may not be able to negotiate strategic collaborations on acceptable
terms, or at all. We are unable to predict when, if ever, we will enter into any strategic collaborations because of the numerous
risks and uncertainties associated with establishing them.
Future collaborations
could subject us to a number of risks, including:
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we may be required to undertake the expenditure of substantial operational, financial and management
resources;
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we may be required to issue equity securities that would dilute our stockholders’ percentage
ownership of our company;
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we may be required to assume substantial actual or contingent liabilities;
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we may not be able to control the amount and timing of resources that our strategic collaborators
devote to the development or commercialization of our product candidates;
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strategic collaborators may select indications or design clinical trials in a way that may be less
successful than if we were doing so;
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strategic collaborators may delay clinical trials, provide insufficient funding, terminate a clinical
trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for
clinical testing;
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strategic collaborators may not pursue further development and commercialization of products resulting
from the strategic collaboration arrangement or may elect to discontinue research and development programs;
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strategic collaborators may not commit adequate resources to the marketing and distribution of our
product candidates, limiting our potential revenues from these products;
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disputes may arise between us and our strategic collaborators that result in the delay or termination
of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration
that diverts management’s attention and consumes resources;
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strategic collaborators may experience financial difficulties;
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strategic collaborators may not properly maintain, enforce or defend our intellectual property rights
or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us
to potential litigation;
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business combinations or significant changes in a strategic collaborator’s business strategy
may adversely affect a strategic collaborator’s willingness or ability to complete its obligations under any arrangement;
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strategic collaborators could decide to move forward with a competing product candidate developed
either independently or in collaboration with others, including our competitors; and
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strategic collaborators could terminate the arrangement or allow it to expire, which would delay the
development and may increase the cost of developing our product candidates.
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Even if any product
candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or
others in the medical community necessary for commercial success.
Even if any product candidates
receive marketing approval, they may fail to gain market acceptance by physicians, patients, third-party payors and others in the
medical community. If such product candidates do not achieve an adequate level of acceptance, we may not generate significant drug
revenue and may not become profitable. The degree of market acceptance of any product candidate, if approved for commercial sale,
will depend on a number of factors, including but not limited to:
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the convenience and ease of administration compared to alternative treatments and therapies;
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the willingness of the target patient population to try new therapies and of physicians to prescribe
these therapies;
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the efficacy and potential advantages compared to alternative treatments and therapies;
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the effectiveness of sales and marketing efforts;
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the strength of our relationships with patient communities;
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the cost of treatment in relation to alternative treatments and therapies, including any similar generic
treatments;
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our ability to offer such drug for sale at competitive prices;
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the strength of marketing and distribution support;
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the availability of third-party coverage and adequate reimbursement;
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the prevalence and severity of any side effects; and
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any restrictions on the use of the drug together with other medications.
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Our efforts to educate
physicians, patients, third-party payors and others in the medical community on the benefits of our product candidates may require
significant resources and may never be successful. Such efforts may require more resources than are typically required due to the
complexity and uniqueness of our product candidates. Because we expect sales of our product candidates, if approved, to generate
substantially all of our revenues for the foreseeable future, the failure of our product candidates to find market acceptance would
harm our business.
Even if we obtain
regulatory approvals for our product candidates, they will remain subject to ongoing regulatory oversight.
Even if we obtain regulatory
approvals for our product candidates, such approvals will be subject to ongoing regulatory requirements for manufacturing, labeling,
packaging, storage, advertising, promotion, sampling, record keeping and submission of safety and other post-market information.
Any regulatory approvals that we receive for our product candidates may also be subject to a REMS, limitations on the approved
indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly
post-marketing testing, including Phase 4 trials, and surveillance to monitor the quality, safety and efficacy of the drug.
Such regulatory requirements may differ from country to country depending on where we have received regulatory approval.
In addition, drug manufacturers
and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory
authorities for compliance with current good manufacturing practices, or cGMP, requirements and adherence to commitments made in
the NDA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a drug, such
as adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a
regulatory authority disagrees with the promotion, marketing or labeling of that drug, a regulatory authority may impose restrictions
relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from
the market or suspension of manufacturing.
If we fail to comply with
applicable regulatory requirements following approval of our product candidates, a regulatory authority may:
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issue an untitled letter or warning letter asserting that we are in violation of the law;
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seek an injunction or impose administrative, civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval;
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suspend any ongoing clinical trials;
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refuse to approve a pending NDA or comparable foreign marketing application or any supplements thereto
submitted by us or our partners;
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restrict the marketing or manufacturing of the drug;
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seize or detain the drug or otherwise require the withdrawal of the drug from the market;
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refuse to permit the import or export of product candidates; or
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refuse to allow us to enter into supply contracts, including government contracts.
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Moreover, the FDA strictly
regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that
are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce
the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label
uses may be subject to significant civil, criminal and administrative penalties.
Any government investigation
of alleged violations of law could require us to expend significant time and resources in response and could generate negative
publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates
and harm our business, financial condition, results of operations and prospects.
The FDA’s and other
regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit
or delay regulatory approval of our product candidates. If we are not able to maintain regulatory compliance with the Cures Act,
we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely
affect our business, prospects, financial condition and results of operations.
In addition, we cannot
predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive
action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business
and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of executive
orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory
and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing
applications. It is difficult to predict how these executive actions, including the executive orders, will be implemented and the
extent to which they will affect the FDA’s ability to exercise its regulatory authority. If these executive actions impose
constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business
may be negatively impacted.
If we are unable
to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates,
we may not be successful in commercializing them, if and when they are approved.
To successfully commercialize
any product candidate that may result from our development programs, we will need to build out our sales and marketing capabilities,
either on our own or with others. The establishment and development of our own commercial team or the establishment of a contract
sales force to market any product candidate we may develop will be expensive and time-consuming and could delay any drug launch.
Moreover, we cannot be certain that we will be able to successfully develop this capability. We may seek to enter into collaborations
with other entities to utilize their established marketing and distribution capabilities, but we may be unable to enter into such
agreements on favorable terms, if at all. If any current or future collaborators do not commit sufficient resources to commercialize
our product candidates, or we are unable to develop the necessary capabilities on our own, we may be unable to generate sufficient
revenue to sustain our business. We compete with many companies that currently have extensive, experienced and well-funded marketing
and sales operations to recruit, hire, train and retain marketing and sales personnel. We will likely also face competition if
we seek third parties to assist us with the sales and marketing efforts of our product candidates. Without an internal team or
the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more
established companies.
Even if we obtain
and maintain approval for our product candidates from the FDA, we may never obtain approval outside the United States, which would
limit our market opportunities.
Approval of a product
candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other
countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities
in other foreign countries or by the FDA. Sales of our product candidates outside the United States will be subject to foreign
regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product
candidate, comparable foreign regulatory authorities also must approve the manufacturing and marketing of the product candidate
in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods
different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials.
In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for
sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is also subject
to approval. Obtaining approval for our product candidates in the European Union from the European Commission following the opinion
of the European Medicines Agency, or the EMA, if we choose to submit a marketing authorization application there, would be a lengthy
and expensive process. Even if a product candidate is approved, the EMA may limit the indications for which the drug may be marketed,
require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting
as conditions of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result
in significant delays, difficulties and costs for us and could delay or prevent the introduction of our product candidates in certain
countries.
Further, clinical trials
conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval for our product
candidates may be withdrawn. If we fail to comply with the applicable regulatory requirements, our target market will be reduced
and our ability to realize the full market potential of our product candidates will be harmed and our business, financial condition,
results of operations and prospects could be harmed.
If we commercialize
our product candidates outside the United States, a variety of risks associated with international operations could harm our business.
We intend to seek approval
to market our product candidates outside the United States, and may do so for future product candidates. If we market approved
products outside the United States, we expect that we will be subject to additional risks in commercialization, including:
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different regulatory requirements for approval of therapies in foreign countries;
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reduced protection for intellectual property rights;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and
markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenues,
and other obligations incident to doing business in another country;
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foreign reimbursement, pricing and insurance regimes;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities
abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism or natural
disasters including earthquakes, typhoons, floods and fires.
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We have no prior experience
in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by many of the individual
countries in which we may operate, with which we will need to comply. Many biopharmaceutical companies have found the process of
marketing their products in foreign countries to be challenging.
Product liability
lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidate
that we may develop.
We face an inherent risk
of product liability exposure related to the testing of our product candidates in clinical trials and may face an even greater
risk if we commercialize any product candidate that we may develop. If we cannot successfully defend ourselves against claims that
any such product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability
claims may result in:
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decreased demand for any product candidate that we may develop;
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substantial monetary awards to trial participants or patients;
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significant time and costs to defend the related litigation;
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withdrawal of clinical trial participants;
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increased insurance costs;
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the inability to commercialize any product candidate that we may develop; and
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injury to our reputation and significant negative media attention.
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Any such outcomes could
negatively impact our business, financial condition, results of operations and prospects.
Our insurance policies
may be inadequate and potentially expose us to unrecoverable risks.
Although we maintain product
liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We anticipate that
we will need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any
product candidate. Insurance availability, coverage terms and pricing continue to vary with market conditions. We endeavor to obtain
appropriate insurance coverage for insurable risks that we identify; however, we may fail to correctly anticipate or quantify insurable
risks, we may not be able to obtain appropriate insurance coverage and insurers may not respond as we intend to cover insurable
events that may occur. We have observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional
corporate insurance. Such conditions have resulted in higher premium costs, higher policy deductibles, and lower coverage limits.
For some risks, we may not have or maintain insurance coverage because of cost or availability.
Risks Related to Regulatory Compliance
Our relationships
with customers, physicians, and third-party payors are subject, directly or indirectly, to federal and state healthcare fraud and
abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are
unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Healthcare providers,
physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription
of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals,
principal investigators, consultants, customers and third-party payors subject us to various federal and state fraud and abuse
laws and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal
false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations.
Ensuring that our business
arrangements with third-parties comply with applicable healthcare laws and regulations will likely be costly. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government-funded
healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate
integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, contractual damages, reputational
harm and the curtailment or restructuring of our operations.
If the physicians or other
providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject
to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs. Even if resolved
in our favor, litigation or other legal proceedings relating to healthcare laws and regulations may cause us to incur significant
expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development,
manufacturing, sales, marketing or distribution activities. Uncertainties resulting from the initiation and continuation of litigation
or other proceedings relating to applicable healthcare laws and regulations could have an adverse effect on our ability to compete
in the marketplace.
Coverage and adequate
reimbursement may not be available for our product candidates, which could make it difficult for us to sell profitably, if approved.
Market acceptance and
sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement for
these drugs and related treatments will be available from third-party payors, including government health administration authorities,
managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and establish
reimbursement levels. While no uniform policy for coverage and reimbursement exists in the United States, third-party payors often
rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions
regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be
made on a payor-by-payor basis. Therefore, one payor’s determination to provide coverage for a drug does not assure that
other payors will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s decision
to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether
or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its
formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment
that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and
physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely
on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our product candidates,
if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
Third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that
coverage and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level
of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which
we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only at limited levels,
we may not be able to successfully commercialize any product candidates that we develop.
Healthcare reform
measures may have a negative impact on our business and results of operations.
In the United States and
some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes,
as well as judicial challenges, regarding the healthcare system that could prevent or delay marketing approval of product candidates,
restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain
marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels
that seek to reduce healthcare costs and improve the quality of healthcare. For example, the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation
expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales
prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that
will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the
coverage and price that we receive for any approved products. While the MMA applies only to drug benefits for Medicare beneficiaries,
private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore,
any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
Further, in March 2010,
the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010,
or, collectively, the PPACA, was passed, which substantially changed the way healthcare is financed by both governmental and private
payors in the United States. Some of the provisions of the PPACA have yet to be fully implemented, while certain provisions have
been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain
aspects of the PPACA. For example, the Tax Cuts and Jobs Act of 2017, or Tax Act includes a provision that repealed, effective
January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain
qualifying health coverage for all or part of a year, which 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 PPACA-mandated fees, including the so-called “Cadillac” tax 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 excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things,
amended the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to
as the “donut hole.” In July 2018, CMS published a final rule permitting further collections and payments
to and from certain PPACA-qualified health plans and health insurance issuers under the PPACA adjustment program in response to
the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14,
2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the individual mandate
is a critical and inseverable feature of the PPACA, and therefore, because it was repealed as part of the Tax Act, the remaining
provisions of the PPACA are invalid as well. On December 18, 2019, a three-judge panel of the U.S. Court of Appeals for the 5th
Circuit issued a decision on the appeal of that ruling, holding that the individual mandate is unconstitutional and remanding the
case to the Texas District Court Judge to consider certain questions. It is unclear how these decisions, subsequent decisions and
appeals, and other efforts to repeal and replace the PPACA will impact the PPACA. Congress may consider additional legislation
to repeal or repeal and replace other elements of the PPACA. We continue to evaluate the effect that the PPACA and its possible
repeal and replacement may have on our business and the potential profitability of our product candidates.
Other legislative changes
have been proposed and adopted since the PPACA was enacted. These changes include aggregate reductions to Medicare payments to
providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative
amendments to the statute, including the BBA, which will remain in effect through 2027 unless additional Congressional action is
taken. The American Taxpayer Relief Act of 2012, 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.
Additional changes that
may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians
under the Medicare Access and CHIP Reauthorization Act of 2015, which will be fully operational in 2019. At this time, it is unclear
how the introduction of the Medicare quality payment program will impact overall physician reimbursement.
Further, in the United
States there has been heightened governmental scrutiny over the manner in which 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 drug pricing, reduce the cost of prescription drugs under government payor programs, and
review the relationship between pricing and manufacturer patient programs. While some of the proposed measures will require authorization
through additional legislation to become effective, the U.S. Congress and the Trump administration have indicated that they will
continue to seek new legislative and/or administrative measures to control drug costs. On September 25, 2019, the Senate Finance
Committee introduced the Prescription Drug Pricing Reduction Act of 2019, a bill intended to reduce Medicare and Medicaid prescription
drug prices, which would restructure the Medicare Part D benefit, modify payment methodologies for certain drugs and impose an
inflation cap on drug price increases. An even more restrictive bill, the Lower Drug Costs Now Act of 2019, was introduced in the
House of Representatives on September 19, 2019, and would require the U.S. Department of Health and Human Services (HHS) to directly
negotiate drug prices with manufacturers. It is unclear whether either of these bills will make it through both chambers and be
signed into law, and, if either is enacted, what effect it would have on our business. We expect that additional U.S. federal healthcare
reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for
healthcare products and services, which could result in reduced demand for our current or any future product candidates or additional
pricing pressures. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation
or administrative action in the United States or any other jurisdiction. If we or any third parties we may engage are slow or unable
to adapt to changes in existing or new requirements or policies, or if we or such third parties are not able to maintain regulatory
compliance, our current or any future product candidates we may develop may lose any regulatory approval that may have been obtained
and we may not achieve or sustain profitability.
Further, on May 30,
2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act,
was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational
new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under
certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission
under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available
to eligible patients as a result of the Right to Try Act.
We expect that these and
other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and in additional
downward pressure on the price that we receive for any approved drug, which could have an adverse effect on demand for our product
candidates if they are approved. Any reduction in reimbursement from Medicare or other government programs may result in a similar
reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent
us from being able to generate revenue, attain profitability or commercialize our product candidates.
Risks Related to Our Dependence on Third
Parties
We intend to rely
on third parties to produce clinical and commercial supplies of our product candidates.
We do not own or operate
facilities for drug manufacturing, storage and distribution, or testing. We are dependent on third parties to manufacture the clinical
supplies of our current and any future product candidates. The facilities used by our contract manufacturers to manufacture our
product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA.
We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance
with the cGMP requirements, for manufacture of both active drug substance and finished drug product. If our contract manufacturers
cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA
or others, we will not be able to secure and/or maintain regulatory approval for our product candidates. In addition, we have no
control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel.
If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates
or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any significant delay
in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to
replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory
approval of our product candidates.
We also intend to rely
on third-party manufacturers to supply us with sufficient quantities of our product candidates to be used, if approved, for commercialization.
We do not yet have a commercial supply agreement for commercial quantities of drug substance or drug product. If we are not able
to meet market demand for any approved product, it would negatively impact our ability to generate revenue, harm our reputation,
and could have an adverse effect on our business and financial condition.
Further, our reliance
on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including:
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inability to meet our product specifications and quality requirements consistently;
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delay or inability to procure or expand sufficient manufacturing capacity;
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issues related to scale-up of manufacturing;
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costs and validation of new equipment and facilities required for scale-up;
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our third-party manufacturers may not be able to execute our manufacturing procedures and other logistical
support requirements appropriately;
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our third-party manufacturers may fail to comply with cGMP requirements and other inspections by the
FDA or other comparable regulatory authorities;
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our inability to negotiate manufacturing agreements with third parties under commercially reasonable
terms, if at all;
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breach, termination or nonrenewal of manufacturing agreements with third parties in a manner or at
a time that is costly or damaging to us;
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reliance on single sources for drug components;
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lack of qualified backup suppliers for those components that are currently purchased from a sole or
single-source supplier;
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our third-party manufacturers may not devote sufficient resources to our product candidates;
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we may not own, or may have to share, the intellectual property rights to any improvements made by
our third-party manufacturers in the manufacturing process for our product candidates;
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operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated
to our business or operations, including the bankruptcy of the manufacturer or supplier; and
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carrier disruptions or increased costs that are beyond our control.
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In addition, if we enter
into a strategic collaboration with a third party for the commercialization of our current or any future product candidates, we
will not be able to control the amount of time or resources that they devote to such efforts. If any strategic collaborator does
not commit adequate resources to the marketing and distribution of our product candidates, it could limit our potential revenues.
Any of these events could
lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize our
current or any future product candidates once approved. Some of these events could be the basis for FDA action, including injunction,
request for recall, seizure, or total or partial suspension of production.
Our business involves
the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental, health and
safety laws and regulations, which can be expensive and restrict how we do, or interrupt our, business.
Our research and development
activities and our third-party manufacturers’ and suppliers’ activities involve the generation, storage, use and disposal
of hazardous materials, including the components of our product candidates and other hazardous compounds and wastes. We and our
manufacturers and suppliers are subject to environmental, health and safety laws and regulations governing, among other matters,
the use, manufacture, generation, storage, handling, transportation, discharge and disposal of these hazardous materials and wastes
and worker health and safety. In some cases, these hazardous materials and various wastes resulting from their use are stored at
our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination or injury,
which could result in an interruption of our commercialization efforts, research and development efforts and business operations,
damages and significant cleanup costs and liabilities under applicable environmental, health and safety laws and regulations. We
also cannot guarantee that the safety procedures utilized by our third-party manufacturers for handling and disposing of these
materials and wastes generally comply with the standards prescribed by these laws and regulations. We may be held liable for any
resulting damages, costs or liabilities, which could exceed our resources, and state or federal or other applicable authorities
may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental, health and safety
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. Failure to comply with these environmental, health and safety laws and
regulations may result in substantial fines, penalties or other sanctions. We do not currently carry environmental insurance coverage.
We rely on third-parties
to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory
manner, it may harm our business.
We do not currently have
the ability to independently conduct any clinical trials. We intend to rely on CROs and clinical trial sites to ensure the proper
and timely conduct of our preclinical studies and clinical trials, and we expect to have limited influence over their actual performance.
We rely upon CROs to monitor and manage data for our clinical programs, as well as the execution of future preclinical studies.
We expect to control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that
each of our preclinical studies and clinical trials is conducted in accordance with the applicable protocol, legal, regulatory
and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs are required
to comply with the good laboratory practices, or GLPs, and GCPs, which are regulations and guidelines enforced by the FDA and comparable
foreign regulatory authorities in the form of International Conference on Harmonization guidelines for any of our product candidates
that are in preclinical and clinical development. The regulatory authorities enforce GCPs through periodic inspections of trial
sponsors, principal investigators and clinical trial sites. Although we rely on CROs to conduct GCP-compliant clinical trials,
we remain responsible for ensuring that each of our GLP preclinical studies and clinical trials is conducted in accordance with
its investigational plan and protocol and applicable laws and regulations. If we or our CROs fail to comply with GCPs, the clinical
data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require
us to perform additional clinical trials before approving our marketing applications. Accordingly, if our CROs fail to comply with
these regulations or fail to recruit a sufficient number of subjects, we may be required to repeat clinical trials, which would
delay the regulatory approval process.
Our
reliance on third parties to conduct clinical trials will result in less direct control over the management of data developed
through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with CROs and other
third parties can be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Such parties
may:
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have
staffing difficulties;
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fail
to comply with contractual obligations;
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experience
regulatory compliance issues; or
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undergo
changes in priorities or become financially distressed.
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These
factors may adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to
unexpected cost increases that are beyond our control. If our CROs do not successfully carry out their contractual duties or obligations,
fail to meet expected deadlines, or fail to comply with regulatory requirements, 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, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for,
or successfully commercialize, any product candidate that we develop. As a result, our financial results and the commercial prospects
for any product candidate that we develop would be harmed, our costs could increase, and our ability to generate revenue could
be delayed. While we will have agreements governing their activities, our CROs will not be our employees, and we will not control
whether or not they devote sufficient time and resources to our future clinical and preclinical programs. These CROs 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 harm our business. We face the risk of potential unauthorized disclosure or misappropriation
of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access
and exploit our proprietary technology.
If
our relationship with any of these CROs terminates, we may not be able to enter into arrangements with alternative CROs or do
so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time
and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can
negatively impact our ability to meet our desired clinical development timelines. While we intend to carefully manage our relationships
with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or
challenges will not have a negative impact on our business, financial condition and prospects.
In
addition, 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. The FDA may conclude that a financial relationship between us and a principal investigator has created
a conflict of interest or otherwise affected interpretation of the trial. The FDA 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 and may ultimately lead to the denial of
marketing approval of our product candidates.
Risks
Related to Our Intellectual Property
Licensing
of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues.
If we breach our license agreements with Columbia University or any of the other agreements under which we acquired, or will acquire,
the intellectual property rights to our product candidates, we could lose the ability to continue the development and commercialization
of the related product.
The
licensing of intellectual property is of critical importance to our business and to our current and future product candidates,
and we expect to enter into additional such agreements in the future. In particular, our current product candidates AT-001, AT-003
and AT-007 are dependent on our license agreement with The Trustees of Columbia University in the City of New York, or Columbia
University. Pursuant to that license agreement with Columbia University, or the 2016 Columbia Agreement, Columbia University granted
us an exclusive license under two important patent families, and a nonexclusive license to certain know-how, owned by Columbia
University to develop, manufacture or commercialize certain compounds, including AT-001, AT-003 and AT-007, for the diagnosis
and treatment of human and animal diseases and conditions. The license grant is worldwide, with the exception of the patent family
that covers AT-001 and AT-003. The license grant for the patent family that covers AT-001 and AT-003 excludes patent rights in
China, Taiwan, Hong Kong and Macao, which Columbia University has exclusively licensed to a third party. We cannot prevent Columbia
University’s third party licensee from developing, manufacturing or commercializing certain compounds, including AT-001
and AT-003, but not including AT-007, in China, Taiwan, Hong Kong and Macao, and we cannot develop, manufacture or commercialize
AT-001 or AT-003 in these territories, which could have a negative effect on our business. In addition, we entered into the 2019
Columbia Agreement, the 2019 Research Agreement and the PI3k Columbia Research Agreement, whereby, among other things, Columbia
University granted to us an exclusive license under certain patents, and a non-exclusive license to certain know-how, in each
case to develop, manufacture and commercialize certain PI3K inhibitor products, including AT-104.
We
do not have the right to control the preparation, filing, prosecution and maintenance of patents and patent applications covering
the technology that we license under either of the Columbia Agreements. Therefore, we cannot always be certain that these patents
and patent applications will be prepared, filed, prosecuted and maintained in a manner consistent with the best interests of our
business. Although we have a right to have our comments considered in connection with the prosecution process, if Columbia University
fails to prosecute and maintain such patents, or loses rights to those patents or patent applications as a result of its control
of the prosecution activities, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize
any of our product candidates that are the subject of such licensed rights could be adversely affected.
If
we fail to meet our obligations under either Columbia Agreement in any material respect and fail to cure such breach in a timely
fashion, then Columbia University may terminate such Columbia Agreement. If either Columbia Agreement is terminated, and we lose
our intellectual property rights under such Columbia Agreement, this may result in complete termination of our product development
and any commercialization efforts for the product candidates that are subject to such agreement, including AT-001, AT-003, AT-007
and AT-104. While we would expect to exercise all rights and remedies available to us, including seeking to cure any breach by
us, and otherwise seek to preserve our rights under each Columbia Agreement, we may not be able to do so in a timely manner, at
an acceptable cost or at all. For additional information on the Columbia Agreement, see Note 2 in the accompanying notes to our
condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Furthermore,
license agreements we enter into in the future may not provide exclusive rights to use intellectual property and technology in
all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and products.
As a result, we may not be able to prevent competitors from developing and commercializing competitive products in territories
included in all of our licenses.
If
we are unable to obtain and maintain patent protection for our product candidates and technology, or if the scope of the patent
protection obtained is not sufficiently broad or robust, our competitors could develop and commercialize products and technology
similar or identical to ours, and our ability to successfully commercialize our product candidates and technology may be adversely
affected.
Our
success depends, in large part, on our ability to obtain and maintain patent protection in the United States and other countries
with respect to our product candidates and our technology. We and our licensors have sought, and intend to seek, to protect our
proprietary position by filing patent applications in the United States and abroad related to our product candidates and our technology
that are important to our business.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual
questions and 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 pending and future patent applications may not result in patents
being issued which protect our technology or product candidates or which effectively prevent others from commercializing competitive
technologies and product candidates. Since patent applications in the United States and most other countries are confidential
for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first
to file a patent application relating to any particular aspect of a product candidate. Furthermore, if third parties have
filed such patent applications, an interference proceeding in the United States can be initiated by such third party, or by the
U.S. Patent and Trademark Office, or USPTO, itself, to determine who was the first to invent any of the subject matter covered
by the patent claims of our applications.
The
patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce
or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that
we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
We
or our licensors have not pursued or maintained, and may not pursue or maintain in the future, patent protection for our product
candidates in every country or territory in which we may sell our products, if approved. 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 infringing our patents in all countries outside the United States, or from selling
or importing products that infringe our patents in and into the United States or other jurisdictions.
Moreover,
the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted
after issuance. Even if the patent applications we license or own do issue as patents, they may not issue in a form that will
provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide
us with any competitive advantage. Our competitors or other third parties may be able to circumvent our patents by developing
similar or alternative products in a non-infringing manner.
The
issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged
in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent
claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing
similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates.
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 intellectual property
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Furthermore,
our owned and in-licensed patents may be subject to a reservation of rights by one or more third parties. For example, the research
resulting in certain of our owned and in-licensed patent rights and technology was funded in part by the U.S. government. As a
result, the government may have certain rights, or march-in rights, to such patent rights and technology. When new technologies
are developed with government funding, the government generally obtains certain rights in any resulting patents, including a nonexclusive
license authorizing the government to use the invention for noncommercial purposes. These rights may permit the government to
disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use our
licensed technology. The government can exercise its march-in rights if it determines that action is necessary because we fail
to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety
needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions
may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by
the government of such rights could harm our competitive position, business, financial condition, results of operations and prospects.
Obtaining
and maintaining our patent rights depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by government patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
The
USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process. In addition, periodic maintenance fees, renewal fees, annuity
fees and various other government fees on patents and/or patent applications will have to be paid to the USPTO and various government
patent agencies outside the United States over the lifetime of our owned and licensed patents and/or applications and any patent
rights we may own or license in the future. We rely on our service providers or our licensors to pay these fees. The USPTO and
various non-U.S. government patent agencies require compliance with several procedural, documentary, fee payment and other similar
provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and
we are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed
intellectual property. Noncompliance events that could result in abandonment or lapse of a patent or patent application include,
but are not limited to, failure to respond to official actions within prescribed time limits, nonpayment of fees and failure to
properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering
our products or technologies, we may not be able to stop a competitor from marketing products that are the same as or similar
to our product candidates, which would have an adverse effect on our business. In many cases, an inadvertent lapse can be cured
by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which noncompliance
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. In such an event, potential competitors might be able to enter the market and this circumstance
could harm our business.
In
addition, if we fail to apply for applicable patent term extensions or adjustments, we will have a more limited time during which
we can enforce our granted patent rights. In addition, if we are responsible for patent prosecution and maintenance of patent
rights in-licensed to us, any of the foregoing could expose us to liability to the applicable patent owner.
Patent
terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Given
the amount of time required for the development, testing and regulatory review of product candidates such as AT-001, AT-003 and
AT-007, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect
to seek extensions of patent terms in the United States and, if available, in other countries where we have or will obtain patent
rights. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension
of up to five years beyond the normal expiration of the patent; provided that the patent is not enforceable for more than
14 years from the date of drug approval, which is limited to the approved indication (or any additional indications approved
during the period of extension). Furthermore, only one patent per approved product can be extended and only those claims covering
the approved product, a method for using it or a method for manufacturing it may be extended. However, the applicable authorities,
including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree
with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant
more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development
and clinical trials by referencing our clinical and preclinical data and launch their drug earlier than might otherwise be the
case.
Third-parties
may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property
rights, the outcome of which would be uncertain and could have a negative impact on the success of our business.
Our
commercial success depends, in part, upon our ability and the ability of others with whom we may collaborate to develop, manufacture,
market and sell our current and any future product candidates and use our proprietary technologies without infringing, misappropriating
or otherwise violating the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical
industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We
may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property
rights with respect to our current and any future product candidates and technology, including interference proceedings, post
grant review and inter partes review before the USPTO. Third parties may assert infringement claims against us based on existing
patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose
to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims
are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed,
which could have a negative impact on our ability to commercialize our current and any future product candidates. In order to
successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity.
As this is a high burden and requires us to present clear and convincing evidence as to the invalidity of any such U.S. patent
claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Moreover,
given the vast number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or
that we will not infringe patents that may be granted in the future. Other companies and research institutions have filed, and
may file in the future, patent applications related to AR inhibitors and their therapeutic use. Some of these patent applications
have already been allowed or issued, and others may issue in the future. While we may decide to initiate proceedings to challenge
the validity of these or other patents in the future, we may be unsuccessful, and courts or patent offices in the United States
and abroad could uphold the validity of any such patent. Furthermore, because patent applications can take many years to
issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before
issuance, there may be applications now pending which may later result in issued patents that may be infringed by the manufacture,
use or sale of our product candidates. Regardless of when filed, we may fail to identify relevant third-party patents or patent
applications, or we may incorrectly conclude that a third-party patent is invalid or not infringed by our product candidates or
activities. If a patent holder believes that our product candidate infringes its patent, the patent holder may sue us even if
we have received patent protection for our technology. Moreover, we may face patent infringement claims from nonpracticing entities
that have no relevant drug revenue and against whom our own patent portfolio may thus have no deterrent effect. If a patent infringement
suit were threatened or brought against us, we could be forced to stop or delay research, development, manufacturing or sales
of the drug or product candidate that is the subject of the actual or threatened suit.
If
we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain
a license from such third party to continue developing, manufacturing and marketing our product candidate(s) and technology.
Under any such license, we would most likely be required to pay various types of fees, milestones, royalties or other amounts.
Moreover, we may not be able to obtain any required license on commercially reasonable terms or at all.
The
licensing or acquisition of third-party intellectual property rights is a competitive area, and more established companies may
also pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary.
These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical
development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to
assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms
that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights
to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have
to abandon development of the relevant program or product candidate, which could have an adverse effect on our business, financial
condition, results of operations and prospects. Furthermore, even if we were able to obtain a license, it could be nonexclusive,
thereby giving our competitors and other third-parties access to the same technologies licensed to us, and it could require us
to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing
and commercializing the infringing technology or product candidate. 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 or other intellectual
property right. We may be required to indemnify collaborators or contractors against such claims. A finding of infringement could
prevent us from manufacturing and commercializing our current or any future product candidates or force us to cease some or all
of our business operations, which could harm our business. Even if we are successful in defending against such claims, litigation
can be expensive and time-consuming and would divert management’s attention from our core business. Furthermore, 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. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have an adverse effect on the price of our common stock.
Claims
that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact
on our business, financial condition, results of operations and prospects.
We
may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade
secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Certain
of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants
and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that
these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information,
of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail
in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to management.
In
addition, we may in the future be subject to claims by our former employees or consultants asserting an ownership right in our
patents or patent applications, as a result of the work they performed on our behalf. Although it is our policy to require our
employees and contractors who may be involved in the conception or 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,
conceives or develops intellectual property that we regard as our own, and we cannot be certain that our agreements with such
parties will be upheld in the face of a potential challenge or that they will not be breached, for which we may not have an adequate
remedy. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached,
and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the
ownership of what we regard as our intellectual property.
We
may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property
rights, which could be expensive, time-consuming and unsuccessful.
Competitors
may infringe, misappropriate or otherwise violate our patents, the patents of our licensors or our other intellectual property
rights. To counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming
and are likely to divert significant resources from our core business, including distracting our technical and management personnel
from their normal responsibilities. In addition, in an infringement proceeding, a court may decide that a patent of ours or our
licensors is not valid or is 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. An adverse result in any litigation or defense proceedings could put
one or more of our owned or licensed patents at risk of being invalidated or interpreted narrowly and could put our owned or licensed
patent applications at risk of not issuing. The initiation of a claim against a third party might also cause the third-party to
bring counterclaims against us, such as claims asserting that our patent rights are 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, non-enablement
or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with
prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during
prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte
reexaminations, inter partes review, post-grant review, or oppositions or similar proceedings outside the United States, in parallel
with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability
is unpredictable. We cannot be certain that there is or will be no invalidating prior art, of which we and the patent examiner
were unaware during prosecution. For the patents and patent applications that we have licensed, we may have limited or no right
to participate in the defense of any licensed patents against challenge by a third party. If a defendant were to prevail on a
legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection
on our current or future product candidates. Such a loss of patent protection could harm our business.
We
may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in
countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation
the prevailing party does not offer us a license, or if the license offered as a result is not on commercially reasonable terms.
Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in
substantial costs and distract our management and other employees.
Furthermore,
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. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have an adverse effect on the price of our common stock.
We
may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. 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. Accordingly, despite our efforts, we may not be able
to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect
on our ability to compete in the marketplace.
Changes
in U.S. patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby
impairing our ability to protect our current and any future product candidates.
Changes
in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs
surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements
for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled
to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After
March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, the United States transitioned to a first
inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a
patent application will be entitled to the patent on an invention regardless of whether a third-party was the first to invent
the claimed invention. The America Invents Act also includes a number of significant changes that affect the way patent applications
are prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO
during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings,
including post-grant review, inter partes review, and derivation proceedings. However, the America Invents 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 an adverse effect on our business, financial condition, results of operations,
and prospects.
In
addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent
protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing
uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with
respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts, and the USPTO,
the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents
or to enforce patents that we own, have licensed or might obtain in the future. Similarly, changes in patent law and regulations
in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental
authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we own or
have licensed or that we may obtain in the future.
We
may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.
Filing,
prosecuting and defending patents covering our current and any future product candidates in all countries throughout the world
would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained
patent protection to develop their own products and, further, may export otherwise infringing products to territories where we
may obtain patent protection but where patent enforcement is not as strong as that in the United States. These products may compete
with our products in jurisdictions where we do not have any issued or licensed patents, and any future patent claims or other
intellectual property rights may not be effective or sufficient to prevent them from so competing.
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 products, which could make it
difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property
and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary rights 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, could put 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. Accordingly, our efforts to enforce our intellectual property and proprietary
rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we
develop or license.
Many
countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
many countries limit the enforceability of patents against government agencies or government contractors. In these countries,
the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors
is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may
be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
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.
Since
we rely on third parties to help us discover, develop and manufacture our current and any future product candidates, or if we
collaborate with third parties for the development, manufacturing or commercialization of our current or any future product candidates,
we must, at times, share trade secrets with them. We may also conduct joint research and development programs that may require
us to share trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect
our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements,
consulting agreements or other similar agreements with our advisors, employees, third-party contractors 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, including our 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 could have an adverse effect on our
business and results of operations.
In
addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants
to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, we may not be able
to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements.
Moreover, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our
confidential information or proprietary technology and processes. Monitoring unauthorized uses and disclosures is difficult, and
we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators,
scientific advisors, employees, contractors and consultants who are parties to these agreements breaches or violates the terms
of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets
as a result. Moreover, if confidential information that is licensed or disclosed to us by our partners, collaborators, or others
is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential
information. Enforcing a claim that a third-party illegally or unlawfully obtained and is using our trade secrets, like patent
litigation, is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets.
If
we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In
addition to seeking patent and trademark protection for our product candidates, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect our trade secrets,
in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties.
We also enter into confidentiality and invention or patent assignment agreements with our employees, advisors and consultants.
Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our
trade secrets. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether
the steps we have taken to protect our intellectual property will be effective. In addition, we may not be able to obtain adequate
remedies for any such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult,
expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States
are less willing or unwilling to protect trade secrets.
Moreover,
our competitors may independently develop knowledge, methods and know-how equivalent to our trade secrets. Competitors could purchase
our products and replicate some or all of the competitive advantages we derive from our development efforts for technologies on
which we do not have patent protection. If any of our trade secrets were to be lawfully obtained or independently developed by
a competitor, 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 any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive
position would be harmed.
We
also seek to preserve the integrity and confidentiality of our data and other confidential information by maintaining physical
security of our premises and physical and electronic security of our information technology systems. While we have confidence
in these individuals, organizations and systems, agreements or security measures may be breached, and detecting the disclosure
or misappropriation of confidential information and enforcing a claim that a party illegally disclosed or misappropriated confidential
information is difficult, expensive and time-consuming, and the outcome is unpredictable. Further, we may not be able to obtain
adequate remedies for any breach. In addition, our confidential information may otherwise become known or be independently discovered
by competitors, in which case 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.
Any
trademarks we may obtain may be infringed or successfully challenged, resulting in harm to our business.
We
expect to rely on trademarks as one means to distinguish any of our product candidates that are approved for marketing from the
products of our competitors. We have not yet selected trademarks for our product candidates and have not yet begun the process
of applying to register trademarks for our current or any future product candidates. Once we select trademarks and apply to register
them, our trademark applications may not be approved. Third parties may oppose our trademark applications or otherwise challenge
our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products,
which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands.
Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks.
In
addition, any proprietary name we propose to use with our current or any other product candidate in the United States must be
approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically
conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names.
If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources
in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe
the existing rights of third parties and be acceptable to the FDA.
Intellectual
property rights do not necessarily address all potential threats to our business.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations and may not adequately protect our business. The following examples are illustrative:
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others
may be able to make compounds or formulations that are similar to our product candidates
but that are not covered by the claims of any patents, should they issue, that we own
or license;
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we
or our licensors might not have been the first to make the inventions covered by the
issued patents or pending patent applications that we own or license;
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we
or our licensors might not have been the first to file patent applications covering certain
of our inventions;
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others
may independently develop similar or alternative technologies or duplicate any of our
technologies without infringing our intellectual property rights;
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it
is possible that our pending patent applications will not lead to issued patents;
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issued
patents that we own or license may not provide us with any competitive advantages, or
may be held invalid or unenforceable as a result of legal challenges;
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our
competitors might conduct research and development activities in the United States and
other countries that provide a safe harbor from patent infringement claims for certain
research and development activities, as well as in countries where we do not have patent
rights, and then use the information learned from such activities to develop competitive
drugs for sale in our major commercial markets;
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we
may not develop additional proprietary technologies that are patentable; and
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the
patents of others may have an adverse effect on our business.
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Risks
Related to Our Business Operations, Employee Matters and Managing Growth
We
are highly dependent on the services of our Chief Executive Officer and Chairman, Dr. Shoshana Shendelman, and our Chief
Medical Officer, Dr. Riccardo Perfetti, and if we are not able to retain these members of our management team or recruit
and retain additional management, clinical and scientific personnel, our business will be harmed.
We
are highly dependent on our Chief Executive Officer and Chairman, Dr. Shoshana Shendelman, and our Chief Medical Officer,
Dr. Riccardo Perfetti. Each of them may currently terminate their employment with us at any time. The loss of the services
of either of these persons could impede the achievement of our research, development and commercialization objectives.
Recruiting
and retaining other senior executives, qualified scientific and clinical personnel and, if we progress the development of any
of our product candidates, commercialization, manufacturing and sales and marketing personnel, will be critical to our success.
The loss of the services of our executive officers or other key employees could impede the achievement of our research, development
and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore,
replacing executive officers and 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 successfully develop, gain regulatory
approval of and commercialize our product candidates. Competition to hire from this limited pool is intense, and we may be unable
to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions. 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 have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we
are unable to continue to attract and retain high-quality personnel, our ability to pursue our growth strategy will be limited.
Our
future performance will also depend, in part, on our ability to successfully integrate newly hired executive officers into our
management team and our ability to develop an effective working relationship among senior management. Our failure to integrate
these individuals and create effective working relationships among them and other members of management could result in inefficiencies
in the development and commercialization of our product candidates, harming future regulatory approvals, sales of our product
candidates and our results of operations. Additionally, we do not currently maintain “key person” life insurance on
the lives of our executives or any of our employees.
We
expect to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As
of March 31, 2020, we had 13 full-time employees. As the clinical development of our product candidates progresses, we also expect
to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of
research, drug development, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing
and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational
and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. 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 of our operations or recruit and train additional qualified personnel. The expansion
of our operations may lead to significant costs and may divert our management and business development resources. Any inability
to manage growth could delay the execution of our business plans or disrupt our operations.
Our
internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches,
which could result in a significant disruption of our product development programs and our ability to operate our business effectively,
and adversely affect our business and operating results.
Our
internal computer systems, cloud-based computing services and those of our current and any future collaborators and other contractors
or consultants are vulnerable to damage or interruption from computer viruses, data corruption, cyber-based attacks, unauthorized
access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any significant
system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations,
it could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets
or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or
future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover
or reproduce the data. Furthermore, federal, state and international laws and regulations, such as the European Union’s
General Data Protection Regulation, or the GDPR, which took effect in May 2018, can expose us to enforcement actions and
investigations by regulatory authorities, and potentially result in regulatory penalties and significant legal liability, if our
information technology security efforts fail. In addition, our software systems include cloud-based applications that are hosted
by third-party service providers with security and information technology systems subject to similar risks. To the extent that
any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further
development and commercialization of our product candidates could be delayed.
Our
employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements and insider trading.
We
are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners.
Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in
other jurisdictions, provide accurate information to the FDA and other regulatory authorities, comply with healthcare fraud and
abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized
activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive
laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and
regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive
programs, and other business arrangements. Such misconduct also could involve the improper use of information obtained in the
course of clinical trials or interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions
and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions
we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting
us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those
actions could result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment,
exclusion from participating in government-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements
and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance
with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations, any of which could
have a negative impact on our business, financial condition, results of operations and prospects.
Any
future acquisitions or strategic collaborations may increase our capital requirements, dilute our stockholders, cause us to incur
debt or assume contingent liabilities and/or subject us to other risks.
From
time to time, we may evaluate various acquisitions and strategic collaborations, including licensing or acquiring complementary
drugs, intellectual property rights, technologies or businesses, as deemed appropriate to carry out our business plan. Any potential
acquisition or strategic partnership may entail numerous risks, including:
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increased
operating expenses and cash requirements;
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the
assumption of additional indebtedness or contingent or unknown liabilities;
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assimilation
of operations, intellectual property and drugs of an acquired company, including difficulties
associated with integrating new personnel;
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the
diversion of our management’s attention from our existing drug programs and initiatives
in pursuing such a strategic partnership, merger or acquisition;
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retention
of key employees, the loss of key personnel, and uncertainties in our ability to maintain
key business relationships;
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risks
and uncertainties associated with the other party to such a transaction, including the
prospects of that party and their existing drugs or product candidates and regulatory
approvals; and
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our
inability to generate revenue from acquired technology and/or drugs sufficient to meet
our objectives in undertaking the acquisition or even to offset the associated acquisition
and maintenance costs.
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In
addition, if we engage in future acquisitions or strategic partnerships, we may issue dilutive securities, assume or incur debt
obligations, incur large one-time expenses, and acquire intangible assets that could result in significant future amortization
expense. Moreover, we may not be able to locate suitable acquisition opportunities, and this inability could impair our ability
to grow or obtain access to technology or drugs that may be important to the development of our business.
Our
business may be adversely affected by the recent coronavirus outbreak.
In
December 2019, a novel strain of coronavirus, referred to as 2019-ncov, Covid-19 coronavirus epidemic, or Covid-19, was reported
to have surfaced in Wuhan, China. Covid-19 has since spread globally, including the United States where we have our executive
offices and principal operations. Infections and deaths related to Covid-19 have disrupted the United States’ healthcare
and healthcare regulatory systems. Such disruptions could divert healthcare resources away from, or materially delay FDA approval
with respect to, our clinical trials. It is unknown how long these disruptions could continue. In addition, other known and unknown
factors caused by Covid-19 could materially delay our clinical trials, including our ability to recruit and retain patients and
principal investigators and site staff who, as healthcare providers, may have heightened exposure to Covid-19. For example, with
respect to our trials related to AT-001 for the treatment of Diabetic Cardiomyopathy, we have experienced delays in patient enrollment.
Though we have undergone efforts to mitigate such delays, such efforts may not entirely avoid the effects of Covid-19 on our trials.
Furthermore, we may experience additional delays in patient enrollment that we may not be able to mitigate. In addition, we have
partnered with clinical research organizations, or CROs, to conduct clinical studies in jurisdictions, such as the EU, that have
been affected by the spread of Covid-19. There is a possibility that such CROs may become unavailable or that the clinical trials
they manage may be delayed due to Covid-19 or containment efforts associated with it. Such events may lead to termination of our
relationship with affected CROs, affecting the development and study of our product candidates. Any elongation or de-prioritization
of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and
study of our product candidates, and increase the costs related to such development.
Government
response to Covid-19 may also materially impact our business. Our executive offices and principal operations are located in New
York and are currently subject to a statewide stay-at-home order. In addition, many of our potential partners and study
participants worldwide are similarly impacted. In response, we have implemented a work-from-home policy for all employees and
have restricted on-site activities to certain chemical, manufacturing and control (CMC) and clinical trial activities. However,
many of our clinical trials sites and certain of our vendors, including our third-party contract manufactures, currently rely
on exemptions from stay-at-home, shelter-in-place or similar orders for certain operations. Any of the applicable
exemptions may be curtailed or revoked, which would further adversely impact our business.
In
addition, we have in the past and may in the future source equipment and materials from China and other countries affected by
Covid-19. If we were to engage with third party manufacturers in such countries in the future, there would be an increased risk
of supply interruption, resulting in business/operational disruption. Covid-19’s spread, which has caused a broad impact
globally, such as restrictions on travel and quarantine policies put into place by businesses and governments, may materially
affect us economically. While the potential long-term economic impact of the Covid-19 pandemic may be difficult to assess or predict,
there has already been a significant disruption of the global financial markets and the world economy, including the United States
economy. A prolonged recession or market correction resulting from the spread of Covid-19 could materially affect our business
and the value of our common stock, and reduce our ability to access capital, which could in the future negatively affect our liquidity.
While
it is too early to tell whether Covid-19 will have a material effect on our business over time, we continue to monitor the situation
as it unfolds. The extent to which Covid-19 impacts our results will depend on many factors and future developments, including
new information about Covid-19 and any new government regulations which may emerge to contain the virus, among others.
Risks
Related to Ownership of Our Common Stock
The
market price of our common stock may be volatile and fluctuate substantially which could result in substantial losses for purchasers
of our common stock.
The
market price of our common stock is likely to be volatile. The stock market in general and the market for biopharmaceutical and
pharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance
of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the offering
price. In addition to the factors discussed in this “Risk Factors” section and elsewhere in the Quarterly Report on
Form 10-Q, the market price for our common stock may be influenced by the following:
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the
commencement, enrollment or results of our planned or future clinical trials of our product
candidates or those of our competitors;
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the
success of competitive drugs or therapies;
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regulatory
or legal developments in the United States and other countries;
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the
success of competitive products or technologies;
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developments
or disputes concerning patent applications, issued patents or other proprietary rights;
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the
recruitment or departure of key personnel;
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the
level of expenses related to our product candidates or clinical development programs;
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the
results of our efforts to discover, develop, acquire or in-license additional product
candidates;
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actual
or anticipated changes in estimates as to financial results, development timelines or
recommendations by securities analysts;
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our
inability to obtain or delays in obtaining adequate drug supply for any approved drug
or inability to do so at acceptable prices;
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disputes
or other developments relating to proprietary rights, including patents, litigation matters
and our ability to obtain patent protection for our technologies;
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significant
lawsuits, including patent or stockholder litigation;
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variations
in our financial results or those of companies that are perceived to be similar to us;
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changes
in the structure of healthcare payment systems, including coverage and adequate reimbursement
for any approved drug;
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market
conditions in the pharmaceutical and biotechnology sectors;
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general
economic, political, and market conditions and overall fluctuations in the financial
markets in the United States and abroad; and
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investors’
general perception of us and our business.
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These
and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless
of our actual operating performance, which may limit or prevent investors from selling their shares at or above the price paid
for the shares and may otherwise negatively affect the liquidity of our common stock.
Some
companies that have experienced volatility in the trading price of their shares have been the subject of securities class action
litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide
to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage
to our reputation or adverse changes to our business practices. Defending against litigation is costly and time-consuming, and
could divert our management’s attention and our resources. Furthermore, during the course of litigation, there could be
negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have
a negative effect on the market price of our common stock.
Concentration
of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors
from influencing significant corporate decisions.
Based
upon shares of our common stock outstanding as of March 31, 2020, our executive officers, directors and stockholders who owned
more than 5% of our outstanding common stock, in the aggregate, beneficially own shares representing approximately 40% of our
outstanding common stock. If our executive officers, directors and stockholders who owned more than 5% of our outstanding common
stock acted together, they may be able to significantly influence all matters requiring stockholder approval, including the election
and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. The concentration
of voting power and transfer restrictions could delay or prevent an acquisition of our company on terms that other stockholders
may desire or result in the management of our company in ways with which other stockholders disagree.
If
research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our
market, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish
about us or our business. Equity research analysts may discontinue research coverage of our common stock, and such lack of research
coverage may adversely affect the market price of our common stock. We do not have any control over the analysts or the content
and opinions included in their reports. The price of our shares could decline if one or more equity research analysts downgrade
our shares or issue other unfavorable commentary or research about us. If one or more equity research analysts cease coverage
of us or fail to publish reports on us regularly, demand for our shares could decrease, which in turn could cause the trading
price or trading volume of our common stock to decline.
Because
we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will
be your sole source of gain.
You
should not rely on an investment in our common stock to provide dividend income. We have never declared or paid cash dividends
on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development
of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital
appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Investors seeking cash
dividends should not purchase our common stock.
We
have broad discretion in the use of our cash and cash equivalents, and may use them ineffectively, in ways with which you do not
agree or in ways that do not increase the value of your investment.
Our
management will have broad discretion in the application of our cash and cash equivalents, and could spend the proceeds in ways
that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply
these funds effectively could result in additional operating losses that could have a negative impact on our business, cause the
price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest our
cash and cash equivalents in a manner that does not produce income or that loses value.
Future
sales of common stock by holders of our common stock, or the perception that such sales may occur, could depress the market price
of our common stock.
Sales
of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain restrictions
described below. These sales, or the perception in the market that holders of a large number of shares intend to sell shares,
could reduce the market price of our common stock. As of March 31, 2020, we had outstanding 21,969,277 shares of common stock.
A substantial number of such shares are currently restricted as a result of securities laws or lock-up agreements but will be
able to be sold in the future.
We
further have registered all shares of common stock that we may issue in the future or have issued to date under our equity compensation
plans. These shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates
and certain lock-up agreements. Sales of a large number of the shares issued under these plans in the public market could have
an adverse effect on the market price of our common stock.
We
are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies
may make our common stock less attractive to investors.
We
are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS
Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public
companies that are not EGCs, including:
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being
permitted to provide only two years of audited financial statements, in addition to any
required unaudited interim financial statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
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not
being required to comply with the auditor attestation requirements in the assessment
of our internal control over financial reporting;
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not
being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to
the auditor’s report providing additional information about the audit and the financial
statements;
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reduced
disclosure obligations regarding executive compensation; and
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not
being required to hold a nonbinding advisory vote on executive compensation and stockholder
approval of any golden parachute payments not previously approved.
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We
cannot predict whether investors will find our common stock less attractive because we will rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and
our share price may be more volatile. We currently take advantage of some or all of these reporting exemptions until we are no
longer an EGC. We will remain an EGC until the earlier of (i) December 31, 2024, (ii) the last day of the fiscal
year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the first fiscal year
in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates
exceeds $700 million as of the prior June 30th, and (iv) the date on which we have issued more than $1.0 billion
in non-convertible debt during the prior three-year period.
In
addition, under Section 107(b) of the JOBS Act, EGCs can delay adopting new or revised accounting standards until such
time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from
new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting
standards as other public companies that are not EGCs.
We
have incurred increased costs as a result of operating as a public company, and our management will be required to devote substantial
time to new compliance initiatives.
As
a public company, and particularly after we are no longer an EGC, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules subsequently
implemented by the SEC and The Nasdaq Stock Market LLC have imposed various requirements on public companies, including establishment
and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel
will need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations
increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, we expect
that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability
insurance.
Pursuant
to Section 404 of the Sarbanes-Oxley Act, or Section 404, we will be required to furnish a report by our management
on our internal control over financial reporting, including an attestation report on internal control over financial reporting
issued by our independent registered public accounting firm. However, while we remain an EGC, we will not be required to include
an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate
our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue
to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the
adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through
testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal
control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting
firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective
as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence
in the reliability of our financial statements.
Provisions
in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders,
more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us
that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.
These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock,
thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing
the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove
our current management by making it more difficult for stockholders to replace members of our board of directors. Among other
things, these provisions:
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·
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establish
a classified board of directors such that not all members of the board are elected at
one time;
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·
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allow
the authorized number of our directors to be changed only by resolution of our board
of directors;
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·
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limit
the manner in which stockholders can remove directors from the board;
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·
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establish
advance notice requirements for stockholder proposals that can be acted on at stockholder
meetings and nominations to our board of directors;
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·
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require
that stockholder actions must be effected at a duly called stockholder meeting and prohibit
actions by our stockholders by written consent;
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·
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limit
who may call stockholder meetings;
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·
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authorize
our board of directors to issue preferred stock without stockholder approval, which could
be used to institute a stockholder rights plan, or so-called “poison pill,”
that would work to dilute the stock ownership of a potential hostile acquirer, effectively
preventing acquisitions that have not been approved by our board of directors; and
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·
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require
the approval of the holders of at least 662/3% of the votes that
all our stockholders would be entitled to cast to amend or repeal certain provisions
of our charter or bylaws.
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Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, or DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with
us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner. These provisions could discourage potential
acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging
others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions
may also prevent changes in our management or limit the price that investors are willing to pay for our stock.
Our
amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain
a favorable judicial forum for disputes with us or our directors, officers or employees.
Our
amended and restated certificate of incorporation provides that, with respect to any state actions or proceedings under Delaware
statutory or common law, the Court of Chancery of the State of Delaware is the exclusive forum for:
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·
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any
derivative action or proceeding brought on our behalf;
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·
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any
action asserting a breach of fiduciary duty;
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·
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any
action asserting a claim against us or any of our directors, officers, employees or agents
arising under the DGCL, our amended and restated certificate of incorporation or our
amended and restated bylaws;
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·
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any
action or proceeding to interpret, apply, enforce or determine the validity of our amended
and restated certificate of incorporation or our amended and restated bylaws; and
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·
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any
action asserting a claim against us or any of our directors, officers, employees or agents
that is governed by the internal-affairs doctrine.
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These
exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors,
officers and other employees. If a court were to find an exclusive-forum provision in our amended and restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute
in other jurisdictions, which could harm our business.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Sales
of Unregistered Equity Securities
In
January 2020, we issued 146 shares of our common stock, in a net exercise of 220 warrant shares issued in April 2019.
In
February 2020, we issued 249,832 shares of our common stock to affiliates of Brookline Capital Markets, a division of CIM Securities,
LLC, in a net exercise of 264,030 warrant shares issued in March 2017, November 2018 and April 2019.
Use
of Proceeds from the IPO
On
May 16, 2019, we completed our initial public offering, or IPO, of our common stock pursuant to which we issued and sold 4,000,000
shares of our common stock at a public offering price of $10.00 per share. All of our common stock issued and sold in the IPO
were registered under the Securities Act pursuant to the registration statement on Form S-1 (Registration No. 333-230838), which
was declared effective by the SEC on May 16, 2018. We received net proceeds of $34.6 million, after deducting underwriting discounts
and commissions and offering costs. The shares began trading on The Nasdaq Global Market on May 14, 2019. Upon completion of the
IPO, all of our outstanding shares of convertible preferred stock converted into 7,538,671 shares of our common stock.
As
of March 31, 2020, we have used all of the net initial public offering proceeds primarily to advance our product candidates through
clinical trial programs and for working capital and general corporate purposes.
Item 3.
Defaults Upon Senior Securities.
Not
applicable
Item 4.
Mine Safety Disclosures.
Not
applicable
Item 5.
Other Information.
None.
Item 6.
Exhibits.
Exhibit
Number
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Description
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10.1+
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Employment
Agreement, by and between the Company and Shoshana Shendelman, dated March 9, 2020
(incorporated
herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K, filed
with
the SEC on March 13, 2020).
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10.2+
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Amendment
to Employment Agreement, by and between the Company and Riccardo Perfetti, dated March 9, 2020 (incorporated herein by reference
to Exhibit 10.14 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 13, 2020).
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10.3+
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Offer
Letter, by and between the Company and Chids Mahadevan, dated December 2, 2019 (incorporated
herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
April
1, 2020).
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31.1
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Rule 13a-14(a)/15d-14(a) Certification
under the Exchange Act by Shoshana Shendelman, President and Chief Executive Officer (Principal Executive Officer).
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31.2
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Rule
13a-14(a)/15d-14(a) Certification under the Exchange Act by Chids Mahadevan, Chief Accounting
Officer
(Principal Financial Officer).
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32.1*
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Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002 Section 1350 Certifications.
|
32.2*
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Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 Section 1350 Certifications.
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101.INS
|
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XBRL
Instance Document
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
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101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
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101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
* Furnished
herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed
to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made
before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
+ Indicates
a management contract or compensatory plan.