Item
1. Business
Overview
Our
mission is to develop drug products that improve the survival and/or quality of life for patients with high unmet medical need
conditions. We are a development company, not a discovery company, that seeks to identify and develop drugs for patients who need
better treatment options than presently exist for their medical condition. In order to increase the probability of development
success, our pipeline only includes drugs which have previously demonstrated some efficacy in the targeted population or a drug
with very similar pharmacological properties has been shown to be effective in the population.
We are a clinical-stage
biopharmaceutical company focused on the development of drug products that are intended to provide treatment for patients who
have a high unmet medical need condition that effects survival or the patient’s quality of life and have few or no treatment
options. We currently have three drugs in various stages of clinical development. Our most advanced product candidate, PCS499,
is an oral tablet that is a deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental®). We have
completed a Phase 2A trial for PCS499 and will begin recruiting for a Phase 2 trial in the first half of 2021. In 2020, we in-licensed
PCS6422 (eniluracil) from Elion Oncology and PCS12852 from Yuhan Corporation. PCS6422 will be orally administered in combination
with capecitabine in a Phase 1B dose-escalation study in patients with Advanced Refractory Gastrointestinal (GI) Tract Tumors,
with recruitment beginning in the first half of 2021. PCS12852 has already been evaluated in clinical studies in South Korea and
we anticipate a response back to our pre-IND meeting questions by March 31, 2021. Our remaining two drug assets whose active molecules
have been shown to be clinically efficacious require additional toxicology data in order to advance these candidates
to an IND stage of development.
Our
Strategy
Our strategy is to
acquire or in-license development candidates that will not only treat a specific group of patients with unmet medical needs, but
may also have the potential to chart a more efficient path to registration. In many instances, these clinical candidates have
significant pre-clinical and clinical data that we can leverage to high value inflection points while de-risking the programs
and adding in optionality to potential future indications. The regulatory science approach our team has developed over the last
20+ years seeks to leverage the earlier data and identify the least risk path toward commercialization/registration of these drugs.
We apply rigorous standards to identify drugs for our portfolio, namely:
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i.
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The
drug must represent a treatment option to patients with a high unmet medical need condition by improving survival and/or quality
of life for these patients,
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ii.
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The
drug or its metabolite or a drug with similar pharmacological properties must have demonstrated some evidence of efficacy
in the target population, and
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iii.
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The
drug can be quickly developed such that within 2-4 years, critical value-added clinical milestones can be achieved while advancing
the drug closer to commercialization and adding to the potential for a high return on investment.
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Our
Team
Our
drug development efforts are guided by our knowledge and experience in applying rigorous regulatory science to decrease manageable
risks, costs and time toward achieving marketing authorization from regulatory authorities including the FDA. We have assembled
a seasoned management team and development team with extensive experience in developing therapies, including advancing product
candidates from preclinical research through clinical development and ultimately regulatory approval and commercialization. Over
their careers, our team has successfully obtained over 30 FDA approvals across all divisions of the FDA. Our team is led by our
Chairman and CEO David Young, Pharm.D., Ph.D. who has extensive experience in research, regulatory approval and business development
and who served at Questcor for eight years, initially as an independent director and subsequently as its Chief Scientific Officer.
Dr. Young’s guidance led to the approval of Acthar in Infantile Spasms and the ultimate sale of Questcor in 2014.
Our
Pipeline
The
table below summarizes our clinical product pipeline. We completed our Phase 2A clinical trial for PCS499 in December 2020.
A
summary of each drug is presented below organized by phase of development. It should be noted, however, that we expect the Phase
2 PCS499 and Phase 1B PCS6422 studies to have their first patient enrolled in the first half of 2021 with interim data obtained
in the second half of 2021. The PCS12852 Phase 2A study will likely have first patient enrolled at end of 2021 or beginning of
2022, depending on discussions with the FDA.
PCS499
Our
most advanced product candidate, PCS499, is an oral tablet that is a deuterated analog of one of the major metabolites
of pentoxifylline (PTX or Trental®). PCS499 is classified by FDA as a new molecular entity. PCS499 and its metabolites
act on multiple pharmacological targets that are important in a variety of conditions. We have targeted Necrobiosis Lipoidica
(NL) as our lead indication for PCS499. NL is a chronic, disfiguring condition affecting the skin and tissue under the skin typically
on the lower extremities with no currently approved FDA treatments. NL presents more commonly in women than in men and occurs
more often in people with diabetes. Ulceration occurs in approximately 30% of NL patients, which can lead to more severe complications,
such as deep tissue infections and osteonecrosis threatening the life of the limb. Approximately 22,000 - 55,000 people in the
United States and more than 120,000 people outside the United States are affected with ulcerated NL.
The
degeneration of tissue occurring at the NL lesion site may be caused by a number of pathophysiological changes, which make it
extremely difficult to develop effective treatments for this condition. Because PCS499 and its metabolites appear to affect most
of the biological pathways that contribute to the pathophysiology associated with NL, PCS499 may provide a novel treatment solution
for NL.
On
June 18, 2018, the FDA granted orphan-drug designation for PCS499 for the treatment of NL. On September 28, 2018, the IND for
PCS499 in NL became effective, such that we initiated and completed a Phase 2A multicenter, open-label prospective trial
designed to determine the safety and tolerability of PCS499 in patients with NL. The study initially had a six-month
treatment phase and a six-month optional extension phase. In December 2019, we informed patients and sites that the study
would conclude after the treatment phase and there would no longer be an extension phase. The first enrolled NL patient in
this Phase 2A clinical trial was dosed on January 29, 2019 and the study completed enrollment on August 23, 2019. The last
patient visit took place in February 2020. Due to COVID-19 related restrictions at certain sites, study closeout, database
lock and final report were delayed and have only recently been completed.
The
primary objective of the trial was to evaluate the safety and tolerability of PCS499 in patients with NL and to use the safety
and efficacy data to design future clinical trials. Based on toxicology studies and healthy human volunteer studies, Processa
and the FDA agreed that a PCS499 dose of 1.8 grams/day would be the highest dose administered to NL patients in this Phase 2A
trial. As anticipated, the PCS499 dose of 1.8 grams/day, 50% greater than the maximum tolerated dose of PTX, appeared to be well
tolerated with no serious adverse events (SAEs) reported. All adverse events (AEs) reported in the study were mild in severity.
As expected, gastrointestinal symptoms were the most frequent adverse events and reported in four patients, all of which resolved
within 1-2 weeks of starting dosing.
Two
of the twelve patients in the study presented with more severe ulcerated NL and had ulcers for more than two months prior to dosing.
At baseline, the reference ulcer in one of the two patients measured 3.5 cm2 and had completely closed by Month 2 of
treatment. The second patient had a baseline reference ulcer of 1.2 cm2 which completely closed by Month 9 during the
patient’s treatment extension period. In addition, while in the trial, both patients also developed small ulcers at other
sites, possibly related to contact trauma, and these ulcers resolved within one month. However, the other ten patients, presenting
with mild to moderate NL and no ulceration, had more limited improvement of the NL lesions during treatment. Historically, 13
- 20% of all the patients with NL naturally progress to complete healing over many years after presenting with NL. Although the
natural healing of the more severe ulcerated NL patients has not been evaluated independently, medical experts who treat NL patients
suggest that the natural progression of an open ulcerated wound to complete closure would be significantly less than 13% over
1-2 years and probably close to 0% in patients with the larger ulcers.
On
March 25, 2020, we met with the FDA and discussed the clinical program, as well as the nonclinical and clinical pharmacology plans
to ultimately support the submission of the PCS499 New Drug Application (NDA) in the U.S. for the treatment of ulcers in NL patients.
With input from the FDA, we have designed the next trial as a randomized, placebo-controlled Phase 2 study to evaluate the ability
of PCS499 to completely close ulcers in patients with NL and better understand the potential response of NL patients on drug and
on placebo. We will begin recruiting for the randomized, placebo-controlled trial in the first half of 2021. After obtaining the
results from this Phase 2 study, we expect to meet with the FDA at an end of Phase 2 meeting to agree on the design of the Phase
3 study, to define a Special Protocol Assessment for the Phase 3 study and to agree on the next steps to obtain approval.
PCS12852
On
August 19, 2020, we in-licensed PCS12852 (formerly known as YH12852) from Yuhan Corporation (“Yuhan”), pursuant to
which we acquired an exclusive license to develop, manufacture and commercialize PCS12852 globally, excluding South Korea.
PCS12852
is a novel, potent and highly selective 5-hydroxytryptamine 4 (5-HT4) receptor agonist. Other 5-HT receptor agonists with less
5-HT4 selectivity have been shown to successfully treat gastrointestinal (GI) motility disorders such as gastroparesis, chronic
constipation, constipation-predominant irritable bowel syndrome, and functional dyspepsia. Less selective 5-HT4 agonists, such
as cisapride, have been either removed from the market or not approved because of the cardiovascular side effects associated with
the drugs binding to other receptors, especially receptors other than 5-HT4.
We plan to obtain guidance
from the FDA in the first half of 2021 to further define the clinical development program required for the PCS12852 product and
a Phase 2A proof-of-concept randomized, placebo-controlled study for PCS12852 in patients with gastroparesis. The purpose of the
Phase 2A trial is to define a dosing regimen of PCS12852 to demonstrate efficacy and safety in a larger
pivotal study. Since patients with gastroparesis have an abnormal pattern of upper GI motility in the absence of mechanical obstruction,
the Phase 2A study will be designed to evaluate the change on gastric emptying in patients with gastroparesis on two different
dosing regimens of PCS12852 compared to placebo. The only FDA-approved drug to treat gastroparesis is metoclopramide, a
dopamine D2 receptor antagonist that has serious side effects and can only be used as a short-term treatment. Other 5-HT4 drugs
have been used clinically but the side effects, caused mainly by binding to other receptors, has resulted in these drugs not being
a viable option to treat patients with gastroparesis. It should be noted that PCS12852 is a highly specific 5-HT4 agonist that
has been shown in non-clinical studies to have a cardiovascular side effect only at concentrations greater than 1,000 times the
maximum concentration seen in humans.
Two
clinical studies, both which have demonstrated the effectiveness of PCS12852 on GI motility, have been previously conducted by
Yuhan with PCS12852. In a Phase 1 trial (Protocol YH12852-101), the initial safety and tolerability of PCS12852 were evaluated
after single and multiple oral doses in healthy subjects. PCS12852 was shown to increase GI motility in this study, increasing
stool frequency with faster onset when compared to prucalopride, an FDA-approved drug for the treatment of chronic idiopathic
constipation. Based on an increase of ≥1 spontaneous bowel movement (SBM)/week from baseline during 7-day multiple dosing,
the PCS12852 dose group had a higher percent of patients with an increase than the prucalopride group. All doses of PCS12852 were
safe and well tolerated and no SAEs occurred during the study. The most frequently reported AEs were headache, nausea and diarrhea
which were temporal, manageable, and reversible within 24 hours. There were no clinically significant changes in platelet aggregation
and ECG parameters including a change in QTc prolongation in the study. In a Phase 1/2A clinical trial (Protocol YH12852-102),
the safety, tolerability, gastric emptying rate and pharmacokinetics of multiple doses of a PCS12852 immediate release (IR) formulation
and a delayed release (DR) formulation were evaluated. PCS12852 was safe and well tolerated after single and multiple administrations.
The most frequent AEs for both the IR and DR formulations of PCS12852 were headache, nausea and diarrhea, but the incidences of
these AEs were comparable with those of the 2mg prucalopride (a 5-HT4 agonist) group. These AEs, which were transient and mostly
mild in severity, are also commonly observed with other 5-HT4 agonists. Both formulations of PCS12852 also increased the gastric
emptying rate and increased GI motility.
Yuhan
had also conducted extensive toxicological studies for the product that demonstrated that the product is safe for use and can
be moved into Phase 2 studies.
PCS6422
On
August 23, 2020, we in-licensed PCS6422 from Elion Oncology, Inc. (“Elion”), pursuant to which we acquired an exclusive
license to develop, manufacture and commercialize PCS6422 globally.
Elion acquired
eniluracil (PCS6422) from Fennec Pharmaceuticals (formerly known as Adherex Technologies) in 2016. PCS6422 is an oral,
potent, selective and irreversible inhibitor of dihydropyrimidine dehydrogenase (DPD), the enzyme that rapidly metabolizes a
common chemotherapy drug known as 5-FU, into inactive metabolites, such as α-fluoro-β-alanine (F-Bal). F-Bal is a
metabolite that has no anti-cancer activity but causes unwanted side effects, which notably leads to
dose interruptions and significantly affect a patient’s quality of life. F-Bal is thought to cause the
neurotoxicity and Hand–Foot Syndrome (HFS) associated with 5-FU, and greater formation of F-Bal appears to be
associated with a decrease in the antitumor activity of 5-FU. HFS can affect activities of daily living, quality of
life, and requires dose interruptions/adjustments and even therapy discontinuation resulting in suboptimal tumor effects. We
believe that the inhibition of DPD by PCS6422 may significantly improve exposure to 5-FU and reduce 5-FU side effects related
to F-Bal. One dose of PCS6422 irreversibly blocks DPD activity for up to two weeks until DPD levels recover via de novo
synthesis. Thus, we believe inhibition of tumor DPD will result in higher 5-FU intra-tumoral concentration and potentially
better tumor response (efficacy) along with the decrease in F-Bal (improved safety).
Fluoropyrimidines (e.g.,
5-FU) remain the cornerstone of treatment for many different types of cancers, either as monotherapy or in combination
with other chemotherapy agents by an estimated two million patients annually. Xeloda®, the brand name of capecitabane,
is an oral pro-drug of 5-FU and approved as first-line therapy for metastatic colorectal and breast cancer. However,
its use is limited by adverse effects such as the development of HFS in up to 60% of patients.
Elion
evaluated the potential for the combination of PCS6422 with capecitabine as a treatment of advanced gastrointestinal
(GI) tumors. Nonclinical efficacy data indicated that in colorectal cancer models, pretreatment with PCS6422 enhanced the antitumor
activity of capecitabine. PCS6422 dramatically increased the antitumor potency of capecitabine without increasing the toxicity.
The antitumor efficacy of the combination of PCS6422 and capecitabine was tested in several xenograft animal models with human
breast, pancreatic and colorectal cancer cells. These preclinical xenograft models demonstrate that PCS6422 potentiates the antitumor
activity of capecitabine and significantly reduces the dose of capecitabine required to be efficacious.
Elion
met with the FDA in 2019 and agreed upon the clinical development program required for the combination of PCS6422 and capecitabine
as first-line therapy for metastatic colorectal cancer when treatment with fluoropyrimidine therapy alone is preferred. On May
17, 2020, an IND for the Phase 1B study was granted safe to proceed by the FDA. This Phase 1B study will evaluate i) the safety
and tolerability of a fixed dose of PCS6422 and several doses of capecitabine in advanced GI tumor patients, ii) the pharmacokinetics
of PCS6422, capecitabine,
5-FU and selected metabolites, and iii) the activity of DPD over time after PCS6422 administration. The study will begin patient
recruitment in the first half of 2021.
Other
DPD enzyme inhibitors (e.g. Gimeracil used in Teysuno® approved only outside the US) act as competitive reversible inhibitors.
These agents must be present when 5-FU or capecitabine are administered to inhibit 5-FU breakdown by DPD in order to improve the
efficacy and safety profiles of 5-FU. Given the reversible nature of their effect on DPD, over time 5-FU metabolism to F-Bal will
return, decreasing the amount of 5-FU in the cancer cells and decreasing the potential cytotoxicity on the cancer cells. There
is also evidence that administering DPD inhibitors directly with 5-FU may also decrease the antitumor effect of the 5-FU. Because
PCS6422 is an irreversible inactivator of DPD, it can be dosed the day before capecitabine administration and its effect on DPD
can last longer than the reversible DPD inhibitors and beyond the time 5-FU exists in the cancer cell. We believe this can optimize
the potential cytotoxic effect and minimize the catabolism of 5-FU to F-Bal.
Prior
to Elion’s involvement, two multicenter Phase 3 studies were conducted in patients with colorectal cancer with PCS6422 administered
in 10-fold excess to 5-FU and administered with the 5-FU. Unfortunately, we believe the dose of PCS6422 during these trials was
not optimal and that PCS6422 was not administered early enough to irreversibly affect the DPD enzyme, thus the regimen tended
to produce less antitumor benefit than the control arm with the standard regimen of 5-FU/leucovorin (LV) without PCS6422. Later
preclinical work suggested that when PCS6422 was present at the same time as and in excess to 5-FU, it diminished the antitumor
activity of 5-FU, which we believe supports the proposal of exploring clinically dosing PCS6422 several hours before 5-FU to allow
its complete clearance before the administration of 5-FU.
PCS11T
On
May 24, 2020, we in-licensed PCS11T (formerly known as ATT-11T) from Aposense, Ltd. (“Aposense”), pursuant to which
we were granted Aposense’s patent rights and Know-How to develop and commercialize their next generation irinotecan cancer
drug, PCS11T.
PCS11T
is a novel lipophilic anti-cancer pro-drug that is being developed for the treatment of the same solid tumors as prescribed for
irinotecan. This pro-drug is a conjugate of a specific proprietary Aposense molecule connected to SN-38, the active metabolite
of irinotecan. The proprietary molecule in PCS11T has been designed to allow PCS11T to bind to cell membranes to form an inactive
pro-drug depot on the cell with SN-38 preferentially accumulating in the membrane of tumors cells and the tumor core. This unique
characteristic may make the therapeutic window of PCS11T wider than other irinotecan products such that the antitumor effect of
PCS11T could occur at a much lower dose with a milder adverse effect profile than irinotecan. Despite the widespread use of commercially
marketed irinotecan products in the treatment of metastatic colorectal cancer and other cancers resulting in peak annual sales
of approximately $1.1 billion, irinotecan has a narrow therapeutic window and includes an FDA “Black Box” warning
for both neutropenia and severe diarrhea. There is, therefore, a substantial unmet need to overcome the limitations of the current
commercially marketed irinotecan products, improving efficacy and reducing the severity of treatment emergent AEs. We believe
the potential wider therapeutic window of PCS11T will likely lead to more patients responding with less side effects when on PCS11T
compared to other irinotecan products.
Pre-clinical
studies conducted to date showed that PCS11T demonstrated tumor eradication at much lower doses than irinotecan across various
tumor xenograft models. PCS11T does not affect acetyl choline esterase (AChE) activity in human and rat plasma in vitro, which
would suggest that PCS11T will show an improved safety profile, compared to irinotecan, which is known for its cholinergic-related
side effects.
We
are currently planning to manufacture the product at a GMP facility, conduct the required toxicological studies required to file
the IND and initiate the Phase 1B study in oncology patients with solid tumors in 2022.
PCS100
On
August 29, 2019, we entered into an exclusive license agreement with Akashi Therapeutics, Inc. (“Akashi”) to develop
and commercialize an anti-fibrotic, anti-inflammatory drug, PCS100 (formerly known as HT-100), which also promotes healthy muscle
fiber regeneration. In previous clinical trials in Duchenne Muscular Dystrophy (DMD), PCS100 showed promising improvement in the
muscle strength of non-ambulant pediatric patients. Although the FDA placed a full clinical hold on the DMD trial after an SAE
in a pediatric patient, the FDA has partially removed the clinical hold and defined how PCS100 can resume clinical trials in DMD.
We are presently evaluating potential development programs.
Manufacturing
and Clinical Supplies
We
do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to
continue to rely, on third party contract manufacturing organizations (CMOs), for the supply of cGMP-grade clinical trial materials
and commercial quantities of our product candidates and products, if approved. We require all of our CMOs to conduct manufacturing
activities in compliance with cGMP. We have assembled a team of experienced employees and consultants to provide the necessary
technical, quality and regulatory oversight of our CMOs.
We
anticipate that these CMOs will have the capacity to support both clinical supply and commercial-scale production, but we do not
have any formal agreements at this time with any of these CMOs to cover commercial production.
We
also may elect to pursue additional CMOs for manufacturing supplies of drug substance and finished drug product in the future.
We believe that our standardized manufacturing process can be transferred to a number of other CMOs for the production of clinical
and commercial supplies of our product candidates in the ordinary course of business.
Competition
Many
of our potential competitors may have significantly greater financial resources, a more established presence in the market, and
more expertise in research and development, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and
reimbursement, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic
industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These potential competitors may also compete with us in recruiting and retaining top qualified scientific, sales, marketing
and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our programs.
The
key competitive factors affecting each of our products, if approved, are likely to include the efficacy, safety, convenience and
price of the products relative to other approved products used on-label or off-label for each unmet medical need condition. Although
preliminary clinical data exists to support the possibility of improved efficacy and safety profiles for our drugs, more in-depth
randomized, controlled studies are required for our products to determine if our preliminary findings will support the approval
in the designated unmet medical need indication.
For
PCS499, there are currently no FDA-approved drugs for the treatment of patients with NL, and few drugs are used off-label for
NL given the lack of efficacy and/or side effect concerns.
For
PCS12852, the competitive factors will include establishing marketing penetration against the metoclopramide products (the only
approved drug gastroparesis) and other 5-HT4 receptor agonists used off label. The market penetration will depend on the potential
for an improved safety profile due to the very selective 5-HT4 receptor binding by PCS12852 and similar or greater efficacy in
the treatment of gastroparesis.
For
PCS6422, the competitive factors will be related to the efficacy and safety of the product when used in combination with existing
cytotoxic drugs such as capecitabine and fluoropyrimidines compared to the efficacy and safety when these cytotoxic agents are
administered without PCS6422 or with reversible enzyme inhibitors. The market penetration will depend on how much improvement
will occur in the efficacy and/or safety profiles when administered in combination with PCS6422. Currently, there are no other
reversible or irreversible enzyme inhibitor products approved in the US and no irreversible enzyme inhibitors approved ex-US,
which may make PCS6422 the first DPD irreversible inhibitor available in the US and ex-US.
For
PCS11T, the competitive factors will include establishing marketing penetration against the existing irinotecan product (Camptosar®)
and the newer liposomal irinotecan product (Onivyde®). The establishment of that market will be based upon improved efficacy
and/or safety of PCS11T.
For
PCS100, the competitive factors will be contingent on the indication chosen for the product. For the adult fibrotic conditions
currently being evaluated, very few treatment options are currently approved and are usually limited in efficacy and/or safety.
For the DMD indication, the existing therapies are either limited for use in patients with specific genetic mutations or may show
initial improvements in the treatment of DMD, but the improvement diminishes over time and, therefore, new treatments are still
needed.
Our
commercial opportunity for any of our product candidates could be reduced or eliminated if our competitors develop and commercialize
products that are safer, more effective, less expensive, more convenient or easier to administer, or have fewer or less severe
side effects, than any products that we may develop. Our competitors also may obtain FDA, EMA or other regulatory approval for
their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong
market position before we are able to enter the market.
Intellectual
Property
Our
success will depend in large part on our ability and that of our licensors to:
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obtain
and maintain international and domestic patent and other legal protections for the proprietary technology, inventions and
improvements we consider important to our business;
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prosecute
and defend our future patents, once obtained;
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preserve
confidentiality of our own and our licensed methods, processes and know-how; and
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operate
without infringing the patents and proprietary rights of other parties.
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Although
we rely extensively on licensing patents from third parties, we intend to seek appropriate patent protection for product candidates
in our research and development programs, where applicable, and their uses by filing patent applications in the United States
and other selected countries. We intend for these patent applications to cover, where possible, claims for compositions of matter,
medical uses, processes for preparation and formulations.
Our
current patent portfolio consists of the number of patents related to our drug candidates licensed from each third-party licensor.
In addition to the international patents and/or international and U.S. patent applications licensed from our third-party licensors,
we have licensed at least the following number of U.S. patents:
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CoNCERT
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Yuhan
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Elion
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Aposense
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Akashi
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Total
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U.S. patents
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9
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4
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2
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3
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2
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20
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We
are also presently evaluating the submission of two potential patents for PCS6422 and one for PCS499.
Besides
relying on patents, we also rely on trade secrets, proprietary know-how and continuing innovation to develop and maintain our
competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. We seek protection
of these trade secrets, proprietary know-how and any continuing innovation, in part, through confidentiality and proprietary information
agreements. However, these agreements may not provide meaningful protection for, or adequate remedies to protect, our technology
in the event of unauthorized use or disclosure of information. Furthermore, our trade secrets may otherwise become known to, or
be independently developed by, our competitors.
License
Agreements
The
following descriptions of our license agreements are only summaries. You should also refer to the copies of such agreements which
have been filed as exhibits to this Annual Report.
License
Agreement with CoNCERT Pharmaceuticals, Inc.
On
October 4, 2017, Promet entered into a License Agreement with CoNCERT (“CoNCERT License Agreement”). On March 19,
2018, we, Promet, and CoNCERT entered into an Amended Option Licensing Agreement (“March Amendment”) that, among other
things, assigned the CoNCERT Agreement from Promet to us and we exercised the exclusive commercial license option for the PCS499
compound from CoNCERT.
The
CoNCERT License Agreement provides us with an exclusive (including as to CoNCERT) royalty-bearing license to CoNCERT’s patent
rights and Know-How to develop, manufacture, use, sub-license and commercialize compounds (PCS499 and each metabolite thereof)
and pharmaceutical products with such compounds worldwide. We are required to pay CoNCERT royalties, on a product–by-product
basis, on future worldwide net sales, or pay a percentage of any sublicense revenue.
We
will incur royalty obligations to CoNCERT on a country-by-country and product-by-product basis that expire on a country-by-country
and product-by-product basis on the later of (i) expiration or invalidation of the last patent rights covering such product in
such country or (ii) the tenth anniversary of the date of the first commercial sale to a non-sublicensee third party of such product
in such country.
We
are required to use commercially reasonable efforts, at our sole cost and expense, to develop and obtain regulatory approval for
one product in the U.S. and at least one other major market and, subject to obtaining regulatory approval in the applicable major
market, commercialize one product in the U.S. and at least one other major market. CoNCERT may terminate the agreement if, following
written notice and a 60 day opportunity to demonstrate a plan to cure, it believes that we are not using commercially reasonable
efforts to develop and obtain regulatory approval for one product in the U.S. and in at least one other major market for any consecutive
nine month period.
The
term of the CoNCERT License Agreement continues in full force and effect until the expiration of the last royalty term. On a country-by-country
and product-by-product basis, upon the expiration of the royalty term in such country with respect to such product, we shall have
a fully paid-up, perpetual, irrevocable license to such intellectual property with respect to such product in such country. In
the event of a material breach of the CoNCERT Agreement, either party may terminate the agreement provided such breach is not
cured in the 90 days following written notice of the breach (which period is shortened to 15 days for a payment breach). In addition,
either party may terminate the agreement upon an assignment for the benefit of creditors or the filing of an insolvency proceeding
by or against the other party that is not dismissed within 90 days of such filing.
License
Agreement with Yuhan Corporation
On
August 19, 2020, we entered into a License Agreement with Yuhan Corporation (“Yuhan License Agreement”), pursuant
to which we acquired an exclusive license to develop, manufacture and commercialize PCS12852 (formerly known as YH12852) globally,
excluding South Korea.
As
consideration for the Yuhan License Agreement and related Share Issuance Agreement, we issued to Yuhan 500,000 shares of common
stock. As additional consideration, we will pay Yuhan development and regulatory milestone payments (a portion of which are payable
in shares of our common stock based on the volume weighted average trading price during the period prior to such achievement and
a portion of which are payable in cash) upon the achievement of certain milestones, based on a Yuhan affiliate purchasing 750,000
shares of common stock for $3,000,000 in our October 2020 underwritten public offering. The milestones primarily consist of dosing
a patient in pivotal trials or having a drug indication approved by a regulatory authority in the United States or another country.
In addition, we must pay Yuhan one-time sales milestone payments based on the achievement during a calendar year of one or more
thresholds for annual sales for products made and pay royalties based on annual licensing sales. We are also required to split
any milestone payments received with Yuhan based on any sub-license agreement we may enter into.
In
conjunction with a joint Processa-Yuhan Board to oversee such commercialization efforts, we are required to use commercially reasonable
efforts, at our sole cost and expense, to research, develop and commercialize products in one or more countries, including meeting
specific diligence milestones that consist of: (i) preparing a first draft of the product development plan within 90 days; (ii)
requesting an FDA pre-IND meeting for a product within 6 months; (iii) dosing a first patient in a Phase 2A clinical trial with
a product within 24 months; and (iv) dosing a first patient with a product in a Phase 2B clinical trial, Phase 3 clinical trial
or other pivotal clinical trial with a product within 48 months. Either party may terminate the agreement in the event of a material
breach of the agreement that has not been cured following written notice and a 60-day opportunity to cure such breach (which is
shortened to 15 days for a payment breach).
License
Agreement with Elion Oncology, Inc.
On
August 23, 2020, we entered into a condition precedent License Agreement with Elion Oncology (“Elion License Agreement”),
pursuant to which we acquired an exclusive license to develop, manufacture and commercialize PCS6422 globally. The grant of license
was conditioned on the following being satisfied by October 30, 2020: (i) our closing on an equity financing of at least $15 million
in gross proceeds and (ii) successful up-listing to Nasdaq.
On
October 6, 2020, all conditions were satisfied, resulting in the addition of PCS6422 to the Processa portfolio, and we paid $100,000
cash and issued 825,000 shares of our common stock to Elion. Such shares are subject to a lock-up, with 50% of such shares released
from such lock up after six months and the remaining 25% tranches to be released following 9 months and 12 months, respectively.
As part of the Elion
License Agreement, we have agreed to issue to Elion 100,000 shares of our common stock on each of the first and second anniversary
dates of the Elion License Agreement. We believe the payment of these amounts is probable and represent seller financing
since the only condition related to their payment is the passage of time, which management does not believe is substantive. We
valued the shares at $4.00 per share based on the underwritten public offering price on October 6, 2020, which is the date
the conditions precedent in the license agreement were met.
As
additional consideration, we will pay Elion development and regulatory milestone payments (a portion of which are payable in shares
of our common stock and a portion of which are payable in cash) upon the achievement of certain milestones, which include FDA
or other regulatory approval and dosing a patient. In addition, we must pay Elion one-time sales milestone payments based on the
achievement during a calendar year of one or more thresholds for annual sales for products made and pay royalties based on annual
licensing sales. We are also required to split any milestone payments received with Elion based on any sub-license agreement we
may enter into.
We are required to use
commercially reasonable efforts, at our sole cost and expense, to research, develop and commercialize products in one or more countries,
including meeting specific diligence milestones that consist of: (i) dosing a first patient in a Phase 1B clinical trial with a
product within 12 months; and (ii) dosing a first patient with a product in a Phase 2 or 3 clinical trial within 48 months. Either
party may terminate the agreement in the event of a material breach of the agreement that has not been cured following written
notice and a 90-day opportunity to cure such breach (which is shortened to 15 days for a payment breach).
License
Agreement with Aposense, Ltd.
On
May 24, 2020, we entered into a condition precedent License Agreement with Aposense, Ltd. (“Aposense License Agreement”),
pursuant to which we were granted Aposense’s patent rights and Know-How to develop and commercialize their next generation
irinotecan cancer drug, PCS11T (formerly known as ATT-11T). The Aposense License Agreement provides us with an exclusive worldwide
license (excluding China), to research, develop and commercialize products comprising or containing PCS11T. The grant of license
was conditioned on the following being satisfied within nine months of May 24, 2020 (or the Aposense License Agreement shall terminate):
(i) our closing of an equity financing and successful up-listing to Nasdaq and (ii) Aposense obtaining the approval of the Israel
Innovation Authority for the consummation of the transactions contemplated by the Aposense License Agreement.
On
October 6, 2020, all conditions were satisfied, resulting in the addition of PCS11T to the Processa portfolio, and we issued 625,000
shares of our common stock to Aposense. Such shares are subject to a lock-up, with 40% of such shares released from such lock
up after six months and the remaining two 30% tranches to be released upon completion of the next two subsequent quarters. As
additional consideration, we will pay Aposense development and regulatory milestone payments (up to $3.0 million per milestone)
upon the achievement of certain milestones, which primarily consist of having a drug indication approved by a regulatory authority
in the United States or another country. In addition, we will pay Aposense one-time sales milestone payments based on the achievement
during a calendar year of one or more thresholds for annual sales for products made and pay royalties based on annual licensing
sales. We are also required to split any sales milestone payments or royalties we receive with Aposense based on any sub-license
agreement we may enter into.
License
Agreement with Akashi Therapeutics, Inc.
On
August 29, 2019, we entered into an exclusive license agreement with Akashi Therapeutics, Inc. ( “Akashi License Agreement”)
to develop and commercialize an anti-fibrotic, anti-inflammatory drug, PCS100. The Akashi License Agreement provides us with a
worldwide license to research, develop, make and commercialize products comprising or containing PCS100. As partial consideration
for the license, we paid $10,000 to Akashi upon full execution of the Akashi License Agreement. This upfront payment was expensed
as a research and development cost. As additional consideration, we will pay Akashi development and regulatory milestone payments
(up to $3.0 million per milestone) upon the achievement of certain milestones, which primarily consist of having a drug indication
approved by a regulatory authority in the United States or another country. In addition, we must pay Akashi one-time sales milestone
payments based on the achievement during a calendar year of one or more thresholds for annual sales for products made and pay
royalties based on annual licensing sales. We are also required to split any milestone payments we receive with Akashi based on
any sub-license agreement we may enter into.
We
are required to use commercially reasonable efforts, at our sole cost and expense, to research, develop and commercialize products
in one or more countries, including meeting specific diligence milestones that consist of (i) requesting a meeting with the FDA
for a first indication within 18 months of the date of the agreement, (ii) submitting an IND for a drug indication on or before
June 30, 2022 and (iii) initiating a Phase 1 or 2 trial for a drug indication on or before December 30, 2022. Either party may
terminate the agreement in the event of a material breach of the license agreement that has not been cured following written notice
and a 60-day opportunity to cure such breach (which is shortened to 15 days for a payment breach). We have not submitted a
meeting request with the FDA and are evaluating our continued involvement with Akashi.
Government
Regulation
The
FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome
requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs, such as those
we are developing. These agencies and other federal, state and local entities regulate, among other things, the research and development,
testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion,
distribution, post-approval monitoring and reporting, sampling and export and import of our product candidates.
U.S.
Government Regulation
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations.
The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign
statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable
U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant
to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an
approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal
penalties.
The
process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion
of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory
practice (GLP) regulations;
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submission
to the FDA of an IND application, which must become effective before human clinical trials may begin;
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approval
by an independent Institutional Review Board (IRB), at each clinical site before each trial may be initiated;
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performance
of adequate and well-controlled human clinical trials in accordance with good clinical practices (GCP) requirements to establish
the safety and efficacy of the proposed drug product for each indication;
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submission
to the FDA of an NDA;
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satisfactory
completion of an FDA advisory committee review, if applicable;
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satisfactory
completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity,
strength, quality and purity;
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FDA
review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to commercial marketing
or sale of the drug in the United States; and
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compliance
with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy
(REMS) or to conduct a post-approval study.
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Pre-clinical
studies
Before
testing any biological product candidate in humans, including our product candidates, the product candidate must undergo rigorous
pre-clinical testing. The pre-clinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation
and stability, as well as studies to evaluate toxicity in animals, to assess the potential for AEs and, in some cases, to establish
a rationale for therapeutic use. The conduct of pre-clinical studies is subject to federal regulations and requirements, including
GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the pre-clinical studies, together with
manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the
FDA as part of the IND.
An
IND is a request for authorization from the FDA to administer an investigational product to humans and must become effective before
human clinical trials may begin. Some long-term pre-clinical testing, such as animal tests of reproductive AEs and carcinogenicity,
may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA
raises concerns or questions before that time related to one or more proposed clinical trials and places the trial on clinical
hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As
a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical
trials
The
clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under
the supervision of qualified investigators, generally physicians not employed by, or under control of, the trial sponsor, in accordance
with GCPs, which include the requirement that all research patients provide their informed consent for their participation in
any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical
trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and
assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND.
Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will
be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in
relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial
subject or his or her legal representative and must monitor the clinical trial until completed. There also are requirements governing
the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about most clinical
trials must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related
to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial
is made public as part of the registration of the clinical trial. Sponsors are also obligated to disclose the results of their
clinical trials after completion. Disclosure of the results of these trials can be delayed in some cases for up to two years after
the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress
of development programs.
Human
clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
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Phase
1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed
to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess
the metabolism, pharmacologic action, side effect tolerability and safety of the drug.
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Phase
2 clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits.
At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects
and safety risks are identified and a preliminary evaluation of efficacy is conducted.
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Phase
3 clinical trials generally involve a larger number of patients at multiple sites and are designed to provide the data necessary
to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk
relationship of the product and provide an adequate basis for product approval. These trials may include comparisons with
placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product
during marketing.
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Post-approval
trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are
used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term
safety follow up. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval
of a biologics license application (BLA).
Progress
reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if SAEs
occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time, or the FDA may impose other sanctions on
various grounds, including a finding that the research patients are being exposed to an unacceptable health risk. Similarly, an
IRB can refuse, suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted
in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
Concurrently
with clinical trials, companies usually complete additional pre-clinical studies and must also develop additional information
about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial
quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches
of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality,
potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested, and stability
studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over
its shelf life.
Marketing
Approval
Assuming
successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, together
with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other
things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most
cases, the submission of an NDA is subject to a substantial application user fee.
The
review process typically takes twelve months from the date the NDA is submitted to the FDA. The FDA conducts a preliminary review
of all NDAs within the first 60 days after submission to determine whether they are sufficiently complete to permit substantive
review before accepting them for “filing.” The FDA may request additional information rather than accept an NDA for
filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also
subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth
substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether
the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued
safety, quality and purity. Under the current guidelines in effect in the Prescription Drug User Fee Act (PDUFA), the FDA has
a goal to review and act on the submission within ten months from the completion of the preliminary review of a standard NDA for
a new molecular entity.
In
addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an NDA
must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant
pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe
and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or
all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
The
FDA also may require submission of a REMS plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could
include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted
distribution methods, patient registries, or other risk minimization tools.
The
FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts,
including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application
should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions.
Before
approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not
approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. Additionally, before approving an
NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.
After
evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports
regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete
response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to
secure final approval of the NDA and may require additional clinical trials or pre-clinical studies in order for FDA to reconsider
the application. Even with submission of this additional information, the FDA ultimately may decide that the application does
not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction,
the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific
prescribing information for specific indications.
Orphan
drug designation
Under
the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic product intended to treat a rare disease or condition,
which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000
individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product
available in the United States for this type of disease or condition will be recovered from sales of the product in the United
States. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity
of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey
any advantage in, or shorten the duration of, the regulatory review and approval process. Orphan drug designation entitles a party
to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.
If
a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications
to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances,
such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety,
by providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval
of either a different product for the same indication or the same product for a different indication that could be used “off-label”
by physicians in the orphan indication, even though the competitor’s product is not approved in the orphan indication. Orphan
drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before
we do of the same product, as defined by the FDA, for the same indication we are seeking, or if our product candidate is determined
to be contained within the scope of the competitor’s product for the same indication or disease. If one of our products
designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be
entitled to orphan drug exclusivity. Orphan drug status in the European Union, or EU, has similar, but not identical, requirements
and benefits.
Expedited
review and approval
The
FDA has various programs, including fast track designation, accelerated approval, priority review and breakthrough therapy designation,
which are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment
of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose
of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
To
be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended
to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The
FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a
therapy that may be potentially superior to existing therapy based on efficacy or safety factors. The FDA may review sections
of the NDA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor provides a
schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule
is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
The
FDA may give a priority review designation to drugs that offer major advances in treatment or provide a treatment where no adequate
therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard
review of ten months under current PDUFA guidelines. Under the new PDUFA agreement, these six- and ten-month review periods are
measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically
adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible
for fast track designation are also likely to be considered appropriate to receive a priority review.
In
addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis
of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that
is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity
or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit,
taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.
As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies
to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may
be subject to accelerated withdrawal procedures.
Moreover,
under the provisions of the Food and Drug Administration Safety and Innovation Act, a sponsor can request designation of a product
candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug 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 drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints,
such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also
eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended
to expedite the development and review of an application for approval of a breakthrough therapy.
Even
if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions
for qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation,
priority review and breakthrough therapy designation do not change the standards for approval, but may expedite the development
or approval process. We may explore some of these opportunities for our product candidates as appropriate.
Post-approval
requirements
Drugs
manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including,
among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising
and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such
as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual
user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new
application fees for supplemental applications with clinical data.
The
FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing
testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness
after commercialization.
In
addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to
register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA
and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and
often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations
from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers
that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of
production and quality control to maintain cGMP compliance.
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained
or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including
adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements,
may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or
clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential
consequences include, among other things:
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restrictions
on the marketing or manufacturing of the product;
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complete
withdrawal of the product from the market or product recalls;
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safety
alerts, Dear Healthcare Provider letters, press releases or other communications containing warning or other safety information
about the product;
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fines,
warning letters or holds on post-approval clinical trials;
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refusal
of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; product
seizure or detention, or refusal to permit the import or export of products; or
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injunctions
or the imposition of civil or criminal penalties.
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The
FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be
promoted only for the approved indications and in accordance with the provisions of the approved label. 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 liability.
In
addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (PDMA), which
regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and
regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical
product samples and impose requirements to ensure accountability in distribution.
Other
Regulatory Matters
Pharmaceutical
companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the
states and foreign jurisdictions in which they conduct their business. Manufacturing, sales, promotion and other activities following
product approval are subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including
Centers for Medicare and Medicaid Services (CMS), other divisions of the Department of Health and Human Services, the Department
of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational
Safety & Health Administration, the Environmental Protection Agency, and state and local governments.
For
example, in the United States, sales, marketing and scientific and educational programs also must comply with state and federal
fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security
laws. These laws include the following:
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the
federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party
acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce
or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment
may be made under a federal healthcare program, such as Medicare or Medicaid. Moreover, the Patient Protection and Affordable
Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA), provides
that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;
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federal
civil and criminal false claims and civil monetary penalties laws, including the civil False Claims Act that can be enforced
by private citizens through civil whistleblower or qui tam actions, prohibit individuals or entities from, among other things,
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent
or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the
Federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which prohibits, among other things, executing
or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters;
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, which
also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission
of individually identifiable health information;
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federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers;
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the
FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;
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the
federal Physician Payments Sunshine Act, which requires applicable manufacturers of covered drugs, devices, biologics and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program,
with specific exceptions, to annually report to CMS information regarding payments and other transfers of value to physicians
and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate
family members; and
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws which may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including
private insurers; state laws that require biotechnology companies to comply with the biotechnology industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers
to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing
expenditures; state laws that require biotechnology companies to report information on the pricing of certain drug products;
and state and foreign laws that govern the privacy and security of health information in some circumstances, many of which
differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Pricing
and rebate programs must also comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990
and more recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of
the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging
requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially
subject to federal and state consumer protection and unfair competition laws.
The
distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping,
licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The
failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending
on the circumstances, failure to meet applicable regulatory requirements can result in significant civil, criminal and administrative
penalties, including damages, fines, disgorgement, individual imprisonment, exclusion from participation in government funded
healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational
harm, diminished profits and future earnings, injunctions, requests for recall, seizure of products, total or partial suspension
of production, denial or withdrawal of product approvals or refusal to allow a firm to enter into supply contracts, including
government contracts.
U.S.
Patent-Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA approval of any future product candidates, some of our U.S. patents may be eligible
for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits restoration of the patent term of up
to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration,
however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term
restoration period is generally one-half the time between the effective date of an IND or the issue date of the patent, whichever
is later, and the submission date of an NDA plus the time between the submission date of an NDA or the issue date of the patent,
whichever is later, and the approval of that application, except that the review period is reduced by any time during which the
applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension and the
application for the extension must be submitted prior to the expiration of the patent. The United States Patent and Trademark
Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the
future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond its
current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the
relevant NDA.
Market
exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not accept for review an abbreviated new drug application (ANDA) or a 505(b)(2) NDA submitted by another company
for another version of such drug where the applicant does not own or have a legal right of reference to all the data required
for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or
non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing
NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are
deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an
existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and
does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity
will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct
or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
European
Union Drug Development
Similar
to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant
regulatory controls. Although the European Union Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical
trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member
States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the
member state regimes. Under the current regime, before a clinical trial can be initiated, it must be approved in each of the EU
countries where the trial is to be conducted by two distinct bodies: the National Competent Authority (NCA) and one or more Ethics
Committees (ECs). Under the current regime, all suspected unexpected serious adverse reactions to the investigated drug that occur
during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.
The
EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial
authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their
transparency. Recently enacted Clinical Trials Regulation EU No 536/2014 ensures that the rules for conducting clinical trials
in the EU will be identical. In the meantime, Clinical Trials Directive 2001/20/EC continues to govern all clinical trials performed
in the EU.
European
Union Drug Review and Approval
In
the European Economic Area (EEA), which is comprised of the 26 Member States of the European Union (including Norway and excluding
Croatia), Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization (MA).
There are two types of marketing authorizations:
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The
Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee
for Medicinal Products for Human Use (CHMP) of the EMA, and is valid throughout the entire territory of the EEA. The Centralized
Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products,
advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products
containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes,
auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing
a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific
or technical innovation or which are in the interest of public health in the European Union.
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National
MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory,
are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already
been authorized for marketing in a Member State of the European Union, this National MA can be recognized in another Member
State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time
of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the
Decentralized Procedure, an identical dossier is submitted to the competent authorities of each of the Member States in which
the MA is sought, one of which is selected by the applicant as the Reference Member State (RMS). The competent authority of
the RMS prepares a draft assessment report, a draft summary of the product characteristics (SmPC), and a draft of the labeling
and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval.
If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment,
SmPC, labeling or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States
(i.e., in the RMS and the Member States Concerned).
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Under
the above described procedures, before granting the MA, EMA or the competent authorities of the Member States of the European
Union make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality,
safety and efficacy. Similar to the U.S. patent term-restoration, Supplementary Protection Certificates (SPCs) serve as an extension
to a patent right in Europe for up to five years. SPCs apply to specific pharmaceutical products to offset the loss of patent
protection due to the lengthy testing and clinical trials these products require prior to obtaining regulatory marketing approval.
Coverage
and Reimbursement
Sales
of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government
health programs, commercial insurance, and managed healthcare organizations. There is significant uncertainty related to third-party
payor coverage and reimbursement of newly approved products. In the United States, for example, principal decisions about reimbursement
for new products are typically made by CMS. CMS decides whether and to what extent a new product will be covered and reimbursed
under Medicare, and private third-party payors often follow CMS’s decisions regarding coverage and reimbursement to a substantial
degree. However, no uniform policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the
extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor-by-payor basis.
Increasingly,
third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity
and reviewing the cost effectiveness of medical product candidates. There may be especially significant delays in obtaining coverage
and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific product candidates on an approved
list, known as a formulary, which might not include all FDA-approved drugs for a particular indication. We may need to conduct
expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of our products. As a result,
the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and
clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement
will be obtained.
In
addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides
options for its Member States to restrict the range of medicinal products for which their national health insurance systems provide
reimbursement and to control the prices of medicinal products for human use. A Member State may approve a specific price for the
medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing
the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations
for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically,
products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly
lower.
Healthcare
Reform
The
United States government, state legislatures, and foreign governments have shown significant interest in implementing cost containment
programs to limit the growth of government-paid healthcare costs, including price-controls, restrictions on reimbursement, and
requirements for substitution of generic products for branded prescription drugs. For example, the ACA was passed in March 2010
which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts
the U.S. pharmaceutical industry. The ACA contains provisions that may reduce the profitability of drug products through increased
rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts
for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health
care programs.
The
Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement
with the HHS Secretary as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs
furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical
manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1%
of average manufacturer price (AMP), to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e.,
new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially
impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid
utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization
and by enlarging the population potentially eligible for Medicaid drug benefits. Effective April 1, 2020, Medicaid rebate liability
will be expanded to include the territories of the United States as well. Additionally, for a drug product to receive federal
reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer
must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given
product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer.
Some
of the provisions of the ACA have yet to be implemented, and there have been judicial, Congressional and executive branch challenges
to certain aspects of the ACA. Additionally, there has been heightened governmental scrutiny recently over the manner in which
drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed
and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review
the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for drug products. For example, at the federal level, there is a “Blueprint” to lower prescription drug prices and
reduce out-of-pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating
power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the
out-of-pocket costs of drug products paid by consumers. At the state level, legislatures have increasingly passed legislation
and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing.
Moreover,
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established the Medicare Part D program to provide
a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription
drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part
D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare,
Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its
own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies
must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in
each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and
therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which
we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely
will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries,
private third-party payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.
Business
Segments
We
manage our business as one segment which includes all activities related to the discovery, development, and commercialization
of drug products for the treatment of serious medical conditions. For financial information related to our one segment, see our
Consolidated Financial Statements and related notes.
Employees
As
of March 19, 2021, we had 14 full and part time employees. None of our employees is subject to a collective bargaining agreement
or represented by a trade or labor union and we believe our relationships with our employees are good.
We
are highly dependent upon the principal members of our small management team and staff, including David Young, Pharm.D., Ph.D,
our Chief Executive Officer, and Sian Bigora, Pharm.D., our Chief Development Officer. Despite our efforts to retain valuable
employees, members of our management, scientific and development teams may terminate their employment with us on short notice.
Although we expect to have employment agreements with our key employees, these employment agreements may still allow these employees
to leave our employment at any time, for or without cause. Our success also depends on our ability to continue to attract, retain
and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical
and scientific personnel.
Corporate
Information
We
were incorporated under the laws of the State of Delaware on March 29, 2011. Our principal executive office is located at 7380
Coca Cola Drive, Suite 106, Hanover, MD 21076. Our telephone number is (443) 776-3133.
We
make available free of charge on or through our Internet website (http://www.processapharmaceuticals.com) our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and Exchange Commission (SEC). The SEC also maintains a website which
provides on-line access to reports and other information regarding registrants that file electronically with the SEC at: www.sec.gov.
The
information contained on our website and social media channels is not included as a part of, or incorporated by reference into,
this report.
Information
about our Executive Officers
Our
executive officers as of March 19, 2021 are as follows:
Name
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Age
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Position
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Executive
Officers:
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David
Young, Pharm.D, Ph.D.
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68
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Chairman
of the Board of Directors and Chief Executive Officer
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Patrick
Lin
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55
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Chief
Business and Strategy Officer
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Sian
Bigora, Pharm.D.
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60
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Chief
Development Officer
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James
Stanker
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63
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Chief
Financial Officer
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Michael
Floyd
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65
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Chief
Operations Officer
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Wendy
Guy
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56
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Chief
Administrative Officer
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David
Young, Pharm.D., Ph.D. - Dr. Young has served as our Chairman and Chief Executive Officer since October 4, 2017 and
has over 30 years of pharmaceutical research, drug development, and corporate experience. He was a Founder and CEO of Promet Therapeutics,
LLC (“Promet”) since its formation in August 2015. He served as our interim CFO from October 4, 2017 to September
1, 2018. From 2006 to 2009, prior to joining the Questcor executive management team, Dr. Young served as an independent Director
on the Questcor Board of Directors. As an independent director, Dr. Young, representing Questcor, worked with the FDA in developing
a process to obtain approval for Acthar (the only commercial product owned by Questcor) in Infantile Spasms (IS), a deadly and
debilitating very rare orphan indication. In 2009, Dr. Young joined the Questcor executive management team as Chief Scientific
Officer (CSO) in order to obtain IS FDA approval and market exclusivity by completing the New Drug Application (NDA) process,
working with FDA on modernizing the label, and leading all aspects of approval including the Advisory Committee Meeting that voted
to approve the NDA for IS. During the eight years that Dr. Young was involved with Questcor as an independent director and as
its CSO, Questcor transitioned to an orphan drug specialty pharmaceutical company, moving from an outdated Acthar label and near
bankruptcy in 2007 to a modernized Acthar label that helped it to achieve sales greater than $750 million per year and the ultimate
sale of the company for approximately $5.6 billion in 2014. While serving on Questcor’s Board of Directors, Dr. Young was
Executive Director & President, U.S. Operations of AGI Therapeutics plc. Dr. Young has also served as the Executive Vice President
of the Strategic Drug Development Division of ICON plc, an international CRO, and was the Founder and CEO of GloboMax LLC, a CRO
specializing in FDA drug development, purchased by ICON plc in 2003. Prior to forming GloboMax, Dr. Young was a Tenured Associate
Professor at the School of Pharmacy, University of Maryland at Baltimore (UMAB), where he led a group of 30 faculty, scientists,
postdocs, graduate students and technicians in evaluating the biological properties of drugs and drug delivery systems in animals
and humans.
Dr.
Young is an expert in small molecule and protein non-clinical and clinical drug development. He has served on FDA Advisory Committees,
was Co-Principal Investigator on a FDA-funded Clinical Pharmacology contract, was responsible for the analytical and pharmacokinetic
evaluation of all oral products manufactured in the UMAB-FDA contract which led to the Scale-up and Post-Approval Changes (SUPAC)
and in-vitro in-vivo correlation (IVIVC) FDA Guidance, taught FDA reviewers as part of the UMAB-FDA contract for five years, has
served on National Institutes of Health (NIH) grant review committees, and was Co-Principal Investigator on a National Cancer
Institute contract to evaluate new oncology drugs. Dr. Young has met with the FDA over 100 times on more than 50 drug products
and has been a key team member on more than 30 NDA/supplemental NDA approvals. Dr. Young has more than 150 presentations-authored
publications-book chapters, including formal presentations to the FDA, FDA Advisory Committees, and numerous invited presentations
at both scientific and investment meetings. Dr. Young received his B.S. in Physiology from the University of California at Berkeley,
his M.S. in Medical Physics from the University of Wisconsin at Madison, and his Pharm.D. - Ph.D. with emphasis in Pharmacokinetics
and Pharmaceutical Sciences from the University of Southern California.
Patrick
Lin - Mr. Lin has served as our Chief Business & Strategy Officer since October 4, 2017 and has over 20 years of financing
and investing experience in the Biopharm Sector. He was Co-Founder and Chairman of the Board of Promet Therapeutics, LLC. He is
Founder and, for more than 15 years, Managing Partner of Primarius Capital, a family office that manages public and private investments
focused on small capitalization companies. For 10 years prior to forming Primarius Capital, Mr. Lin worked at several Wall Street
banking and brokerage firms including Robertson Stephens & Co., E*Offering, and Goldman Sachs & Co. Mr. Lin was Co-Founding
Partner of E*Offering. Mr. Lin received an MBA from Kellogg Graduate School of Management, a Master of Engineering Management,
and a Bachelor of Science in Business Administration from the University of Southern California.
Sian
Bigora, Pharm.D. - Dr. Bigora has served as our Chief Development Officer since October 4, 2017 and has over 20 years
of pharmaceutical research, regulatory strategy and drug development experience working closely with Dr. Young. She was Co-Founder,
Director, and Chief Development Officer at Promet Therapeutics, LLC. Prior to Promet, Dr. Bigora was Vice President of Regulatory
Affairs at Questcor Pharmaceuticals (acquired by Mallinckrodt Pharmaceuticals in 2014) from 2009-2015, including leading efforts
on modernizing the Acthar Gel label and in obtaining FDA approval in Infantile Spasms, events of material importance to Questcor’s
subsequent success. During her time at Questcor, she assisted in building an expert regulatory group to address both commercial
and development needs for complex products such as Acthar. Dr. Bigora’s role at Questcor included heading up the development
of a safety pharmacovigilance group and a clinical quality group. Prior to her position at Questcor, Dr. Bigora was Vice President
of Clinical and Regulatory Affairs, U.S. Operations of AGI Therapeutics, plc. In this role, she was responsible for the development
and implementation of Global Phase 3 studies and interactions with regulatory authorities. Previously, she operated her own consulting
company, serving as the regulatory and drug development expert team member for multiple small and mid-sized pharmaceutical companies.
Dr. Bigora held multiple positions in regulatory affairs, operations and project management ending as VP of Regulatory Affairs
at the Strategic Drug Development Division of ICON, plc, an international CRO, and at GloboMax LLC, a CRO specializing in FDA
drug development, purchased by ICON plc in 2003. Prior to GloboMax, she worked in the Pharmacokinetics and Biopharmaceutics Laboratory
at the School of Pharmacy, University of Maryland on the FDA funded Clinical Pharmacology contract and UMAB-FDA contract as a
clinical scientist and instructor for FDA reviewers. Dr. Bigora received a Pharm.D. from the School of Pharmacy at the University
of Maryland at Baltimore. She also completed a Fellowship in Pharmacokinetics and Pediatric Infectious Diseases at the University
of Maryland at Baltimore.
James
Stanker - Mr. Stanker has served as our Chief Financial Officer since September 5, 2018. Mr. Stanker has over 30 years of
financial and executive leadership experience in the areas of accounting principles and audit standards, regulatory reporting,
and fiscal management and strategy. He has served in a financial leadership role as an audit partner at Grant Thornton from February
2000 until his retirement in August 2016. His responsibilities included managing the audit quality in the Atlantic Coast Market
Territory. From 2009 to 2012, he served as the Global Head of Audit Quality for Grant Thornton International. Prior to joining
Grant Thornton, Mr. Stanker served as the Chief Financial Officer for a Nasdaq listed company and for a privately-held life science
company. Mr. Stanker is a Certified Public Accountant. He has a Bachelor’s degree in Aeronautics from San Jose State University
and a Master’s in Business Administration from California State University, East Bay. He previously served on the Board
of Directors of GSE Systems, Inc. Mr. Stanker is also a visiting professor in the George B. Delaplaine School of Business at Hood
College.
Michael
Floyd – Mr. Floyd has served as our Chief Operating Officer since October 6, 2020. Mr. Floyd has been a serial entrepreneur
with over 15 years of experience with early-stage biopharma businesses in infectious diseases, oncology and rare
diseases. In 1996, he founded Neurologic, an early-stage enterprise that in-licensed technology from the National Institutes
of Health for a diagnostic test for Alzheimer’s disease. Mr. Floyd was the co-author of the plan that created the Blanchette
Rockefeller Neurosciences Institute in 1998 with the Honorable Jay Rockefeller and Johns Hopkins University. In 2006, Mr. Floyd
was the Chief Executive Officer for the North American subsidiary of Arpida Ltd. where he organized the Phase 3 program for an
MRSA drug and organized the NDA submission. Mr. Floyd subsequently led the US efforts to remediate the NDA for Gentium, SpA for
defibrotide beginning in 2011. Mr. Floyd was the Founder of Bio-AIM, which is developing monoclonal antibodies for Acinetobacter
baumannii and a Co-Founder of Exbaq, which is developing therapies for Gram negative pathogens. In 2016, Mr. Floyd co-founded
Elion Oncology and served as its Chief Executive officer until joining Processa. Mr. Floyd received a BSBA in Accounting from
Georgetown University and is a CPA (inactive).
Wendy
Guy - Ms. Guy has served as our Chief Administrative Officer since October 4, 2017 and has more than 20 years of experience
in business operations. She has worked closely with Dr. Young in the past in corporate management and operations, human
resources, and finance roles. She was Co-Founder, Director, and Chief Administrative Officer of Promet Therapeutics, LLC.
Prior to Promet, Ms. Guy was employed at Questcor Pharmaceuticals (acquired by Mallinckrodt Pharmaceuticals in 2014) as Senior
Manager, Business Operation in charge of the Maryland Office for Questcor. During the five years she spent at Questcor, she built
a dynamic administrative and contracts team, grew the Maryland Office from two employees to just under 100, and expanded the facility
from 1,200 sq. ft. to 15,000 sq. ft. Prior to her position at Questcor, Ms. Guy was Senior Manager, U.S. Operations of AGI Therapeutics,
plc. In this role, she was responsible for the day to day business and administrative operations of the company. Previously, she
held multiple senior level positions with the Strategic Drug Development Division of ICON, GloboMax, and Mercer Management Consulting.
Ms. Guy received an A.A. from Mount Wachusett Community College.
Item
1A. Risk Factors
An
investment in our securities involves a high degree of risk. If any of the following risks actually occur, our business, financial
condition, or results of operations could be materially adversely affected, the trading price of our common stock could decline,
and you may lose all or part of your investment. You should also refer to the other information contained in this Form 10-K, including
our consolidated financial statements and the notes to those statements, and the information set forth under the caption “Special
Note Regarding Forward-Looking Statements and Risk Factor Summary.” The risks described below and contained in our other
periodic reports are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial
may also adversely affect our business operations.
Risks
Related to Our Financial Position
We
have a history of losses and we may never become profitable.
We
are a clinical stage biopharmaceutical company with a limited operating history. Processa itself as an organization has never
had a drug approved by the FDA or any regulatory agency. The likelihood of success of our business plan must be considered in
light of the challenges, substantial expenses, difficulties, complications and delays frequently encountered in connection with
developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical
product development is a highly speculative undertaking, involves a substantial degree of risk, and is a capital-intensive business.
If we cannot successfully execute our plan to develop our pipeline of drug(s), our business may not succeed.
At
December 31, 2020, the accumulated deficit was approximately $25.4 million. We will incur additional losses as we continue
our research and development activities, seek regulatory approvals for our product candidates and engage in clinical trials. These
losses will cause, among other things, our stockholders’ equity and working capital to decrease. Any future earnings and
cash flow from operations of our business are dependent on our ability to further develop our products and on revenues and profitability
from sales of products or successful joint venture relationships.
There
can be no assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained
basis. Even if we generate revenues, we expect to have quarter-to-quarter fluctuations in revenues and expenses, some of which
could be significant, due to research, development, clinical trial, and marketing and manufacturing expenses and activities. We
also expect to incur substantial expenses without corresponding revenues, unless and until we are able to obtain regulatory approval
and successfully license or commercialize our product candidates. If our product candidates fail in clinical trials or do not
gain regulatory approval, or if our products do not achieve market acceptance, we may never become profitable.
We
may never be able to obtain regulatory approval for the marketing of our product candidates in any indication in the United States
or internationally. As we commercialize and market products, we will need to incur expenses for product marketing and brand awareness
and conduct significant research, development, testing and regulatory compliance activities that, together with general and administrative
expenses, could result in substantial operating losses for the foreseeable future. Even if we do achieve profitability, we may
not be able to sustain or increase profitability on a quarterly or annual basis. Our stock price may decline, and you may lose
all or a substantial part of your investment in us.
We
have limited cash resources and will require additional financing.
On
October 6, 2020, we raised gross proceeds of $19.2 million in a public underwritten offering and on February 24, 2021,
we raised additional gross proceeds of $10.2 million in private offering with accredited and institutional investors. These funds
provide us with the necessary funding to complete our currently planned clinical trials for PCS499, PCS6422 and PCS12852. Based
on our projections, the funds also provide us with operating funds through 2023. We will, however, require substantial
additional capital in the future to continue the development and licensing of our current and any additional products we acquire
or license-in. Delays in obtaining additional funding in the future could adversely affect our ability to move forward with additional
studies, clinical trials or in-licensing activities.
Since
inception, we have not generated any revenue, have incurred net losses, have used net cash in our operations and have funded our
business and operations primarily through proceeds from the private placement of equity securities and senior secured convertible
notes. We expect to continue to require significant future financing to fund our operating activities and to use cash in operating
activities for the foreseeable future as we continue our research and development activities to develop products that can be commercialized
to generate revenue. Our ability to obtain additional financing will be subject to many factors, including market conditions,
our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable
terms, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our
product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely
have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business
relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue operations, we could
be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all
of their investment in us.
We
may seek additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders
could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of
existing stockholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase
stock, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would
result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our
ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets
and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If
we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have
to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us.
The
ongoing COVID-19 pandemic or another pandemic may disrupt our operations and affect our ability to successfully conduct clinical
studies and raise capital.
The
COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility
and disruption in the financial and capital markets. We are unable to accurately predict the full impact that the ongoing COVID-19
pandemic will have on our results from operations, financial condition, and scientific and clinical activities due to numerous
factors that are not within our control, including the duration and severity of the outbreak, stay-at-home orders, business closures,
travel restrictions, supply chain disruptions and employee illness or quarantines, which could result in disruptions to our operations
and adversely impact our results from operations and financial condition. In addition, the COVID-19 pandemic has resulted in ongoing
volatility in the financial and capital markets. If our access to capital is restricted or associated borrowing costs increase
as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could
be adversely impacted. In addition, we only recently completed the closeout of our Phase 2A clinical trial for PCS499 due
to COVID-related delays.
Raising
additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights
to our technology or product candidates.
Until
such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination
of private and public equity financings, debt financings, collaborations, strategic alliances and licensing arrangements. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will
be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders.
Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could
also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased
fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur
additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual
property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional
funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable
rights to our product candidates or grant licenses on terms that are not favorable to us.
We
have a significant amount of intangible assets related to our acquisition of PCS499 recorded on our balance sheet which may lead
to potentially significant impairment charges in the future.
We
review long-lived assets, including intangible assets, for impairment whenever events or changes in estimates and circumstances
indicate that the related carrying amounts may not be recoverable based on the existence of certain triggering events. Intangible
assets are also subject to an impairment assessment at least annually. The amount of identifiable intangible assets in our consolidated
balance sheet is related to our acquisition of PCS499 and our right of use assets. At December 31, 2020, net intangible assets
recorded on our consolidated balance sheet was $8.8 million.
We
have incurred indebtedness under the CARES Act, which will be subject to review, may not be forgivable in whole or in part and
may eventually have to be repaid.
We
received funds under the Paycheck Protection Program in May 2020 in the amount of $162,459, serviced by the Bank of America. The
application for these funds requires us to, in good faith, certify that the current economic uncertainty made the loan request
necessary to support our ongoing operations. This certification further requires us to take into account our current business
activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not
significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds,
is dependent on us having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future
adherence to the forgiveness criteria.
Under
the terms of the CARES Act and the corresponding promissory note, the use of the proceeds of the loan is restricted to payroll
costs (as defined in the CARES Act), covered rent, covered utility payments and certain other expenditures that, while permitted,
would not result in forgiveness of a corresponding portion of the loan. Following recent amendments to the Paycheck Protection
Program, after an eight- or twenty-four-week period from the disbursement of the loan proceeds, we may apply for forgiveness
of some or all of the loan, with the amount which may be forgiven equal to the sum of eligible payroll costs, mortgage interest
(not applicable to us), covered rent, and covered utility payments, in each case incurred by us during the eight- or twenty-four-week
period following the date of first disbursement. Certain reductions in our payroll costs or full-time equivalent employees (when
compared against the applicable measurement period) may reduce the amount of the Loan eligible for forgiveness. The Payroll Protection
Program has been amended twice with the latest series of amendments significantly altering the timeline associated with the Payroll
Protection Program spending and loan forgiveness. We used the entire proceeds of our PPP Loan for payroll costs and applied for
full forgiveness on January 18, 2021. On February 11, 2021, Bank of America submitted a decision to the Small Business Administration
(SBA) that the full amount should be forgiven. However, no assurance is provided that we will be able to obtain full or
partial forgiveness of the PPP Loan. While we believe we have acted in good faith and have complied with all requirements
of the Payroll Protection Program, if Treasury or SBA determines that our loan application was not made in good faith or
that we did not otherwise meet the eligibility requirements of the Payroll Protection Program, we may not receive forgiveness
of the loan (in whole or in part) and we could be required to return the loan or a portion thereof.
Risks
Relating to Clinical Development and Commercialization of Our Product Candidates
The
COVID-19 outbreak and global pandemic could adversely impact our business, including our clinical trials.
As
a result of the COVID-19 outbreak, or similar pandemics, and government response to pandemics, we have and may in the future experience
disruptions that could severely impact our business and clinical trials, including:
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delays
or difficulties in enrolling patients in our clinical trials;
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interruption
of key clinical trial activities, such as clinical trial site data monitoring and efficacy, safety and translational data
collection, processing and analyses, due to limitations on travel imposed or recommended by federal, state or local governments,
employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject
data and clinical study endpoints;
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delays
or difficulties in initiating or expanding clinical trials, including delays or difficulties with clinical site initiation
and recruiting clinical site investigators and clinical site staff;
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increased
rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or being forced
to quarantine;
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diversion
of healthcare resources away from the conduct of clinical trials;
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delays
or disruptions in preclinical experiments and investigational new drug application-enabling studies due to restrictions of
on-site staff and unforeseen circumstances at contract research organizations and vendors;
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interruption
or delays in the operations of the FDA and comparable foreign regulatory agencies; and
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interruption
of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing
shortages, production slowdowns or stoppages and disruptions in delivery systems.
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The
COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business and clinical trials will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact,
such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business
disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We
currently do not have, and may never develop, any FDA-approved, licensed or commercialized products.
We
have not yet sought to obtain any regulatory approvals for any product candidates in the United States or in any foreign market.
For us to develop any products that might be licensed or commercialized, we will have to invest further time and capital in research
and product development, regulatory compliance and market development. Therefore, we and our licensor(s), prospective business
partners and other collaborators may never develop any products that can be licensed or commercialized. All of our development
efforts will require substantial additional funding, none of which may result in any revenue.
Our
licenses are subject to termination by the licensor in certain circumstances.
Our
rights to practice the inventions claimed in the licensed patents and patent applications are subject to our licensors abiding
by the terms of those licenses and not terminating them. Our licenses may be terminated by the licensor if we are in material
breach of certain terms or conditions of the license agreement or in certain other circumstances. Our license agreements each
include provisions that allow the licensor to terminate the license if (i) we breach any payment obligation or other material
provision under the agreement and fail to cure the breach within a fixed time following written notice of termination, (ii) we
or any of our affiliates, licensees or sublicensees directly or indirectly challenge the validity, enforceability, or extension
of any of the licensed patents, or (iii) we declare bankruptcy or dissolve. The majority of license agreements require us to satisfy
due diligence milestones that relate to the development of new products containing the licensed drug or the agreement may be terminated
by such counterparty. Our rights under theses licenses are subject to our continued compliance with the terms of the license,
including the payment of royalties due under the licenses. Termination of any of these licenses could prevent us from marketing
some or all of our products. Because of the complexity of our products and the patents we have licensed, determining the scope
of the license and related royalty obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable
resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed
we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the
licensor might attempt to revoke the license. If such an attempt were successful, we might be barred from producing and selling
some or all of our products.
We
depend entirely on the successful development of our product candidates, which have not yet demonstrated efficacy for their target
indications in clinical trials. We may never be able to demonstrate efficacy for our product candidates, thus preventing us from
licensing, obtaining marketing approval by any regulatory agency, and/or commercializing our product(s).
Our
product candidates are either in the early stages of clinical development or late stages of preclinical development. Significant
additional research and development activity and clinical testing are required before we will have a chance to achieve a viable
product for licensing or commercialization from such candidates. Our research and development efforts remain subject to all the
risks associated with the development of new biopharmaceutical products and treatments. Development of the underlying technology
may be affected by unanticipated technical or other problems, among other research and development issues, and the possible insufficiency
of funds needed in order to complete development of these product candidates. Safety, regulatory and efficacy issues, clinical
hurdles or other challenges may result in delays and cause us to incur additional expenses that would increase our losses. If
we and our collaborators cannot complete, or if we experience significant delays in developing, our potential therapeutics or
products for use in potential commercial applications, particularly after incurring significant expenditures, our business may
fail, and investors may lose the entirety of their investment.
When
we submit an IND or foreign equivalent to the FDA or international regulatory authorities seeking approval to initiate clinical
trials in the United States and other countries, we may not be successful in obtaining acceptance from the FDA or comparable foreign
regulatory authorities to start our clinical trials. If we do not obtain such acceptance, the time in which we expect to commence
clinical programs for any product candidate will be extended and such extension will increase our expenses and increase our need
for additional capital. Moreover, there is no guarantee that our clinical trials will be successful or that we will continue clinical
development in support of an approval from the FDA or comparable foreign regulatory authorities for any indication. We note that
most drug candidates never reach the clinical development stage and even those that do commence clinical development have only
a small chance of successfully completing clinical development and gaining regulatory approval. Therefore, our business currently
depends entirely on the successful development, regulatory approval, and licensing or commercialization of our product candidates,
which may never occur.
We
must successfully complete clinical trials for our product candidates before we can apply for marketing approval.
Even
if we complete our clinical trials, it does not assure marketing approval. Our clinical trials may be unsuccessful, which would
materially harm our business. Even if our initial clinical trials are successful, we are required to conduct additional clinical
trials to establish our product candidates’ safety and efficacy, before submitting an NDA. Clinical testing is expensive,
is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in early phases
of pre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical
trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage of testing.
We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent
our ability to receive regulatory approval or commercialize our product candidates. The research, testing, manufacturing, labeling,
packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products
are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which
regulations differ from country to country.
We
are not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive
approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries.
We
have little corporate history of conducting clinical trials. Our planned clinical trials or those of our collaborators may reveal
significant adverse events, toxicities or other side effects not seen in our preclinical studies and may result in a safety profile
that could inhibit regulatory approval or market acceptance of any of our product candidates.
Our
operations to date have been limited to financing and staffing, conducting research and developing our core technologies, identifying
and optimizing our lead product clinical candidates, performing due diligence on other potential drug in-licensing opportunities,
receiving FDA orphan designation on PCS499 in Necrobiosis Lipoidica (NL), improving the manufacturing of PCS499 final product,
receiving FDA IND clearance on one indication, conducting a healthy human volunteer trial, completing a Phase 2A clinical
trial in patients with NL and initiating a Phase 2 clinical trial in patients with ulcerated NL. Although we have recruited
a team that has experience with clinical trials in the United States and outside the United States, as a company, we have only
completed two clinical trials in any jurisdiction and have not had previous experience commercializing product candidates
through the FDA or similar submissions to initiate clinical trials or obtain marketing authorization to foreign regulatory authorities.
We cannot be certain that other planned clinical trials will begin or be completed on time, if at all; that our development program
and studies would be acceptable to the FDA or other regulatory authorities; or that, if regulatory approval is obtained, our product
candidates can be successfully commercialized. Clinical trials and commercializing our product candidates will require significant
additional financial and management resources, and reliance on third-party clinical investigators, CROs, consultants and collaborators.
Relying on third-party clinical investigators, CROs or collaborators may result in delays that are outside of our control.
Furthermore,
we may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if
we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize,
product candidates.
Under our IND
for PCS499, we continue to evaluate the safety and tolerability of PCS499 in patients with NL. We dosed
patients based on our past experience with the drug in a healthy human volunteer study, the experience of CoNCERT Pharmaceuticals
in healthy human volunteers and patients with diabetic nephropathy studies, and the preclinical toxicology data and studies involving
diabetic nephropathy patients. Data from the Phase 2A demonstrated that PCS499 at 1,800 mg/day was well tolerated.
However, since the number of patients in this study was small, the risks associated with giving PCS499 still exists. Given NL
patients are mainly women and multiple pathophysiological changes have occurred in their body from the NL, the NL patients could
be more sensitive to the drug, thus decreasing their ability to tolerate PCS499. If this occurs, there may not be any way to differentiate
PCS499 from PTX thus making development and commercialization of PCS499 in NL not worth pursuing.
Some
preclinical studies of our product candidates have been completed, but we do not know the predictive value of these studies for
our targeted population of patients, and we cannot guarantee that any positive results in preclinical studies will translate successfully
to our targeted population of patients. It is not uncommon to observe results in human clinical trials that are unexpected based
on preclinical testing, and many product candidates fail in clinical trials despite promising preclinical results. 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
for their products. Human patients in clinical trials may suffer significant adverse events or other side effects not observed
in our preclinical studies, including, but not limited to, immunogenic responses, organ toxicities such as liver, heart or kidney
or other tolerability issues or possibly even death. The observed potency and kinetics of our planned product candidates in preclinical
studies may not be observed in human clinical trials. If clinical trials of our planned product candidates fail to demonstrate
efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs
or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our planned
product candidates which may result in complete loss of expenditures which we devote to those products.
We
may have difficulty recruiting patients to the clinical trial, patients may drop out of our trial, or we may be required to abandon
the trial or our development efforts of that product candidate altogether. We, the FDA, an Institutional Review Board (“IRB”),
or other applicable regulatory authorities may suspend clinical trials of a product candidate at any time for various reasons,
including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential
therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage studies have later
been found to cause side effects that prevented their further development. Even if the side effects do not preclude the drug from
obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due
to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition,
and prospects.
Further,
if any of our product candidates obtains marketing approval, toxicities associated with our product candidates may also develop
after such approval and lead to a requirement to conduct additional clinical safety trials, additional warnings being added to
the labeling, significant restrictions on the use of the product or the withdrawal of the product from the market. We cannot predict
whether our product candidates will cause toxicities in humans that would preclude or lead to the revocation of regulatory approval
based on preclinical studies or early stage clinical testing. However, any such event, were it to occur, would cause substantial
harm to our business and financial condition and would result in the diversion of our management’s attention.
Even
if we receive regulatory approval for any of our product candidates, we may not be able to successfully license or commercialize
the product and the revenue that we generate from its sales, if any, may be limited.
If
approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the
medical community (including physicians, patients and health care payors) and the potential competitive products available to
the patients upon commercialization. The degree of market acceptance for any of our product candidates will depend on a number
of factors, including:
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demonstration
of clinical safety and efficacy;
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relative
convenience, dosing burden and ease of administration;
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the
prevalence and severity of any adverse effects;
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the
willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;
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efficacy
of our product candidates compared to competing products;
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the
introduction of any new products that may in the future become available targeting indications for which our product candidates
may be approved;
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new
procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show
utility;
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pricing
and cost-effectiveness;
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the
inclusion or omission of our product candidates in treatment guidelines;
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the
effectiveness of our own or any future collaborators’ sales and marketing strategies;
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limitations
or warnings contained in approved labeling from regulatory authorities;
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our
ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including
Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals
from government bodies regulating the pricing and usage of therapeutics; and
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the
willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing
approvals.
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If
any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors
and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to
educate the medical community and third-party payors on the benefits of our product candidates may require significant resources
and may never be successful.
In
addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize
our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and
give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially
viable.
We
are completely dependent on third parties to manufacture our product candidates, and our commercialization of our product candidates
could be halted, delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or
comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates or fail to
do so at acceptable quality levels or prices.
We
do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture the active pharmaceutical ingredient,
or API, in our product candidates for use in our clinical trials or for commercial product. In addition, we do not have the capability
to formulate any of our product candidates into a finished drug product for commercial distribution. As a result, we will be obligated
to rely on contract manufacturers, if and when any of our product candidates are approved for commercialization. We have not entered
into an agreement with any contract manufacturers for commercial supply and may not be able to engage a contract manufacturer
for commercial supply of any of our product candidates on favorable terms to us, or at all.
The
facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or comparable
foreign regulatory authorities pursuant to inspections that will be conducted after we submit an NDA or biologics license application
to the FDA or their equivalents to other relevant regulatory authorities. We will not control the manufacturing process of, and
will be completely dependent on, our contract manufacturing partners for compliance with cGMPs to manufacture both active drug
substances and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control
and record keeping relating to our product candidates. If our contract manufacturers do not successfully manufacture material
that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure
and/or maintain regulatory approval for their manufacturing facilities. 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.
Our
contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign
agencies for compliance with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturers’
compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations
could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market
any of our product candidates, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions,
any of which could significantly and adversely affect our business. In addition, we will not have control over the ability of
our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract
manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory
approval for or market any of our product candidates.
If,
for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them,
and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we
cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers
or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing
processes for our API or finished products or should cease doing business with us, we could experience significant interruptions
in the supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Were we
to encounter manufacturing issues, our ability to produce a sufficient supply of any of our product candidates might be negatively
affected. Our inability to coordinate the efforts of our third-party manufacturing partners, or the lack of capacity available
at our third-party manufacturing partners, could impair our ability to supply any of our product candidates at required levels.
Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product
manufacturer, if we face these or other difficulties with our current manufacturing partners, we could experience significant
interruptions in the supply of any of our product candidates if we decided to transfer the manufacture of any of our product candidates
to one or more alternative manufacturers in an effort to deal with the difficulties.
Any
manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally,
we rely on third parties to supply the raw materials needed to manufacture our potential products. Any reliance on suppliers may
involve several risks, including a potential inability to obtain critical materials and reduced control over production costs,
delivery schedules, reliability and quality. Any unanticipated disruption to a future contract manufacturer caused by problems
at suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result in lost sales.
We
cannot guarantee that our future manufacturing and supply partners will be able to reduce the costs of commercial scale manufacturing
of any of our product candidates over time. If the commercial-scale manufacturing costs of any of our product candidates are higher
than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and
implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with
regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that
we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee
that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize
output, we may not be able to reduce our costs over time.
Even
if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory
review, which may result in significant additional expense.
Even
if we obtain regulatory approval for any of our product candidates for an indication, the FDA or foreign equivalent may still
impose significant restrictions on their indicated uses or marketing or the conditions of approval or impose ongoing requirements
for potentially costly and time-consuming post-approval studies, including Phase 4 clinical trials, and post-market surveillance
to monitor safety and efficacy. Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing,
labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse
events and other post-market information. These requirements include registration with the FDA, as well as continued compliance
with current Good Clinical Practices (cGCPs) for any clinical trials that we conduct post-approval. In addition, manufacturers
of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory
authorities for compliance with cGMP regulations, requirements relating to quality control, quality assurance and corresponding
maintenance of records and documents. Compliance with such regulations may result in significant costs and expenses.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in
obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain
or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction
may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval
of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing
and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements
and administrative review periods different from those in the United States, including additional preclinical studies or clinical
trials, as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions.
In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved
for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
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 products in certain countries. If we fail to comply with the
regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced
and our ability to realize the full market potential of our product candidates will be harmed.
Recently
enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our
product candidates and affect the prices we may obtain.
In
the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or
regulate post-approval activities and affect our ability to profitably sell our product candidates. Legislative and regulatory
proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,
increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval,
as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
We
could face competition from other biotechnology and pharmaceutical companies, and our operating results would suffer if we fail
to innovate and compete effectively.
Our
products are used for indications where we believe that there is an unmet medical need. If existing or newly approved drug products,
whether approved by the FDA for the indication or not, are able to successfully treat the same patients, it may be more difficult
to perform clinical studies, to develop our product and/or to commercialize our product, adversely affecting our business. Since
the biopharmaceutical industry is characterized by intense competition and rapid innovation, our competitors may be able to develop
other compounds or drugs that are able to achieve similar or better results than our product candidates. Our competitors may include
major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, and universities
and other research institutions. Many of our competitors have substantially greater financial, technical and other resources,
such as a larger research and development staff and experienced marketing and manufacturing organizations, established relationships
with CROs and other collaborators, as well as established sales forces. Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions
in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition
may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital
for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring
or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less
costly than our product candidates, or may develop proprietary technologies or secure patent protection and, in turn, exclude
us from technologies that we may need for the development of our technologies and potential products.
Even
if we obtain regulatory approval of any of our product candidates, we may not be the first to market and that may negatively affect
the price or demand for our product candidates. Additionally, we may not be able to implement our business plan if the acceptance
of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of
treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product
candidates for use in limited circumstances. Furthermore, for drugs that receive orphan drug designation at the FDA, a competitor
could obtain orphan product approval from the FDA with respect to such competitor’s drug product. If such competitor drug
product is determined to be the same product as one of our product candidates, we may be prevented from obtaining approval from
the FDA for such product candidate for the same indication for seven years, except in limited circumstances, and we may be subject
to similar restrictions under non-U.S. regulations.
We
expect to rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize
any of our product candidates and our business would be substantially harmed.
We
expect to enter into agreements with third-party CROs to conduct and manage our clinical programs including contracting with clinical
sites to perform our clinical studies. We plan to rely heavily on these parties for execution of clinical studies for our product
candidates and will control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each
of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance
on CROs and clinical sites will not relieve us of our regulatory responsibilities. We and our CROs will be required to comply
with cGCPs, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European
Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign
equivalents enforce these cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites.
If we or our CROs fail to comply with applicable cGCPs, 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. We cannot assure you that, upon inspection, the FDA or other regulatory authorities will determine
that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with products produced under
cGMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs or clinical sites to
comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and
could also subject us to enforcement action up to and including civil and criminal penalties.
Although
we intend to design the clinical trials for our product candidates in consultation with CROs, we expect that the CROs will manage
all of the clinical trials conducted at contracted clinical sites. As a result, many important aspects of our drug development
programs would be outside of our direct control. In addition, the CROs and clinical sites may not perform all of their obligations
under arrangements with us or in compliance with regulatory requirements. If the CROs or clinical sites do not perform clinical
trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development
and commercialization of any of our product candidates for the subject indication may be delayed or our development program materially
and irreversibly harmed. We cannot control the amount and timing of resources these CROs and clinical sites will devote to our
program or any of our product candidates. If we are unable to rely on clinical data collected by our CROs, we could be required
to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization
and require significantly greater expenditures.
If
any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements
with alternative CROs or clinical sites. If CROs do not successfully carry out their contractual duties or obligations or meet
expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised
due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials
may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize
our product candidates. As a result, our financial results and the commercial prospects for any of our product candidates would
be harmed, our costs could increase and our ability to generate revenue could be delayed.
Clinical
drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials
may not be predictive of future trial results.
Clinical
testing of drug product candidates is expensive and can take many years to complete, and its outcome is inherently uncertain.
Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials
may not be predictive of the results of later-stage clinical trials. We cannot assure you that the FDA or comparable foreign regulatory
authorities will view the results as we do or that any future trials of any of our product candidates will achieve positive results.
Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed
through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered
significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising
results in earlier trials. Any future clinical trial results for our product candidates may not be successful.
In
addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our product candidates.
For example, such trials could result in increased variability due to varying site characteristics, such as local standards of
care, differences in evaluation period and surgical technique, and due to varying patient characteristics including demographic
factors and health status.
Even
though we may apply for orphan drug designation for a product candidate, we may not be able to obtain orphan drug marketing exclusivity.
There
is no guarantee that the FDA, EMA or their foreign equivalents will grant any future application for orphan drug designation for
any of our product candidates, which would make us ineligible for the additional exclusivity and other benefits of orphan drug
designation. Even where orphan drug designation or equivalent status is granted, there is no guarantee of orphan drug marketing
exclusivity.
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which
is generally a disease or condition that affects fewer than 200,000 individuals in the United States and for which there is no
reasonable expectation that the cost of developing and making a drug available in the Unites States for this type of disease or
condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA. After
the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly
by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review and approval
process.
If
a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications
to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s
orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval
of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient
quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If
a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not
be entitled to orphan drug exclusivity. While the FDA granted orphan-drug designation to PCS499 for the treatment of NL on June
18, 2018, there can be no assurance that we will receive orphan drug designation for any additional product candidates in the
indications for which we think they might qualify, if we elect to seek such applications.
Although
we may pursue expedited regulatory approval pathways for a product candidate, it may not qualify for expedited development or,
if it does qualify for expedited development, it may not actually lead to a faster development, regulatory review or approval
process.
Although
we believe there may be an opportunity to accelerate the development of certain of our product candidates through one or more
of the FDA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we cannot
be assured that any of our product candidates will qualify for such programs.
For
example, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in combination with
one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the
drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although
breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not
change the standards for approval. If we apply for an expedited program for our product candidates, the FDA may determine that
our proposed target indication or other aspects of our clinical development plans do not qualify for such expedited program. Even
if we are successful in obtaining access to an expedited program, we may not experience faster development timelines or achieve
faster review or approval compared to conventional FDA procedures. Access to an expedited program may also be withdrawn by the
FDA if it believes that the designation is no longer supported by data from our clinical development program. Additionally, qualification
for any expedited review procedure does not ensure that we will ultimately obtain regulatory approval for such product candidate.
Third-party
coverage and reimbursement, health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our
ability to successfully market our product candidates will depend in part on the level of reimbursement that government health
administration authorities, private health coverage insurers and other organizations provide for the cost of our products and
related treatments. Countries in which any of our product candidates may be sold through reimbursement schemes under national
health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval
of initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and
private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our product candidates
profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope.
Legal,
regulatory and legislative changes with respect to reimbursement, pricing and contracting may adversely affect our business and
future prospects.
Federal
and state governments may adopt policies affecting drug pricing and contracting practices outside of the context of federal programs
such as Medicare and Medicaid, which may adversely affect our business. For example, several states have adopted laws that require
drug manufacturers to provide advance notice of certain price increase and to report information relating to those price increases.
On May 11, 2018, the Department of Health and Human Services requested comments on a “Blueprint to Lower Drug Prices and
Reduce Out-of-Pocket Costs,” which outlines a wide range of proposals and policy considerations intended to improve competition;
lower patient out-of-pocket costs; enhance negotiation; and provide incentives for lower manufacturer list prices. Some of the
proposals would require Congressional approval, while others could be adopted administratively. There can be no assurances that
future changes to Medicare and/or Medicaid prescription drug reimbursement policies, drug pricing and contracting practices, or
government drug price regulation programs such as the Medicaid Drug Rebate Program or 340B Drug Pricing Program will not have
an adverse impact on our business and future prospects.
We
cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative
and regulatory developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing. Such reforms could
have an adverse effect on anticipated revenues from product candidates and may affect our overall financial condition and ability
to develop product candidates.
We
may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our
insurance coverage for those claims is inadequate.
We
face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even
greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and
manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and product
candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or
abuse associated with our product candidates could result in injury to a patient or even death. We cannot offer any assurance
that we will not face product liability suits in the future, or that our insurance coverage will be sufficient to cover our liability
under any such cases.
In
addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product
liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or
otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product
liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome,
product liability claims may result in:
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial programs;
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the
inability to commercialize our product candidates;
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decreased
demand for our product candidates;
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impairment
of our business reputations;
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product
recall or withdrawal from the market or labeling, marketing or promotional restrictions;
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substantial
costs of any related litigation or similar disputes;
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distractions
of management’s attention and other resources from our primary business;
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substantial
monetary awards to patients or other claimants against us that may not be covered by insurance; or
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loss
of revenue.
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We
have obtained product liability insurance coverage for our clinical trials. However, large judgments have been awarded in class
action or individual lawsuits based on drugs that had unanticipated side effects and our insurance coverage may not be sufficient
to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer.
Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance
coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability.
We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will
be costly, and we may be unable to obtain this increased product liability insurance on commercially reasonable terms, or at all.
A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments
exceed our insurance coverage, could decrease our cash and could harm our business, financial condition, operating results and
prospects.
If
any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians
misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products,
product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.
The
FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug products. In
particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies
as reflected in the product’s approved labeling and comparative safety or efficacy claims cannot be made without direct
comparative clinical data. If we are found to have promoted off-label uses of any of our product candidates, we may become subject
to significant liability, which would materially harm our business. Both federal and state governments have levied large civil
and criminal fines against companies for alleged improper promotion and have enjoined several companies from engaging in off-label
promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we
could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted
from our business operations, significant legal expenses could be incurred, and our brand and reputation could be damaged.
The
FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct
is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could
be subject to FDA regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction,
seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might
take action if they consider our business activities constitute promotion of an off-label use, which could result in significant
penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in
government healthcare programs and the curtailment or restructuring of our operations.
We
cannot, however, prevent a physician from using our product candidates outside of those indications for use when in the physician’s
independent professional medical judgment he or she deems appropriate. Physicians may also misuse our product candidates or use
improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims.
If our product candidates are misused or used with improper technique, we may become subject to costly litigation by physicians
or their patients. Furthermore, the use of our product candidates for indications other than those cleared by the FDA may not
effectively treat such conditions, which could harm our reputation among physicians and patients.
We
may choose not to continue developing or commercializing any of our product candidates at any time during development or after
approval, which would reduce or eliminate our potential return on investment for those product candidates.
At
any time, we may decide to discontinue the development of any of our product candidates or not to continue commercializing one
or more of our approved product candidates for a variety of reasons, including changes in our internal product, technology or
indication focus, the appearance of new technologies that make our product obsolete, competition from a competing product or changes
in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant
resources, we will not receive any return on our investment, and we will have missed the opportunity to have allocated those resources
to potentially more productive uses.
Risks
Relating to Our Intellectual Property Rights
We
depend on rights to certain pharmaceutical compounds that are or will be licensed to us. We do not own the intellectual property
rights to these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products.
Within
our present pipeline and potentially future pipeline of drugs, our drugs are in-licensed from other biotech or pharmaceutical
companies. We do not currently own any intellectual property rights, including the patents that underlie these licenses. Our rights
to use the pharmaceutical compounds we license are subject to the negotiation of, continuation of and compliance with the terms
of those licenses. Thus, these patents and patent applications are not written by us or our attorneys, and we did not have control
over the drafting and prosecution. The former patent owners and our licensors might not have given the same attention to the drafting
and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and
had control over the drafting. Moreover, under certain of our licenses, patent prosecution activities remain under the control
of the licensor. We cannot be certain that drafting of the licensed patents and patent applications, or patent prosecution, by
the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable
patents and other intellectual property rights.
Significant
additional research and development activity, pre-clinical testing, and/or clinical testing of our drug product candidates are
required before we will have a chance to achieve a viable product for licensing or commercialization. Our business currently depends
entirely on the successful development, regulatory approval, and licensing or commercialization of our product candidates, which
may never occur.
Enforcement
of our licensed patents or defense of any claims asserting invalidity of these patents is often subject to the control or cooperation
of our licensors. Legal action could be initiated against the owners of the intellectual property that we license and an adverse
outcome in such legal action could harm our business because it might prevent such companies or institutions from continuing to
license intellectual property that we may need to operate our business. In addition, such licensors may resolve such litigation
in a way that benefits them but adversely affects our ability to have freedom to operate to develop and commercialize our product
candidates.
We
cannot ensure protection of our licensed intellectual property rights.
Our
commercial success will depend, in part, on the ability of our licensors to obtain and maintain patent protection for our licensed
technologies, products and processes, successfully defend these licensed patents against third-party challenges and successfully
enforce these patents against third party competitors. The patent positions of pharmaceutical companies can be highly uncertain
and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in
either the patent laws or in interpretations of patent laws may diminish the value of our licensed intellectual property rights.
Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in our patents. The existing patents
and patent applications relating to our drug product candidates may be challenged, invalidated or circumvented by third parties
and might not protect us against competitors with similar products or technologies.
The
degree of future protection for our proprietary rights is uncertain. We may not be able to adequately protect our rights, gain
or keep our competitive advantage, or provide any competitive advantage at all. For example, others have filed, and in the future
are likely to file, patent applications covering products and technologies that are similar, identical or competitive to any of
our product candidates, or important to our business. We cannot be certain that any patent application owned by a third party
will not have priority over patent applications licensed or filed by us, or that our licensed intellectual property or intellectual
property that we develop in the future will not be involved in interference, opposition or invalidity proceedings before United
States or foreign patent offices.
In
the future, we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection
is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees,
academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately
protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors
have rights to publish data and information in which we may also have rights. If we cannot maintain the confidentiality of our
licensed or owned proprietary technology and other confidential information, our ability to protect valuable information licensed
or owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our licensed
or owned know-how and trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are
sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge,
methods and know-how.
If
we fail to obtain or maintain patent or trade secret protection for our product candidates or our technologies, third parties
could use our licensed or owned intellectual property, which could impair our ability to compete in the market and adversely affect
our ability to generate revenues and attain profitability.
We
may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee
that any trademark applications filed by our licensors, us, or our business partners will be approved. Third parties may also
oppose such trademark applications, or otherwise challenge our use of the trademarks. In the event that the trademarks we use
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. Further, we cannot provide assurance that competitors
will not infringe the trademarks we use, or that we, our licensors, or business partners will have adequate resources to enforce
these trademarks.
Our
product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent
our development and commercialization efforts.
Our
success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been
characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent
rights that may be relevant to our licensed technology is difficult because patent searching is imperfect due to differences in
terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because
patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that
may be infringed by commercialization of any of our licensed product candidates or any future product candidate. There may be
certain issued patents and patent applications claiming subject matter that we may be required to license in order to research,
develop or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available
to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming
and may divert the time and attention of our technical personnel and management.
Third
parties may hold proprietary rights that could prevent any of our licensed product candidates from being marketed. Any patent-related
legal action against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates
or our processes could subject us to potential liability for damages and require us to obtain a license and pay royalties to continue
to manufacture or market any of our product candidates or any future product candidates. We cannot predict whether we would prevail
in any such actions or that any license required under any of these patents would be made available on commercially acceptable
terms, if at all. In addition, we cannot be sure that we could redesign our product candidates or any future product candidates
or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding,
or the failure to obtain necessary licenses, could prevent us from developing and commercializing any of our product candidates
or a future product candidate, which could harm our business, financial condition and operating results.
A
number of companies, including several major pharmaceutical companies, have conducted, or are conducting, research within the
licensed fields in which we intend to operate, which has resulted, or may result, in the filing of many patent applications related
to this research. If we were to challenge the validity of these or any issued United States patent in court, we would need to
overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to
prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were
to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal
Board in the United States Patent and Trademark Office, we would have to prove that the claims are unpatentable by a preponderance
of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity
or enforceability.
General
Company-Related Risks
We
will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As
our development and commercialization plans and strategies develop, we may need to expand the size of our employee and consultant/contractor
base. Future growth would impose significant added responsibilities on members of management, including the need to identify,
recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate
amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities.
Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we must be able to:
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manage
all our development efforts effectively, especially our clinical trials;
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integrate
additional management, administrative, scientific, operation and regulatory personnel;
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maintain
sufficient administrative, accounting and management information systems and controls; and
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hire
and train additional qualified personnel.
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We
may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results.
We
have identified material weaknesses in our internal control over financial reporting related to our control
environment, which in turn results in a material weakness in our disclosure controls. If we do not remediate the material weaknesses
in our internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not
be able to accurately report our financial results, which may cause investors to lose confidence in our reported financial information
and may lead to a decline in the market price of our stock.
We
identified a material weakness in our internal control over financial reporting. Our assessment has indicated we have material
weaknesses related to certain entity level controls; inadequate segregations of duties throughout the entire year; and our formal
documentation of certain policies and procedures, their related controls, and the operation thereof. Such a material weakness
in our internal controls results in a material weakness in our disclosure controls. We continue to remediate our material weakness
and to improve our internal controls and are in the process of implementing more fully documented formal policies and procedures.
A
“material weakness” is a deficiency, or a combination of deficiencies, in internal controls, such that there is a
reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented
or detected. We cannot assure you that additional material weaknesses in our internal controls will not be identified in the future.
Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation,
could result in additional material weaknesses, or could result in material misstatements in our financial statements. These misstatements
could result in restatements of our financial statements, cause us to fail to meet our reporting obligations or cause investors
to lose confidence in our reported financial information. Our inability to implement an effective internal control system in the
future to prevent and/or detect and correct material misstatements could have a material and adverse effect on our financial condition.
However,
while we remain a smaller reporting company, 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 of the
Sarbanes-Oxley Act 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 we will not be able to conclude, within the prescribed timeframe or at all,
that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes-Oxley Act. If we identify
one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in
the reliability of our financial statements.
We
have already and are planning to continue implementing additional measures to address the material weaknesses we have identified,
including hiring additional accounting personnel or consultants with appropriate expertise. We intend to complete the implementation
of our remediation plan in the second or third quarter of 2021. However, we cannot assure you that we will be successful
in remediating the material weaknesses we identified or that our internal control over financial reporting, as modified, will
enable us to identify or avoid material weaknesses in the future.
We
cannot assure you that management will be successful in identifying and retaining appropriate personnel; that newly engaged staff
or outside consultants will be successful in identifying material weaknesses in the future; or that appropriate personnel will
be identified and retained prior to these deficiencies resulting in material and adverse effects on our business.
Any
failure to remediate the material weaknesses we identified or develop or maintain effective controls, or any difficulties encountered
in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations
and may result in a restatement of our financial statements for prior periods. Any failure to remediate the material weaknesses
we identified or implement and maintain effective internal control over financial reporting, as well as disclosure controls and
procedures, could also adversely affect the results of management reports and independent registered public accounting firm audits
of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will
be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also
cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect
on the market price of our common stock.
Our
limited operating history may make it difficult to evaluate our business and our future viability.
We
are in the relatively early stages of operations and development and have only a limited operating history as the existing entity
on which to base an evaluation of our business and prospects. Even if we successfully obtain additional funding, we are subject
to the risks associated with early stage companies with a limited operating history, including: the need for additional financings;
the uncertainty of research and development efforts resulting in successful commercial products, as well as the marketing and
customer acceptance of such products; unexpected issues with the FDA, other federal or state regulatory authorities or ex-US regulatory
authorities; regulatory setbacks and delays; competition from larger organizations; reliance on the proprietary technology of
others; dependence on key personnel; uncertain patent protection; fluctuations in expenses; and dependence on corporate partners
and collaborators. Any failure to successfully address these risks and uncertainties could seriously harm our business and prospects.
We may not succeed given the technological, marketing, strategic and competitive challenges we will face. The likelihood of our
success must be considered in light of the expenses, difficulties, complications, problems and delays frequently encountered in
connection with the growth of a new business, the continuing development of new drug technology, and the competitive and regulatory
environment in which we operate or may choose to operate in the future.
If
we lose key management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify and develop
new or next generation product candidates will be impaired, could result in loss of markets or market share and could make us
less competitive.
We
are highly dependent upon the principal members of our small management team and staff, including David Young, Pharm.D., Ph.D,
our Chief Executive Officer, and Sian Bigora, Pharm.D., our Chief Development Officer. The employment of Drs. Young and Bigora
may be terminated at any time by either us or Dr. Young or Dr. Bigora. The loss of any current or future team member could impair
our ability to design, identify, and develop new intellectual property and product candidates and new scientific or product ideas.
Additionally, if we lose the services of any of these persons, we would likely be forced to expend significant time and money
in the pursuit of replacements, which may result in a delay in the development of our product candidates and the implementation
of our business plan and plan of operations and diversion of our management’s attention. We can give no assurance that we
could find satisfactory replacements for our current and future key scientific and management employees on terms that would not
be unduly expensive or burdensome to us.
Despite
our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment
with us on short notice. Although we expect to have employment agreements with our key employees, these employment agreements
may still allow these employees to leave our employment at any time, for or without cause. We do not maintain “key man”
insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our
ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level
and senior scientific and medical and scientific personnel.
We
are a “smaller reporting company,” and the reduced disclosure requirements applicable to us as such may make our common
stock less attractive to our stockholders and investors.
We
are a “smaller reporting company” under the federal securities laws and, as such, are subject to scaled disclosure
requirements afforded to such companies. For example, as a smaller reporting company, we are subject to reduced executive compensation
disclosure requirements. Our stockholders and investors may find our common stock less attractive as a result of our status as
a “smaller reporting company” and our reliance on the reduced disclosure requirements afforded to these companies.
If some of our stockholders or investors find our common stock less attractive as a result, there may be a less active trading
market for our common stock and the market price of our common stock may be more volatile.
We
are exposed to cyber-attacks and data breaches, including the risks and costs associated with protecting our systems and maintaining
integrity and security of our business information, as well as personal data of our guests, employees and business partners.
We
are subject to cyber-attacks. These cyber-attacks can vary in scope and intent from attacks with the objective of compromising
our systems, networks and communications for economic gain to attacks with the objective of disrupting, disabling or otherwise
compromising our operations. The attacks can encompass a wide range of methods and intent, including phishing attacks, illegitimate
requests for payment, theft of intellectual property, theft of confidential or non-public information, installation of malware,
installation of ransomware and theft of personal or business information. The breadth and scope of these attacks, as well as the
techniques and sophistication used to conduct these attacks, have grown over time.
A
successful cyber-attack may target us directly, or it may be the result of a third party’s inadequate care. In either scenario,
we may suffer damage to our systems and data that could interrupt our operations, adversely impact our reputation and brand and
expose us to increased risks of governmental investigation, litigation and other liability, any of which could adversely affect
our business. Furthermore, responding to such an attack and mitigating the risk of future attacks could result in additional operating
and capital costs in systems technology, personnel, monitoring and other investments.
In
addition, we are also subject to various risks associated with the collection, handling, storage and transmission of sensitive
information. In the course of doing business, we collect employee, customer and other third-party data, including personally identifiable
information and individual credit data, for various business purposes. These laws continue to develop and may be inconsistent
from jurisdiction to jurisdiction. If we fail to comply with the various applicable data collection and privacy laws, we could
be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted.
Any
breach, theft, loss, or fraudulent use of employee, third-party or company data, could adversely impact our reputation and expose
us to risks of data loss, business disruption, governmental investigation, litigation and other liability, any of which could
adversely affect our business. Significant capital investments and other expenditures could be required to remedy the problem
and prevent future breaches, including costs associated with additional security technologies, personnel, experts and credit monitoring
services for those whose data has been breached. Further, if we or our vendors experience significant data security breaches or
fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement
actions and private litigation.
Risks
Related to Ownership of Our Common Stock
Future
equity offerings, license transactions or acquisitions may dilute our existing stockholders’ ownership and/or have other
adverse effects on our operations.
In
order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible
into or exchangeable for our common stock at prices that may be higher or lower than what our existing stockholders paid and other
securities in the future could have rights superior to existing stockholders.
In
addition, we may engage in one or more potential license transactions or acquisitions in the future, which could involve issuing
our common stock as some or all of the consideration payable by us to complete such transactions. If we issue common stock or
securities linked to our common stock, the newly issued securities may have a dilutive effect on the interests of the holders
of our common stock. Additionally, future sales of newly issued shares used to effect a transaction could depress the market price
of our common stock.
We
may also issue equity securities that provide rights, preferences and privileges senior to those of our common stock. If we raise
additional funds by issuing debt securities, these debt securities would have rights senior to those of our common stock and the
terms of the debt securities issued could impose significant restrictions on our operations, including liens on our assets. If
we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our
technologies or candidate products, or to grant licenses on terms that are not favorable to us.
Our
common stock price is expected to be volatile.
The
market price of our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical,
biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause
the market price of our common stock to fluctuate include:
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relatively
low trading volume, which can result in significant volatility in the market price of our common stock based on a relatively
smaller number of trades and dollar amount of transactions;
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changes
in estimates or recommendations by securities analysts, if any, who cover our common stock;
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the
timing and results of our current and any future preclinical or clinical trials of our product candidates;
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the
entry into or termination of key agreements, including, among others, key collaboration and license agreements;
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the
results and timing of regulatory reviews relating to the approval of our product candidates;
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the
initiation of, material developments in, or conclusion of, litigation to enforce or defend any of our intellectual property
rights;
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failure
of any of our product candidates, if approved, to achieve commercial success;
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general
and industry-specific economic conditions that may affect our research and development expenditures;
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the
results of clinical trials conducted by others on products that would compete with our product candidates;
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issues
in manufacturing our product candidates or any approved products;
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the
introduction of technological innovations or new commercial products by our competitors;
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developments
or disputes concerning patent applications, issued patents or other proprietary rights;
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future
sales of our common stock by us, our insiders or our other stockholders;
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a
negative outcome in any litigation or potential legal proceeding;
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additions
and departures of key personnel;
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negative
publicity or announcements regarding regulatory developments relating to our products;
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actual
or anticipated fluctuations in our financial condition and operating results, including our cash and cash equivalents balance,
operating expenses, cash burn rate or revenue levels;
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our
filing for protection under federal bankruptcy laws; or
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the
other factors described in this “Risk Factors” section.
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The
stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of
individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock, especially
in light of the COVID-19 pandemic. In the past, following periods of volatility in the market price of a company’s securities,
stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted,
could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability
and reputation.
Our
executive officers, directors and principal stockholders and their affiliates, if they choose to act together, have the ability
to exercise significant influence over all matters submitted to stockholders for approval, which will limit your ability to influence
corporate matters and could delay or prevent a change in corporate control.
Our
executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding common stock and their
respective affiliates, in the aggregate, beneficially own shares representing approximately 42% of our outstanding capital
stock. As a result, if these stockholders were to choose to act together, they would be able to influence our management and affairs
and potentially control the outcome of matters submitted to our stockholders for approval, including the election of directors
and any sale, merger, consolidation, or sale of all or substantially all of our assets. This concentration of voting power may
adversely affect the market price of our common stock by:
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delaying,
deferring or preventing a change in control;
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entrenching
our management and the Board of Directors;
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impeding
a merger, consolidation, takeover or other business combination involving us that other stockholders may desire; and/or
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discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us.
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Sales
of substantial amounts of our common stock in the public markets could cause the market price of our common stock to decline.
Substantial
amounts of our common stock may be sold under Rule 144 into the public market which may adversely affect prevailing market prices
for the common stock and could impair our ability to raise capital in the future through the sale of equity securities. Rule 144
permits a person who presently is not and who has not been an affiliate of ours for at least three months immediately preceding
the sale and who has beneficially owned the shares of common stock for at least six months to sell such shares without restriction
other than the requirement that there be current public information as set forth in Rule 144. Shares held by directors, executive
officers, and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act.
We
do not currently intend to pay dividends to our stockholders in the foreseeable future, and consequently, your ability to achieve
a return on your investment will depend on appreciation in our value.
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. There is no guarantee that our valuation will appreciate in value or even maintain the valuation at which
our stockholders have purchased their shares.
We
may issue preferred stock which may have greater rights than our common stock.
Our
Fourth Amended and Restated Certificate of Incorporation allow our Board of Directors to issue up to 1,000,000 shares of preferred
stock. Currently, no shares of preferred stock are issued and outstanding. However, we can issue shares of our preferred stock
in one or more series and can set the terms of the preferred stock without seeking any further approval from the holders of our
common stock. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation
premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing
it to be converted into shares of common stock, which could dilute the value of our common stock to the current stockholders and
could adversely affect the market price, if any, of our common stock.
If
there should be dissolution of our company, you may not recoup all or any portion of your investment.
In
the event of a liquidation, dissolution or winding-up of our operations, whether voluntary or involuntary, the proceeds and/or
assets remaining after giving effect to such transaction, and the payment of all of our debts and liabilities and distributions
required to be made to holders of any outstanding common stock will then be distributed to our stockholders on a pro rata basis.
We may incur substantial amounts of additional debt and other obligations such as convertible notes and loans and preferred stock
that will rank senior to our common stock, and the terms of our common stock do not limit the amount of such debt or other obligations
that we may incur. There can be no assurance that we will have available assets to pay any amount to the holders of common stock,
upon such a liquidation, dissolution or winding-up. In this event, you could lose some or all of your investment.
If
securities or industry analysts do not publish research or reports about our business, or if they publish negative evaluations
of our stock or negative reports about our business, our stock price and trading volume could decline.
The
trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us or our business. We do not have any control over these analysts. We may never obtain research coverage by industry or
financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even
if we do obtain analyst coverage, there can be no assurance that analysts will cover us or provide favorable coverage. If one
or more of the analysts who covers us downgrades our stock or changes his or her opinion of our stock, our stock price would likely
decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which could cause our stock price or trading volume to decline.
Provisions
in our corporate documents and Delaware law could have the effect of delaying, deferring, or preventing a change in control of
us, even if that change may be considered beneficial by some of our stockholders.
The
existence of some provisions of our certificate of incorporation or our bylaws or Delaware law could have the effect of delaying,
deferring, or preventing a change in control of us that a stockholder may consider favorable. These provisions include:
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providing
that the number of members of our Board is limited to a range fixed by our bylaws;
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establishing
advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters
that can be acted on by stockholders at stockholder meetings; and
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authorizing
the issuance of “blank check” preferred stock, which could be issued by our Board of Directors to issue securities
with voting rights and thwart a takeover attempt.
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As
a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law
of the State of Delaware. Section 203 prevents some stockholders holding more than 15% of our voting stock from engaging in certain
business combinations unless the business combination or the transaction that resulted in the stockholder becoming an interested
stockholder was approved in advance by our Board of Directors, results in the stockholder holding more than 85% of our voting
stock (subject to certain restrictions), or is approved at an annual or special meeting of stockholders by the holders of at least
66 2/3% of our voting stock not held by the stockholder engaging in the transaction. Any provision of our certificate of incorporation
or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for
our stockholders to receive a premium for their shares of our common stock and affect the price that some investors are willing
to pay for our common stock.