Item
1. Business
Overview
We
are a clinical-stage biopharmaceutical company focused on utilizing the Processa Regulatory Science Approach, including the principles
associated with FDA’s Project Optimus Oncology initiative and the related FDA Draft Guidance, in the development of Next Generation
Chemotherapy (NGC) oncology drug products. Our mission is to provide better treatment options than those that presently exist by extending
a patient’s survival and/or improving a patient’s quality of life. This is achieved by taking FDA-approved, widely used oncology
drugs or the cancer killing metabolites of these drugs and altering how they are metabolized and/or distributed in the body, including
how they are distributed to the actual cancer cells.
Regulatory
science was conceived in the early 1990s when the founders of Processa and other faculty at the University of Maryland worked with
the FDA to develop multiple FDA Guidances. Over the last 30 years, two of our founders, Dr. David Young and Dr. Sian Bigora,
have expanded the original regulatory science concept to include other factors, such as the principles of Project Optimus, that can
affect the risk-benefit analyses that FDA conducts for every FDA drug approval. In fact, the principles of FDA’s Project
Optimus have been used by Drs. Young and Bigora to identify and justify an “optimal” dosage regimen for a number of
non-oncology FDA-approved drugs. The Processa Regulatory Science Approach and our past experience with the principles of Project Optimus differentiates us from
other biotechnology companies by focusing us not only on the clinical science, but also on the equally important regulatory process.
We believe utilizing the Processa Regulatory Science Approach provides us with three distinct advantages:
| ● | greater efficiencies (e.g., the right study design and study readouts); |
| ● | greater possibility of drug approval by the FDA or other regulatory authorities;
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| ● | improvement over existing therapy and greater acceptance by patients/doctors. |
In
January 2023, we announced our strategic prioritization to advance our pipeline of Next Generation Chemotherapy proprietary small
molecule oncology drugs. By changing either the metabolism, distribution and/or elimination of already FDA-approved cancer drugs
while maintaining the mechanism of how the drug kills cancer cells, we believe our three Next Generation Chemotherapy (NGC)
treatments will provide improved safety-efficacy profiles when compared to their currently marketed counterparts - capecitabine,
gemcitabine, and irinotecan. All future studies of these drugs are subject to availability of capital to conduct the
trials.
The
three NGC treatments in our pipeline are as follows:
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NGC-Capecitabine is a combination of PCS6422 and capecitabine. NGC-Capecitabine
alters the metabolism of capecitabine without having any clinically meaningful biological effect itself. In clinical trials, NGC-Capecitabine
has a safety profile different than capecitabine when administered by itself. Side effects, such as Hand-Foot Syndrome (HFS) and cardiotoxicity
that typically occur in 50-70% of patients treated with capecitabine and caused by specific capecitabine metabolites that are not formed
to any extent with NGC-Capecitabine, do not appear to be side effects associated with NGC-Capecitabine. These types of toxicities can
result in decreased doses, interrupted doses or discontinuation of treatment with capecitabine. In addition, NGC-Capecitabine has been
found to be greater than 50 times more potent than capecitabine based on the systemic exposure of the capecitabine metabolite 5-FU, which
is metabolized to the cancer-killing metabolites. Like capecitabine, NGC-Capecitabine could be used to treat patients with various cancers,
such as metastatic colorectal, gastrointestinal, breast, and pancreatic. We estimate at least 200,000 patients in the United States were
diagnosed in 2022 with metastatic colorectal, gastrointestinal, breast, and pancreatic cancers. In mid-April of 2023, we are scheduled
to begin discussions with the FDA regarding the design of our Phase 2B trial and Project Optimus in order to initiate the Phase 2B trial
in the second half of 2023. |
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NGC-Gemcitabine (also identified as PCS3117) is an oral analog of gemcitabine
that is converted to its active metabolite by a different enzyme system than gemcitabine resulting in a positive response in gemcitabine
patients as well as some gemcitabine treatment-resistant patients. Like gemcitabine, NGC-Gemcitabine could be used to treat patients with
various cancers such as pancreatic, lung, ovarian, and breast. We estimate at least 275,000 patients in the United States were diagnosed
in 2022 with pancreatic, lung, ovarian, and breast cancer. We plan to meet with the FDA in 2023 to discuss potential study designs including
implementation of Project Optimus as part of the design, and then submit the Phase 2B protocol to the Investigational New Drug (IND Application)
in the second half of 2023. |
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NGC-Irinotecan (also identified as PCS11T) is a prodrug of the active metabolite
of irinotecan (SN-38). The chemical structure of NGC-Irinotecan influences the uptake of the drug into cancer cells, resulting in more
NGC-Irinotecan entering cancer cells than normal cells in mice. These levels were significantly greater than those seen with irinotecan,
resulting in lower doses of NGC-Irinotecan having greater efficacy than irinotecan and improved safety in animal models. Like irinotecan,
NGC-Irinotecan could be used to treat patients with various cancers such as lung, colorectal, gastrointestinal, and pancreatic cancer.
We estimate at least 200,000 patients in the United States were diagnosed in 2022 with lung, colorectal, gastrointestinal, and pancreatic
cancer. We plan to conduct IND-enabling and toxicology studies in 2023 and 2024. |
Due to enrollment difficulties that we have experienced since the beginning
of our rare disease trial for PCS499 in ulcerative Necrobiosis Lipoidica (uNL), we decided to suspend further enrollment in the PCS499
trial in February 2023. In addition, the clinical findings for PCS12852 were positive in gastroparesis patients
and there were no safety concerns during the conduct of either the PCS12842 or PCS499 trials. With our focus on the NGCs in our pipeline,
we are evaluating options to monetize PCS12852 and PCS499.
Our
shift in prioritization of the products does not change our mission. We
continue to be focused on drug products that improve the survival and/or quality of life for patients by improving the safety and/or efficacy
of the drug in a targeted patient population, while providing a more efficient path to FDA approval, increasing the probability of FDA
approval, and differentiating our drugs from those on the market or are currently being developed.
Historically,
much of oncology drug development has searched for a new or different way to treat cancer. Our approach is to modify and improve three
different, currently approved, and widely used chemotherapy treatments so that the human body handles these NGC treatments differently
than their presently approved counterpart drugs while the cancer killing mechanism of action remains the same. FDA’s Project Optimus
Oncology initiative and Oncology Guidance recommends that the dose-response (both safety and efficacy) relationships be evaluated for
all oncology drugs. We have begun this process for our NGC treatments. To date, we have found that our NGC treatments are likely to have
a better safety-efficacy profile than the current widely used marketed counterpart drugs, not only potentially making the development
and approval process more efficient, but also differentiating our NGC treatments from the existing treatment. We believe our NGC treatments
have the potential to extend the survival and/or quality of life for more patients diagnosed with cancer while decreasing the number
of patients who are required to dose adjust or discontinue treatment because of side effects or lack of response.
Our
Strategy
With
the Processa Regulatory Science Approach, our strategy is to obtain and develop drugs that will not only treat patients with unmet medical need conditions, but also
have the potential to be more efficiently developed with a greater probability of development success than what typically occurs in
the biotech-pharma industry, as well as a better return on investment given more efficient development and high commercial value. We
applied rigorous standards to identify drugs for our portfolio, the three most important being:
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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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The
drug or its metabolite or a drug with similar pharmacological properties must have demonstrated some clinical evidence of efficacy
in the target population, and |
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The probability of approval and the efficiency of development for the drug
will be improved using the Processa Regulatory Science Approach. |
Our
rigorous requirement resulted in the in-licensing of five drugs: three NGC drugs and two non-oncology drugs. These clinical candidates
had significant pre-clinical and clinical data that de-risked the programs.
In
January 2023, we announced our plan to prioritize our team’s time
and our capital resources on the continued development of our NGC drugs while exploring opportunities, including non-dilutive licensing,
collaborations, and other strategic transactions, for our non-oncology drugs. By changing either the metabolism, distribution and/or elimination
of FDA-approved drugs while still maintaining the mechanism of killing cancer cells, we believe that our three NGC treatments provide
improved safety-efficacy profiles when compared to their currently marketed counterparts of capecitabine, gemcitabine and irinotecan.
These modifications differentiate our NGC treatments from the existing therapies while being potential life-changing treatments for patients.
Our
pipeline of NGCs (i) already have data demonstrating the desired pharmacological
activity in humans or appropriate animal models and is able to provide improved safety and/or efficacy by some modification in the formation
and/or distribution of the active moieties associated with the drug and (ii) target cancers for which a single positive pivotal study
demonstrating efficacy might provide enough evidence that the clinical benefits of the drug and its approval outweighs the risks associated
with the drug.
Our
Team
Our
drug development efforts are guided by our knowledge and experience in applying the Processa Regulatory Science Approach 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.
Our team is led by our CEO and Founder David Young, Pharm.D., Ph.D. who has extensive experience in research, regulatory
approval and business development and who served at Questcor Pharmaceuticals for eight years, initially as an independent director
and subsequently as its Chief Scientific Officer.
To
execute our strategy, we assembled an experienced and development team with a successful track record of drug approvals and
successful exits. Our team is experienced in developing drug products through all principal regulatory tiers from IND-enabling
studies to New Drug Application (NDA) submission. Throughout their careers, the combined scientific, development and regulatory
experiences of our team members have resulted in more than 30 drug approvals in indications reviewed by almost every division of the
FDA including the oncology divisions, over 100 meetings with the FDA and involvement with more than 50 drug development programs,
including drug products targeted to patients who have an unmet medical need and cancer patients. In addition, the FDA Project
Optimus Oncology initiative and recent FDA Oncology Guidance applies the Processa Regulatory Science Approach and principles used
and refined by our Founders over the last 30 years.
Our
Drug Pipeline
Our
pipeline currently consists of three oncology drugs (NGC-Capecitabine, NGC-Gemcitabine and NGC-Irinotecan previously identified as PCS6422,
PCS3117 and PCS11T, respectively) and two non-oncology drugs (PCS12852 and PCS499). A timeline and summary of each drug is provided below.
![](https://content.edgar-online.com/edgar_conv_img/2023/03/30/0001493152-23-009730_form10-k_001.jpg)
Next
Generation Chemotherapy Pipeline
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Next
Generation Capecitabine (NGC-Capecitabine), also identified as PCS6422, is a combination of PCS6422 and the FDA-approved cancer drug
capecitabine. NGC-Capecitabine is an orally administered irreversible inhibitor of the enzyme dihydropyrimidine dehydrogenase (DPD).
DPD metabolizes 5-Fluorouracil (5-FU), the major metabolite of capecitabine and widely used itself as an intravenous chemotherapeutic
agent in many types of cancer, to multiple metabolites classified as catabolites. These catabolites do not have any cancer-killing
properties but frequently cause dose-limiting side effects that may require dose adjustments or discontinuation of therapy.
When
combining capecitabine with PCS6422 in NGC-Capecitabine, PCS6422 significantly changes the metabolism and distribution of 5-FU. After formation from capecitabine, 5-FU is metabolized to anabolites (which kill both cancer cells and normal
duplicating cells) and catabolites (which cause side effects and have no cancer killing properties). Due to this change in metabolism
of capecitabine and the change in the overall metabolite profile of anabolites and catabolites, the side effect and efficacy profile
of NGC-Capecitabine has been found to be different than the existing FDA-approved capecitabine. Since the potency of NGC-Capecitabine
is also more potent than FDA-approved capecitabine based on the 5-FU systemic exposure per mg of capecitabine administered, the amount
of capecitabine anabolites formed from 1 mg of capecitabine administered in NGC-Capecitabine will, therefore, be much greater than formed
from the administration of 1 mg of existing capecitabine.
On August 2, 2021, we
enrolled the first patient in our Phase 1B dose-escalation maximum tolerated dose trial in patients with advanced refractory
gastrointestinal (GI) tract tumors. Our interim analysis of Cohorts 1 and 2A of the ongoing clinical trial found no dose-limiting
toxicities (DLTs), no drug-related adverse events greater than Grade 1, and no adverse events associated with the catabolites of
5-FU such as HFS. In this Phase 1B trial, it was demonstrated that the irreversible inhibition of DPD by PCS6422 could
alter the metabolism, distribution and elimination of 5-FU, making NGC-Capecitabine significantly more potent than capecitabine
alone (greater than 50x more potent) and potentially leading to higher levels of anabolites which can kill replicating cancer and
normal cells. By administering NGC-Capecitabine to cancer patients, the balance between anabolites and catabolites changes depending
on the dosage regimens of PCS6422 and capecitabine used, making the efficacy-safety profile of NGC-Capecitabine different than that
of FDA-approved capecitabine and requiring further evaluation of the PCS6422 and capecitabine regimens to determine the optimal
NGC-Capecitabine regimens for patients.
In
order for NGC-Capecitabine to provide a safer and more efficacious profile for cancer patients compared to existing chemotherapy,
understanding how the different regimens of PCS6422 and capecitabine may affect the systemic and tumor exposure to the anabolites,
as well as the systemic exposure to the catabolites, is required. This can be achieved by following the timeline of DPD irreversible
inhibition and the formation of new DPD using the plasma concentrations of 5-FU and its catabolites.
In
an effort to better estimate the timeline of DPD inhibition and formation of new DPD, we modified the protocol for the Phase 1B
trial and began enrolling patients in the amended Phase 1B trial in April 2022. On November 1, 2022, we announced that data from the
Phase 1B trial identified multiple dosage regimens with potentially better safety and efficacy profiles than currently existing
chemotherapy regimens. Since 5-FU exposure is dependent on both the PCS6422 regimen and the capecitabine regimen, safe regimens were
identified as well as regimens that cause DLTs. One of the regimens in the Phase 1B trial did cause DLTs in two patients, one of whom
died. The Phase 1B study is continuing to enroll patients and is expected to complete enrollment in 2023. The next study will be a
Phase 2B trial to determine which regimens provide an improved efficacy-safety profile over present therapy using the principles of
the FDA’s Project Optimus initiative to help guide the design of the trial. This FDA initiative requires us to consider NGC
regimens that are not at the maximum tolerated dose or exposure level. In mid-April of 2023, we are scheduled to begin discussions
with FDA regarding the design of our Phase 2B trial and Project Optimus in order to initiate the Phase 2B trial in the second half
of 2023. We will need to obtain additional funding before we can conduct this trial. |
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NGC-Gemcitabine,
also identified as PCS3117, is a cytidine analog similar to gemcitabine (Gemzar®), but different enough in chemical structure
that some patients are more likely to respond to PCS3117 than gemcitabine. The difference in response occurs because NGC-Gemcitabine
is metabolized to its active metabolite through a different enzyme system than gemcitabine. We continue to evaluate the potential
use of NGC-Gemcitabine in patients with pancreatic cancer and to evaluate ways to identify patients who are more likely to respond
to NGC-Gemcitabine than gemcitabine. We plan to meet with the FDA in 2023 to discuss potential study designs including implementation
of the FDA’s Project Optimus initiative as part of the design and then submit the Phase 2B protocol to the IND. |
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NGC-Irinotecan, also identified as PCS11T, is an analog of SN38 (SN38 is the
active metabolite of irinotecan) and should have an improved safety/efficacy profile in every type of cancer that irinotecan is presently
used. The manufacturing process and sites for drug substance and drug product are presently being evaluated and IND-enabling toxicology
studies will then be initiated. In addition, we are defining the potential paths to approval, which include defining the targeted patient
population and the type of cancer. We plan to conduct IND enabling and toxicology studies in 2023 and 2024, subject to available funding. |
Non-Oncology
Pipeline for Out-licensing or Partnership
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PCS12852
is a highly specific and potent 5HT4 agonist that has already been evaluated in clinical studies in South Korea for gastric
emptying and gastrointestinal motility in healthy volunteers and volunteers with a history of constipation. In October 2021, the FDA
cleared our IND application to proceed with a Phase 2A trial for the treatment of gastroparesis. We enrolled our first patient on
April 5, 2022 and completed enrollment of the trial on September 2, 2022. Results from this Phase 2A study which included 25
patients with moderate to severe gastroparesis, demonstrated improvements in gastric emptying in patients receiving 0.5 mg of
PCS12852 as compared to placebo. The results indicated that for the patients in the PCS12852 group, the mean time for 50% of the
gastric contents to empty (t50) compared to their baseline value (±SD) decreased by -31.90 min (±50.53) (compared to
the change seen in the placebo group of only -9.36 min (±42.43). Significant gastric emptying differences were not observed
between the placebo and the 0.1 mg dose. Adverse events associated with the administration of PCS12852 were generally mild to
moderate as expected, limited in duration, and quickly resolved without any sequelae. There were no clinically significant
cardiovascular safety events or serious adverse events (SAEs) reported during the study. Additionally, the 0.5 mg of PCS12852 showed
a greater improvement than placebo in the gastroparesis symptomology scales (including both total scores in the scales, as well as
sub-scores such as nausea, vomiting and abdominal pain) used in the study. With the study now complete, we have the data necessary
to finalize the development plan for the treatment of diabetic gastroparesis patients. We plan to monetize PCS12852 by looking for
licensing and/or partnering opportunities. |
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PCS499
is an oral tablet of the deuterated analog of one of the major metabolites
of pentoxifylline (PTX or Trental®). PCS499 is a drug that can be used to treat unmet medical need conditions caused by multiple pathophysiological
changes. We completed a Phase 2A trial for PCS499 in patients with ulcerative and non-ulcerative necrobiosis lipoidica (uNL and NL, respectively)
in late 2020, and in May 2021, we enrolled the first patient in our Phase 2B trial for the treatment of uNL. Although we initiated several recruitment programs to increase the enrollment of patients in this study, we were only able to recruit four patients. We will complete
the study for those currently enrolled, but will halt further efforts to enroll new patients for our PCS499 Phase 2B uNL trial. We have
experienced extremely slow enrollment in the trial given the extreme rarity of the condition (rarer than reported in the
literature), the impact of COVID-19, and the reluctance of patients to be in a clinical trial. There have been no safety concerns during
the conduct of the trial. Although we believe that PCS499 can be effective in treating uNL, in late February 2023, we received preliminary
data that indicated that the placebo response is likely much greater than the literature and clinical experts believe; thus, a much larger
sample size would be required in a pivotal trial for an indication where it was extremely difficult to enroll even 10 patients. We are
also evaluating other, less rare indications for PCS499. As with PCS12852, we plan to monetize PCS499 by looking for licensing and/or
partnership opportunities. |
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 multiple third-party contract manufacturing organizations (CMOs) for the supply of current Good Manufacturing Practices
(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- 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
NGC-Capecitabine, 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.
For
NGC-Gemcitabine, the competitive factors will include establishing market penetration against other cytidine analogues, such as gemcitabine,
which is currently used as first or second line chemotherapy either alone or in combination with other chemotherapy agents. The market
penetration will depend on the potential for an improved efficacy profile in patients who have developed tolerance to other agents.
For
NGC-Irinotecan, 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 NGC-Irinotecan.
For
PCS12852, the competitive factors will include establishing marketing penetration against the metoclopramide products (the only approved
drug to treat 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
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.
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. |
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 | | |
| Yuhan | | |
| Aposense | | |
| Elion | | |
| Ocuphire | | |
| Total | |
U.S. patents | |
| 9 | | |
| 5 | | |
| 3 | | |
| 2 | | |
| 6 | | |
| 25 | |
A
provisional patent for NGC-Capecitabine has been filed.
Besides
relying on patents, we may 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. In addition, we continuously evaluate
opportunities to obtain exclusivity through our regulatory filings with the FDA. 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 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 our portfolio, and we paid $100,000 cash and
issued 825,000 shares of our common stock to Elion. Such shares were subject to a lock-up, with 50% of such shares released from
such lock-up after six months and the remaining 25% tranches were released following 9 months and 12 months,
respectively.
As part of the Elion License Agreement, we 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, which we fulfilled on October 5, 2021 and 2022, respectively.
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.
On
May 17, 2022, we amended the third Milestone Event of Section 6.4 of our License Agreement with Elion Oncology, Inc. changing the third
Milestone Event from “1st Patient in Dose Confirmation Study” to (a) determination of the maximum tolerated dose
(MTD) or (b) determination of the recommended Phase 2 Dose. Prior to this amendment, the third milestone was not considered probable
since it was unknown when, or if a dose confirmation study was going to be conducted. As a result of the modification, we consider it
probable that the recommended Phase 2 dosage regimen could be determined in connection with our current Phase 1B trial for PCS6422. We
recorded an expense and related liability of $189,000 representing the value of the shares we anticipate issuing to Elion at the fair
value on the date of modification. No other terms or conditions of the License Agreement were modified.
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 Ocuphire Pharma, Inc.
On
June 16, 2021, we executed a License Agreement with Ocuphire Pharma, Inc. (“Ocuphire Agreement”) under which provided us
with a license to research, develop and commercialize PCS3117 globally, excluding the Republic
of Singapore, China, Hong Kong, Macau and Taiwan.
As
consideration for the Ocuphire Agreement, we issued 44,689 shares of our common stock to Ocuphire, a cash payment of $200,000 and assumed
certain liabilities. Additional consideration includes future development and regulatory milestones payments to Ocuphire upon our achievement
of certain defined clinical milestones, such as dosing a patient in pivotal trials and receiving marketing authorization by a regulatory
authority in the United States or another country. In addition, we are required to pay Ocuphire one-time sales milestone payments based
on the achievement during a calendar year of the highest annual Net Sales for products made and pay royalties based on annual Net Sales,
as defined in the Ocuphire Agreement.
We
are required to use commercially reasonable efforts, at our sole cost and expense to oversee such commercialization efforts, to research,
develop and commercialize products in one or more countries, including meeting specific diligence milestones that consist of: (i) first
patient administered drug in a Clinical Trial of a Product prior to June 16, 2024; and (ii) first patient administered drug in a Pivotal
Clinical Trial of a Product or first patient administered drug in a Clinical Trial for a Second Indication of a Product prior to June
16, 2026. 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 120-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: (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 our portfolio, and we issued 625,000
shares of our common stock to Aposense. Such shares were subject to a lock-up, with 40% of such shares released from such lock-up after
six months and the remaining two 30% tranches were 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 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 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 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 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.
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)
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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 adverse events 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 adverse events 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 www.clinicaltrials.gov.
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. The goal of the Phase 2 trial is to also determine the “best” dosage regimen(s) to evaluate in the Phase
3 trial. The “best” regimen(s) means the regimen(s) that is(are) most likely to provide a safe-efficacious regimen that appropriately
balances the risk-benefit analysis that the FDA is required to evaluate in each drug approval. The ideal way to define this “best”
regimen for FDA is to evaluate the adverse event-drug exposure and efficacy-drug exposure relationships, which has also been previously
called dose-response relationships or studies, and which has now become the foundation for both the FDA’s Project Optimus Oncology
initiative and the draft Guidance to determine the optimal dose for an oncology drug. |
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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. |
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 serious adverse
events 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 are also 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. |
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
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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. |
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 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). |
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.
Human Capital
As
of March 27, 2023, we had 15 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 and Regulatory 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 online 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.
Item
1A. Risk Factors
An
investment in our common stock 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. 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 drug pipeline,
our business may not succeed.
At
December 31, 2022, the accumulated deficit was approximately $64.2 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 the 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.
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 sale of our securities. 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,
including sales of our common stock under our agreement with Lincoln Park, LLC or through a future at-the-market offering. 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 continues to have a negative impact on the global economy, disrupted global supply chains, and created volatility and
disruption in the financial and capital markets. We are unable to accurately predict the full impact the COVID-19 will have on our future
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.
Along
with uNL being a rare disease, COVID-19 had a negative impact on the enrollment of patients in our PCS499 Phase 2B trial. In February
2023, after having experienced a significantly slower than expected enrollment rate with no signs of improvement, we decided to stop
enrollment of new patients into the trial, effectively terminating it. Potential patients had died from COVID-19 complications prior
to screening, and we had patients who were reluctant to travel to our testing sites for fear of contracting COVID-19. While we are hopeful
the infection rate of COVID-19 will continue to decline, we cannot predict the future impact COVID-19 or future pandemics from other
viruses will have on our current and future clinical trials.
Our
ability to use our net operating loss carryforwards and other tax attributes may be limited.
As
of December 31, 2022, we had net operating loss (NOL) carryforwards of approximately $24.0 million for federal and state income tax available
to offset future taxable income, and federal and state research and development tax credits of approximately $1.0 million, prior to consideration
of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended (Section 382). NOL carryforwards
prior to 2018 will expire in 2037 if not utilized.
Our
NOL and tax credit carryforwards could expire unused and be unavailable to
offset future income tax liabilities. Under Section 382, and corresponding provisions of state law, if a corporation undergoes an “ownership
change,” generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s
ability to use its pre-change NOLs and other pre-change tax attributes, such as research and development tax credits, to offset its post-change
income may be limited. We have not completed a Sec. 382 study and as such our net operating loss carryforwards may be subject to such
limitation.
In
addition, we may experience additional ownership changes in the future as a result of subsequent shifts in our stock ownership, including
through completed or contemplated financings, some of which may be outside of our control. If we determine that a future ownership change
has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm
our future operating results by effectively increasing our future tax obligations.
Risks
Relating to Clinical Development and Commercialization of Our Product Candidates
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 licensors, prospective business partners and
other collaborators may never develop any products that can be licensed or commercialized. All 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 these 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, 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 and further moving the clinical product candidates through the development programs
identified. Some of the activities in the development programs include receiving FDA IND clearance on one indication for two product candidates,
completing a Phase 2A trial for PCS12852 in gastroparesis patients, conducting a Phase 1B trial for PCS6422 in patients with advanced
gastrointestinal tumors, completing a Phase 1 healthy human volunteer trial, completing a Phase 2A clinical trial and conducting a Phase
2 clinical trial in patients with NL and receiving FDA orphan designation on PCS499 in NL. Other activities include improving the manufacturing
of PCS499, PCS6422 and PCS11T final products and developing regulatory strategy plans for each of the products including expedited review
plans, as applicable. 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 conducted four 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.
Some
preclinical studies and early clinical 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 these studies will translate successfully to the larger targeted population of patients. It is not uncommon
to observe results in human clinical trials that are unexpected based on preclinical testing or early clinical studies, and many product
candidates fail in clinical trials despite promising preclinical or early clinical 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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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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willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals. |
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 products. 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 BLA 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 expenses.
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
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
have entered into agreements with third-party CROs to conduct and manage our clinical programs including contracting with clinical sites
to perform our clinical studies. We 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 design the clinical trials for our product candidates in consultation with CROs, 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 and to PCS3117 for the treatment of pancreatic cancer, 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 increases 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 in 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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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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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.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid
to the USPTO and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the patents and applications.
The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process and after a patent has issued. There are situations in which non-compliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the
relevant jurisdiction.
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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and train additional qualified personnel. |
We
may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results.
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 and Regulatory 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 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
Our failure to maintain
compliance with Nasdaq’s continued listing requirements could result in the delisting of our Common Stock.
Our
common stock is currently listed for trading on The Nasdaq Capital Market. We must satisfy The Nasdaq Capital Market’s continued
listing requirements, including, among other things, a minimum bid price requirement of $1.00 per share or risk delisting, which would
have a material adverse effect on our business. A delisting of our common stock from The Nasdaq Capital Market could materially reduce
the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting
could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in
the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.
On
March 22, 2023, we received notice from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of
our common stock for the prior 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid
price of $1.00 per share for continued listing on Nasdaq as set forth in Nasdaq Listing Rule 5550(a)(2). We will have 180 days from March
22, 2023, or through September 18, 2023, to regain compliance. If we do not regain compliance during the compliance period ending September
18, 2023, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we meet the continued listing requirement
for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum
closing bid price requirement, and notify Nasdaq of our intent to cure the deficiency. If we do not regain compliance within the allotted
compliance periods, including any extensions that may be granted by Nasdaq, we may be subject to delisting. If Nasdaq determines to delist
our common stock, we will have the right to appeal to the Nasdaq Hearings Panel.
If
our common stock were delisted from Nasdaq, trading of our common stock would most likely take place on an over-the-counter market established
for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less
convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors
would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading
in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our common stock would be subject
to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating
to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions
generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability
of investors to trade in our common stock. In addition, delisting could harm our ability to raise capital through alternative financing
sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and
employees and fewer business development opportunities. For these reasons and others, delisting would adversely affect the liquidity,
trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our
business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise
capital.
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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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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filing for protection under federal bankruptcy laws; or |
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other factors described in this “Risk Factors” section. |
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.
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.
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 23.1% 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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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. |
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.
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 cover 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. |
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.
Provisions
in our bylaws provide for indemnification of officers and directors, which could require us to direct funds away from our business and
the development of our product candidates.
Our
bylaws provide for the indemnification of our officers and directors. We may in the future be required to advance costs incurred by an
officer or director and to pay judgments, fines and expenses incurred by an officer or director, including reasonable attorneys’
fees, as a result of actions or proceedings in which our officers and directors are involved by reason of being or having been an officer
or director of our company. Funds paid in satisfaction of judgments, fines and expenses may be funds we need for the operation of our
business and the development of our product candidates, thereby affecting our ability to attain profitability.