ITEM 1. BUSINESS
Business Overview
Relmada Therapeutics, Inc. (Relmada, the Company,
we or us) (a Nevada corporation), is a clinical-stage biotechnology company focused on the development of esmethadone (d-methadone, dextromethadone,
REL-1017), an N-methyl-D-aspartate (NMDA) receptor antagonist. Esmethadone is a new chemical entity (NCE) that potentially addresses areas
of high unmet medical need in the treatment of central nervous system (CNS) diseases and other disorders.
Our lead product candidate, esmethadone, is being
developed as a rapidly acting, oral agent for the treatment of depression and other potential indications. On October 15, 2019 we reported
top-line data from study REL-1017-202. This was a double-blind, placebo-controlled Phase 2 clinical trial evaluating the safety, tolerability
and efficacy of two oral doses of REL-1017, 25 mg once a day and 50 mg once a day, as an adjunctive treatment in patients with major depressive
disorder (MDD), who experienced an inadequate response to 1 to 3 adequate antidepressant treatments with an antidepressant medication.
In the REL-1017-202 study, 62 subjects, average
age 49.2 years, with an average Hamilton Depression Rating Scale score of 25.3 and an average Montgomery-Asberg Depression Rating Scale
(MADRS) score of 34.0 (severe depression), were randomized. Other demographic characteristics were balanced across all arms. After an
initial screening period, subjects were randomized to one of three arms: placebo, REL-1017 25 mg or REL-1017 50 mg, in addition to stable
background antidepressant therapy. Subjects in the REL-1017 treatment arms received one loading dose of either 75 mg (25 mg arm) or 100
mg (50 mg arm) of REL-1017. Subjects were treated inpatient for 7 days and discharged home at Day 9. They returned for follow-up visits
at Day 14 and Day 21. Efficacy was measured on Days 2, 4 and 7 in the dosing period and on Day 14, one week after treatment discontinuation.
61 subjects received all treatment doses and were included in the per-protocol population (PPP) treatment analysis; 57 subjects completed
all visits. All 62 randomized subjects were part of the intention-to-treat (ITT) analysis. No differences were observed between the ITT
and PPP analyses and results.
Key findings:
We observed that subjects in both the REL-1017
25 mg and 50 mg treatment groups experienced statistically significant improvement on all efficacy measures tested as compared to subjects
in the placebo group, including: the Montgomery-Asberg Depression Rating Scale (MADRS); the Clinical Global Impression – Severity
(CGI-S) scale; the Clinical Global Impression – Improvement (CGI-I) scale; and the Symptoms of Depression Questionnaire (SDQ).
Improvements on the MADRS endpoint appeared on
Day 4 in both REL-1017 dose groups and continued through Day 7 and Day 14, seven days after treatment discontinuation, with P values<
0.03 and large effect sizes (a measure of quantifying the difference between two groups), ranging from 0.7 to 1.0. Similar findings emerged
from the CGI-S and CGI-I scales.
MADRS: Analysis of Change from Baseline to
Day 7 and to Day 14 ITT Population
| |
Day
2 | | |
Day
4 | | |
Day
7 | | |
Day
14 | |
| |
LS
Means Difference | | |
P-value | | |
d | | |
LS
Means Difference | | |
P-value | | |
d | | |
LS
Means Difference | | |
P-value | | |
D | | |
LS
Means Difference | | |
P-value | | |
d | |
REL-1017
25mg vs Placebo | |
| -1.9 | | |
| 0.4340 | | |
| 0.3 | | |
| -7.9 | | |
| 0.0087 | | |
| 0.9 | | |
| -8.7 | | |
| 0.0122 | | |
| 0.8 | | |
| -9.4 | | |
| 0.0103 | | |
| 0.9 | |
REL-1017
50mg vs Placebo | |
| -0.3 | | |
| 0.9092 | | |
| 0.0 | | |
| -7.6 | | |
| 0.0096 | | |
| 0.8 | | |
| -7.2 | | |
| 0.0308 | | |
| 0.7 | | |
| -10.4 | | |
| 0.0039 | | |
| 1.0 | |
LS = Least Squares; d = Cohen’s effect size
The study also confirmed the tolerability
profile of REL-1017, which was observed in the Phase 1 studies. Subjects experienced only mild and moderate adverse events (AEs),
and no serious adverse events, without significant differences between placebo and treatment groups. The AEs observed in the Phase
2a clinical study were of the same nature as those observed in the Phase 1 clinical studies in d-Methadone, and there was no
evidence of either treatment induced psychotomimetic and dissociative AEs or withdrawal signs and symptoms upon treatment
discontinuation.
Phase 3 Program
On December 20, 2020, Relmada announced that the
first patient had been enrolled in the first Phase 3 clinical trial (RELIANCE I) for the Company's lead product candidate, REL-1017, as
an adjunctive treatment for major depressive disorder MDD.
Following discussions with the Food and Drug Administration
(FDA), Relmada’s adjunctive MDD Phase 3 program includes the following key attributes:
|
● |
The Phase 3 program consists of two sister, two-arm, placebo-controlled
clinical trials. Each trial is conducted in 55 clinical sites in the United States with planned enrollment of 364 MDD patients
with inadequate response to standard antidepressants in their current depression episode. Patients will add either a 25 mg
oral dose of REL-1017 once per day or placebo to their ongoing antidepressant treatment. |
|
● |
The primary endpoint to be evaluated will be the change from baseline on the MADRS score at day-28 for REL-1017 compared to placebo. Success on this endpoint with the collection of sufficient safety data would support the use of REL-1017 for chronic treatment, if approved. |
|
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The change from baseline and the 7-day MADRS score will serve as a key secondary endpoint and will provide information on the time to treatment effect. |
On April 1, 2021, Relmada
announced the initiation of RELIANCE II, the second of two sister pivotal Phase 3 clinical trials (RELIANCE I and RELIANCE II) for the
Company’s lead product candidate, REL-1017, as an adjunctive treatment for MDD. Patients who complete RELIANCE I and RELIANCE II
are eligible to rollover into the long-term, open-label study, which also includes subjects who had not previously participated in a REL-1017
clinical trial.
On October 4, 2021,
Relmada announced the initiation of RELIANCE III study, the ongoing monotherapy trial for the Company’s lead product candidate,
REL-1017, which aims to randomize 364 patients and it is expected to be completed in mid-2022.
In addition, in order
to support potential regulatory submissions seeking approval for REL-1017 as monotherapy and adjunctive treatment, the FDA confirmed that,
based on what is known at this time, Relmada will not be required to conduct a two-year carcinogenicity study of REL-1017, as sufficient
clinical data have been generated to date. The FDA also confirmed that Relmada does not need to conduct a Thorough QT analysis (TQT) cardiac
study in humans to support cardiac safety in potential regulatory submissions for REL-1017, as the data provided so far and the data generated
by the Phase 3 program will be adequate to evaluate the cardiac safety profile of REL-1017.
Human Abuse Potential (HAP) Study top-line
results - Oxycodone:
On July 27, 2021, we
announced top-line results that showed that all three doses of REL-1017 (25 mg, 75 mg and 150 mg, the therapeutic, supratherapeutic and
maximum tolerated doses, respectively) tested in recreational opioid users, demonstrated a highly statistically significant difference
vs. the active control drug, oxycodone 40 mg. The study’s primary endpoint was a measure of “likability” with the subjects
rating the maximum effect (or Emax) for Drug Liking “at the moment”, using a 1=100 bipolar rating scale (known as a visual
analog scale or VAS), with 100 as the highest likability, 50 as neutral (placebo-like), and 0 the highest dislike. In summary, all tested
doses of REL-1017, including the maximum tolerated dose, showed a highly statistically significant difference in abuse potential versus
oxycodone with p-values less than 0.001.
Results are detailed
in the table below:
|
|
Placebo |
|
|
REL-1017
25 mg |
|
|
REL-1017
75 mg |
|
|
REL-1017
150 mg |
|
|
Oxycodone
40 mg |
|
Mean Emax for Drug Liking |
|
|
52.7 |
|
|
|
54.2 |
|
|
|
58.7 |
|
|
|
64.9 |
|
|
|
83.2 |
|
P-value for Difference vs. oxycodone 40 mg |
|
|
<0.001 |
|
|
|
<0.001 |
|
|
|
<0.001 |
|
|
|
<0.001 |
|
|
|
- |
|
P-value for REL-1017 vs. Placebo |
|
|
- |
|
|
|
<0.001 |
|
|
|
<0.001 |
|
|
|
<0.05 |
|
|
|
- |
|
These statistically significant data clearly demonstrate
a very meaningful difference between REL-1017 and oxycodone at all three tested doses. These results, along with previously published
literature, support the lack of opioid effects of REL-1017.
Human
Abuse Potential (HAP) Study top-line results - Ketamine:
On February 23, 2022, we announced top-line results that showed that
all three doses of REL-1017 (25 mg, 75 mg, and 150 mg, the therapeutic, supratherapeutic and maximum tolerated doses, respectively) tested
in recreational drug users, demonstrated a substantial (30+ points) and statistically significant difference vs. the active control drug,
intravenous ketamine 0.5 mg/kg over 40 minutes, and were statistically equivalent to placebo. The study's primary endpoint was a measure
of "likability" with the subjects rating the maximum effect (or Emax) for Drug Liking "at this moment", using a 1-100
bipolar rating scale (known as a visual analog scale or VAS), with 100 as the highest likability, 50 as neutral (placebo-like), and 0
the highest dislike. Consistent results are seen for the secondary endpoints.
Results
of the primary endpoint are summarized in the table below.
| |
Placebo | | |
REL-1017 25 mg | | |
REL-1017 75 mg | | |
REL-1017 150 mg | | |
Ketamine 0.5 mg/kg | |
Mean Emax for Drug Liking | |
| 50.9 | | |
| 51.4 | | |
| 54.9 | | |
| 59.2 | | |
| 90.0 | |
P-value for Difference vs. ketamine 0.5mg/Kg over 40 minutes | |
| <0.05 | | |
| <0.05 | | |
| <0.05 | | |
| <0.05 | | |
| - | |
P-value for REL-1017 vs. placebo | |
| - | | |
| <0.05 | | |
| <0.05 | | |
| <0.05 | | |
| - | |
These statistically significant data clearly demonstrate a very meaningful
difference between REL-1017 and ketamine at all three tested doses. The REL-1017 results were also statistically equivalent to placebo.
Key Upcoming Anticipated Milestones
We expect multiple key milestones over the next
12-18 months. These include:
|
● |
Results of RELIANCE III monotherapy MDD trial in mid-2022. |
|
● |
Results of RELIANCE I and RELIANCE II adjunctive MDD trials in the second half of 2022. |
|
● |
Results of RELIANCE – OLS (Long-term, Open-label) study in MDD in the second half of 2022. |
Our Development Program
Esmethadone (d-Methadone, dextromethadone, REL-1017) as a treatment
for MDD
Background
In 2014, the National Institute of Mental Health
(NIMH) estimated that 15.7 million adults aged 18 or older in the United States had at least one major depressive episode in the past
year. According to data from nationally representative surveys supported by NIMH, only about half of Americans diagnosed with major depression
in a given year receive treatment. Of those receiving treatment with as many as four different standard antidepressants, 33% of drug-treated
depression patients do not achieve adequate therapeutic benefits according to the Sequenced Treatment Alternatives to Relieve Depression
(STAR*D) trial published in the American Journal of Psychiatry.
In addition to the high failure rate, only one of the marketed products
for depression, esketamine (marketed by Johnson and Johnson as Spravato), an in-clinic nasal spray treatment can demonstrate rapid antidepressant
effects, while the other currently approved products can take two to eight weeks to show activity. The urgent need for improved, faster
acting antidepressant treatments is underscored by the fact that severe depression can be life-threatening, due to heightened risk of
suicide.
Esmethadone Overview and Mechanism of Action
Esmethadone’s mechanism of action, as a
low affinity, non-competitive NMDA channel blocker or antagonist, is fundamentally differentiated from most currently FDA-approved antidepressants,
as well as all atypical antipsychotics used adjunctively with standard, FDA-approved antidepressants. Working through the same brain mechanisms
as ketamine and esketamine but potentially lacking its adverse side effects, esmethadone is being developed as a rapidly acting, oral
agent for the treatment of depression and potentially other CNS conditions.
In chemistry an enantiomer, also known as an optical
isomer, is one of two stereoisomers that are mirror images of each other that are non-superimposable (not identical), much as one’s
left and right hands are the same except for being reversed along one axis. A racemic compound, or racemate, is one that has equal amounts
of left- and right-handed enantiomers of a chiral molecule. For racemic drugs, often only one of a drug’s enantiomers is responsible
for the desired physiologic effects, while the other enantiomer is less active or inactive.
As a single isomer of racemic methadone, esmethadone
has been shown to possess NMDA antagonist properties with virtually no traditional opioid or ketamine-like adverse events at the expected
therapeutic doses. In contrast, racemic methadone is associated with common opioid side effects that include anxiety, nervousness, restlessness,
sleep problems (insomnia), nausea, vomiting, constipation, diarrhea, drowsiness, and others. It has been shown that the left (levo) isomer,
l-methadone, is largely responsible for methadone’s opioid activity, while the right (dextro) isomer, esmethadone, at the currently
therapeutic doses used in development is virtually inactive as an opioid while maintaining affinity for the NMDA receptor.
NMDA receptors are present in many parts of the
CNS and play important roles in regulating neuronal activity and promoting synaptic plasticity in brain areas important for cognitive
functions such as executive function, learning and memory. Based on these premises, esmethadone could show benefits in several different
CNS indications.
Esmethadone (d-methadone, dextromethadone, REL-1017) in other indications
In addition to developing esmethadone as an adjunctive treatment of
MDD, we are evaluating the utility of esmethadone as a frontline monotherapy treatment for MDD.
Additionally, other indications that Relmada may
explore in the future, include, restless leg syndrome and other glutamatergic system activation related diseases.
Our Corporate History and Background
We are a clinical-stage, publicly traded biotechnology company developing
NCEs and novel versions of drug products that potentially address areas of high unmet medical need in the treatment of depression and
other CNS diseases.
Currently, none of our product candidates have
been approved for sale in the United States or elsewhere. We have no commercial products nor do we have a sales or marketing infrastructure.
In order to market and sell our products we must conduct clinical trials on patients and obtain regulatory approvals from appropriate
regulatory agencies, like the FDA in the United States, and similar organizations elsewhere in the world.
We have not generated revenues and do not anticipate generating revenues
for the foreseeable future. We had net loss of approximately $125,751,800 and $59,456,400 for the years ended December 31, 2021 and 2020,
respectively. At December 31, 2021, we have an accumulated deficit of approximately $305,067,100.
Business Strategy
Our strategy is to leverage our considerable industry
experience, understanding of CNS markets and development expertise to identify, develop and commercialize product candidates with significant
market potential that can fulfill unmet medical needs in the treatment of CNS diseases. We have assembled a management team along with
both scientific, including recognized experts in the fields of depression, and business advisors with significant industry and regulatory
experience to lead and execute the development and commercialization of esmethadone.
We plan to further develop esmethadone as our
priority program. As the drug esmethadone is an NCE, the regulatory pathway to support a new drug application (NDA) submission involves
a full clinical development program. We plan to continue to generate intellectual property (IP) that will further protect our products
from competition. We will continue to prioritize our product development activities after taking into account the resources we have available,
market dynamics and potential for adding value.
Market Opportunity
We believe that the market for addressing areas
of high unmet medical need in the treatment of CNS diseases will continue to be large for the foreseeable future and that it will represent
a sizable revenue opportunity for us. For example, the World Health Organization (WHO) has estimated that CNS diseases affect nearly 2
billion people globally, making up approximately 40% of total disease burden (based on disability adjusted life years), compared with
13% for cancer and 12% for cardiovascular disease.
The depression treatment market is segmented on
the basis of antidepressants drugs, devices, and therapies. Antidepressants are the largest and most popular market segment. The antidepressants
segment consists of large pharmaceutical and generic companies, such as Eli Lilly, Pfizer, GlaxoSmithKline, Allergan, Sage Therapeutics
and Johnson & Johnson. Some of the notable drugs produced by these companies are Cymbalta® (Eli Lilly), Effexor®
(Pfizer), Pristiq® (Pfizer), Zulresso (Sage) and Spravato (Johnson & Johnson).
Intellectual Property Portfolio and Market Exclusivity
We have over 50 issued patents and pending patent
applications related to REL-1017 for multiple uses, including psychological and neurological conditions. We have also secured an Orphan
Drug Designation from the FDA for d-methadone for “the treatment of postherpetic neuralgia,” which, upon NDA approval, carries
7-year FDA Orphan Drug marketing exclusivity. In the European Union, some of our actual and prospective products may be eligible up to
10 years of market exclusivity, which includes 8 years data exclusivity and 2 years market exclusivity. In addition to any granted patents,
REL-1017 will be eligible for market exclusivity to run concurrently with the term of the patent for 5 years in the U.S. (Hatch Waxman
Act) plus additional 6 month of pediatric exclusivity and up to 10 years in the E.U. We believe an extensive intellectual property estate
of US and foreign patents and applications, will protect our technology and products.
Esmethadone License Agreement
As a result of a prior acquisition, the Company assumed an obligation to pay third parties (Dr. Charles E. Inturrisi
and Dr. Paolo Manfredi – see below): (A) royalty payments up to 2% on net sales of licensed products that are not sold by sublicensee
and (B) on each and every sublicense earned royalty payment received by licensee from its sublicensee on sales of license product by sublicensee,
the higher of (i) 20% of the royalties received by licensee; or (ii) up to 2% of net sales of sublicensee. The Company will also make
milestone payments of up to $4 or $2 million, for the first commercial sale of product in the field that has a single active pharmaceutical
ingredient, and for the first commercial sale of product in the field of product that has more than one active pharmaceutical ingredient,
respectively. As of December 31, 2021, the Company has not generated any revenue related to this license agreement.
Inturrisi / Manfredi
In January 2018, we entered into an Intellectual
Property Assignment Agreement (the Assignment Agreement) and License Agreement (the License Agreement and together with the Assignment
Agreement, the Agreements) with Dr. Charles E. Inturrisi and Dr. Paolo Manfredi (collectively, the Licensor). Pursuant to the Agreements,
Relmada assigned its existing rights, including patents and patent applications, to esmethadone in the context of psychiatric use (the
Existing Invention) to Licensor. Licensor then granted Relmada under the License Agreement a perpetual, worldwide, and exclusive license
to commercialize the Existing Invention and certain further inventions regarding esmethadone. In consideration of the rights granted to
Relmada under the License Agreement, Relmada paid the Licensor an upfront, non-refundable license fee of $180,000. Additionally, Relmada
will pay Licensor $45,000 every three months until the earliest to occur of the following events: (i) the first commercial sale of a licensed
product anywhere in the world, (ii) the expiration or invalidation of the last to expire or be invalidated of the patent rights anywhere
in the world, or (iii) the termination of the License Agreement. Relmada will also pay Licensor tiered royalties with a maximum rate of
2%, decreasing to 1.75%, and 1.5% in certain circumstances, on net sales of licensed products covered under the License Agreement. Relmada
will also pay Licensor tiered payments up to a maximum of 20%, and decreasing to 17.5%, and 15% in certain circumstances, of all consideration
received by Relmada for sublicenses granted under the License Agreement. As of December 31, 2021, no events have occurred, and the Company
continues to pay Licensor $45,000 every three months.
The License Agreement includes standard termination
rights for Licensor in the event of our insolvency, challenge of the licensed patents and uncured material breach of our obligations under
the License Agreement. In addition, the License Agreement contains certain “Key Man” provisions such that Licensor may terminate
the License Agreement if we terminate the employment of our Chief Executive Officer, Dr Sergio Traversa, for any reason other than for
specified causes determined by a majority of our Board of Directors (including fraud, gross negligence, unauthorized use of our confidential
information, conduct including harassment or discrimination, breach of fiduciary duty or uncured material breach), or if we (a) substantially
modify Dr. Traversa’s job responsibilities or decision-making rights in connection with the development and commercialization of
esmethadone, (b) remove him from the role of Chief Executive Officer other than in connection with a permitted change-of-control transaction,
(c) materially reduce his compensation, or (d) assign or transfer our rights under the License Agreement or the esmethadone intellectual
property without Dr. Traversa’s consent, in each case (termination or the events in (a) through (d)) during the period commencing
on the effective date and ending on the later of five years from the original effective date of the License Agreement or December 31,
2022. The December 2019 amendment to the License Agreement made certain clarifications to the nature of a termination for Cause, including
to clarify that termination due to Dr. Traversa’s death or disability does not give Licensor the right to terminate the License
Agreement.
Wonpung License Agreement
In 2007, the Company entered into a License Development
and Commercialization Agreement with Wonpung Mulsan Co, a shareholder of the Company. Wonpung has exclusive territorial rights in countries
it selects in Asia to market up to two drugs the Company is currently developing and a right of first refusal (“ROFR”) for
up to an additional five drugs that the Company may develop in the future as defined in more detail in the license agreement. If the parties
cannot agree to terms of a license agreement then the Company shall be able to engage in discussions with other potential licensors. As
of March 23, 2022, no discussions are active between the Company and Wonpung.
The Company received an upfront license fee of
$1,500,000 and will earn royalties of up to 12% of net sales for up to two licensed products it is currently developing. The licensing
terms for the ROFR products are subject to future negotiations and binding arbitration. The terms of each licensing agreement will expire
on the earlier of any time from 15 years to 20 years after licensing or on the date of commercial availability of a generic product to
such licensed product in the licensed territory.
Psilocybin License Agreement
In July 2021, we executed
a License Agreement with Arbomentis, LLC which gives us the development and commercial rights to a novel psilocybin and derivate program.
Under the terms of the agreement, we paid Arbormentis, LLC an up-front fee of $12.7 million consisting of a mix of cash and warrants to
purchase the Company’s common stock, in addition to potential milestone payments totaling up to approximately $160 million related
to pre-specified development and commercialization milestones. Arbormentis, LLC is also eligible to receive a low single digit percentage
royalty on net sales of any commercialized therapy resulting from this agreement. The license agreement is terminable by us but is perpetual
and not terminable by the licensor absent material breach of its terms by us. We will collaborate with Arbormentis, LLC on the development
of new therapies targeting neurological and psychiatric disorders, leveraging its understanding of neuroplasticity, and focusing on this
emerging new class of drugs targeting the neuroplastogen mechanism of action. Importantly, neuroplasticity also plays a key role in the
activity of REL-1017, Relmada’s lead program. Dr. Paolo Manfredi, our Acting Chief Scientific Officer and co-inventor of REL-1017,
and Dr. Marco Pappagallo, our Acting Chief Medical Officer, are among the scientists affiliated with Arbormentis, LLC.
Key Strengths
We believe that the key elements for our market success include:
|
● |
Compelling lead product opportunity, REL-1017 currently in Phase 3 trials
for the adjunctive and monotherapy treatment of MDD. |
|
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|
|
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Robust, and highly statistically significant, efficacy seen with esmethadone in a randomized Phase 2 trial, the primary endpoint at 7 days, with onset of action seen at 4 days, and the effect carrying through to 14 days (7 days post-treatment). |
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|
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Completed Phase 1 safety studies of esmethadone and strong clinical activity signal in depression established in three independent animal models in preclinical studies. |
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|
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Potential in additional multiple indications in underserved markets
with large patient population in other affective disorders, and cognitive disorders. |
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|
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Scientific support of leading experts: Our scientific advisors include clinicians and scientists who are affiliated with a number of highly regarded medical institutions such as Harvard, Cornell, Yale, and University of Pennsylvania. |
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Substantial IP portfolio and market protection: approved and filed patent applications provide coverage beyond 2033. |
Competition
The pharmaceutical and biotechnology industry is characterized by intense
competition, rapid product development and technological change. Competition is intense among manufacturers of prescription pharmaceuticals
and other product areas where we may develop and market products in the future. Most of our competitors are large, well-established pharmaceutical
or healthcare companies with considerably more financial, marketing, sales and technical resources than are available to us. Additionally,
many of our competitors have research and development capabilities that may allow such competitors to develop new or improved products
that may compete with our products. Our products could be rendered obsolete or made uneconomical by the development of new products.
Regarding our competitive position in the industry,
we currently have no products approved for sale.
Government Regulation
Government authorities in the United States, at
the federal, state and local level, and in other countries and jurisdictions extensively regulate, among other things, the research, development,
testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing,
post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals
in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations
and other regulatory authorities, require the expenditure of substantial time and financial resources.
FDA Approval Process
In the United States, pharmaceutical products
are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (FD&C Act) and other federal and state statutes
and regulations govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling,
promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products.
Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as
FDA refusal to approve pending NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production
or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes
to an approved product in the U.S. typically involves preclinical laboratory and animal tests, the submission to FDA of an investigational
new drug application (IND) which must become effective before clinical testing may commence, and adequate and well-controlled clinical
trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA
pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity
and novelty of the product or disease.
Preclinical tests include laboratory evaluation
of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy
of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory
practices. The results of preclinical testing are submitted to FDA as part of an IND along with other information, including information
about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal
tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting period after the submission
of each IND is required prior to the commencement of clinical testing in humans. If FDA has neither commented on nor questioned the IND
within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational
new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in
compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect
the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; as well as (iii) under
protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to FDA as part of the IND.
FDA may order the temporary, or permanent, discontinuation of a clinical
trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with
FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information
for patients in clinical trials must also be submitted to an institutional review board (IRB) for approval. An IRB may also require the
clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or
may impose other conditions.
Clinical trials to support NDAs for marketing
approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug
into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects
associated with increasing doses, and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a limited patient
population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify
common adverse effects and safety risks. If a drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2
evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number
of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship
of the drug and to provide adequate information for the labeling of the drug. In most cases, FDA requires two adequate and well-controlled
Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient
in rare instances, such as where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive
finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome
and confirmation of the result in a second trial would be practically or ethically impossible.
After completion of the required clinical testing,
an NDA is prepared and submitted to FDA. FDA approval of the NDA is required before marketing of the product may begin in the U.S. The
NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s
pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most
NDAs is additionally subject to a substantial application user fee, and the applicant under an approved NDA is also subject to an annual
program fee for each prescription product. These fees are typically increased annually. Sponsors of applications for drugs granted Orphan
Drug Designation are exempt from these user fees.
FDA has 60 days from its receipt of an NDA to determine whether the
application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit
substantive review. Once the submission is accepted for filing, FDA begins an in-depth review. FDA has agreed to certain performance goals
in the review of NDAs to encourage timeliness. Applications for most standard review drug products are reviewed within twelve months from
submission of NDAs for new molecular entities (NMEs) and ten months from submission of NDAs for non-NMEs. Priority review can be applied
to drugs that FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. The review process
for both standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information
or information intended to clarify information already provided in the submission.
FDA may also refer applications for novel drug
products, or drug products that present difficult questions of safety or efficacy, to an outside advisory committee – typically
a panel that includes clinicians and other experts – for review, evaluation and a recommendation as to whether the application should
be approved. FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before approving an NDA, FDA will typically inspect
one or more clinical sites to assure compliance with GCP. Additionally, FDA will inspect the facility or the facilities at which the drug
is manufactured. FDA will not approve the product unless compliance with current good manufacturing practices (cGMPs) is satisfactory
and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After FDA evaluates the NDA and the manufacturing facilities, it issues
either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission
and may require substantial additional testing, or information, in order for FDA to reconsider the application. If, or when, those deficiencies
have been addressed to FDA’s satisfaction in a resubmission of the NDA, FDA will issue an approval letter. FDA has committed to
reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, FDA may require
a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include
medication guides, communication plans for healthcare professionals, and elements to assure safe use (ETASU). ETASU can include, but are
not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special
monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability
of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety
or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are
identified following initial marketing.
Changes to some of the conditions established in an approved application,
including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA
or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar
to that in the original application, and FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing
NDAs.
Fast Track Designation
FDA is required to facilitate the development,
and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which
there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the Fast Track
program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a Fast Track
drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for Fast
Track Designation within 60 days of receipt of the sponsor’s request.
If a submission is granted Fast Track Designation,
the sponsor may engage in more frequent interactions with FDA, and FDA may review sections of the NDA before the application is complete.
This rolling review is available if the applicant provides, and FDA approves, a schedule for the submission of the remaining information
and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an application does not begin until the
last section of the NDA is submitted. Additionally, Fast Track Designation may be withdrawn by FDA if FDA believes that the designation
is no longer supported by data emerging in the clinical trial process.
Orphan Drugs
Under the Orphan Drug Act, FDA may grant Orphan
Drug Designation to drugs intended to treat a rare disease or condition – generally a disease or condition that affects fewer than
200,000 individuals in the U.S. Orphan Drug designation must be requested before submitting an NDA. After FDA grants Orphan Drug Designation,
the generic identity of the drug and its potential orphan use are disclosed publicly by FDA. Orphan Drug Designation does not convey any
advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval
for a particular active ingredient to treat a particular disease with FDA Orphan Drug Designation is entitled to a seven-year exclusive
marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, FDA may not approve any
other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority
to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent FDA from approving a different drug for the same
disease or condition, or the same drug for a different disease or condition. Among the other benefits of Orphan Drug Designation are tax
credits for certain research and an exemption from the NDA application user fee.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA regulated products,
including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient
population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part
of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results
of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may
use this publicly available information to gain knowledge regarding the progress of development programs.
Pediatric Information
Under the Pediatric Research Equity Act (PREA),
NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant
pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective.
FDA may grant full or partial waivers, or deferrals, for submission of data. With certain exceptions, PREA does not apply to any drug
for an indication for which orphan designation has been granted.
The Best Pharmaceuticals for Children Act (BPCA) provides NDA holders
a six-month extension of any exclusivity – patent or nonpatent – for a drug if certain conditions are met. Conditions for
exclusivity include FDA’s determination that information relating to the use of a new drug in the pediatric population may produce
health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting
on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of
the benefits that designation confers.
Post-Approval Requirements
Once an NDA is approved, a product will be subject
to certain post-approval requirements. For instance, FDA closely regulates the post-approval marketing and promotion of drugs, including
standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities
and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the
provisions of the approved labeling.
Adverse event reporting and submission of periodic
reports are required following FDA approval of an NDA. FDA also may require post-marketing testing, known as Phase 4 testing, REMS and
surveillance to monitor the effects of an approved product, or FDA may place conditions on an approval that could restrict the distribution
or use of the product. In addition, quality control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs
after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain
state agencies. Registration with FDA subjects entities to periodic unannounced inspections by FDA, during which the Agency inspects manufacturing
facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of
production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product
recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously
unrecognized problems are subsequently discovered.
Generic Competition
In seeking approval for a drug through an NDA,
applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each
of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence
Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors
in support of approval of an abbreviated new drug application (ANDA). An ANDA provides for marketing of a drug product that has the same
active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically
equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or
submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way
are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions
written for the original listed drug.
The ANDA applicant is required to certify to the
FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that
(i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has
not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid
or will not be infringed by the new product (a Paragraph IV certification). The ANDA applicant may also elect to submit a section viii
statement certifying that its proposed ANDA label doe s not contain (or carve out) any language regarding the patented method-of-use rather
than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents or certifies that the listed patents
will not be infringed by the new product, the ANDA application will not be approved until all the listed patents claiming the referenced
product have expired. If the ANDA applicant has provided a Paragraph IV certification, the NDA and patent holders may then initiate a
patent infringement lawsuit in response. The filing of a patent infringement lawsuit within 45 days of the receipt of a such certification
automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit,
or a decision in the infringement case that is favorable to the ANDA applicant.
Exclusivity
Upon NDA approval of a new chemical entity (NCE)
such as esmethadone, which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives
five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug. An ANDA
may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the
Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.
Certain changes to a drug, such as the addition of a new indication to the package insert, can be the subject of a three-year period of
exclusivity if the application contains reports of new clinical investigations (other than bioavailability studies) conducted or sponsored
by the sponsor that were essential to approval of the application. FDA cannot approve an ANDA for a generic drug that includes the change
during the period of exclusivity.
In the case of a non-racemic drug containing as an active ingredient
a single enantiomer that is contained in a racemic drug approved in another NDA, the NDA for the non-racemic drug may elect to have the
single enantiomer not be considered the same active ingredient as that contained in the approved racemic drug and therefore eligible for
NCE exclusivity, if certain conditions are met. These conditions include: (1) the single enantiomer has not been previously approved except
in the approved racemic drug, (2) the NDA for the non-racemic drug includes full reports of new clinical investigations necessary for
the approval of the product conducted or sponsored by the applicant and not submitted for approval of the racemic drug, and (3) the NDA
for the non-racemic drug is not submitted for approval of a condition of use in a therapeutic category in which the approved racemic drug
has been approved or for which any other enantiomer of the racemic drug has been approved. In addition, FDA will not approve the non-racemic
drug for any condition of use in the therapeutic category in which the racemic drug has been approved for a period of 10 years after approval
of the non-racemic drug, and the labeling of the non-racemic drug will include a statement in the indication that the non-racemic drug
is not approved, and has not been shown to be safe and effective, for any condition of use of the racemic drug. The applicant for the
non-racemic drug may make this election only in an application submitted before October 1, 2022.
Patent Term Extension
After NDA approval, owners of relevant drug patents
may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing
phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval
up to a maximum of five years). The time can be shortened if FDA determines that the applicant did not pursue approval with due diligence.
The total patent term after the extension may not exceed 14 years, and only one patent can be extended. For patents that might expire
during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent
term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is
reduced by one year. The director of the United States Patent and Trademark Office must determine that approval of the drug covered by
the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an
NDA has not been submitted.
Controlled Substances
The active ingredients in esmethadone are listed in the Comprehensive
Drug Abuse Prevention and Control Act of 1970 (CSA) and regulations promulgated by the United States Drug Enforcement Administration (DEA)
as controlled substances. The CSA and its implementing regulations establish a closed chain of distribution for entities handling controlled
substances. The DEA is responsible for enforcing the law and regulations that impose registration, security, inventory, recordkeeping,
reporting and storage requirements on entities that manufacture, distribute, import and export, and other entities handling controlled
substances. The law and regulations require those individuals or entities that handle controlled substances to comply with these requirements
in order to ensure legitimate use and prevent the diversion of controlled substances to illicit channels of commerce.
Facilities that manufacture, distribute, import or export any controlled
substance must register annually with the DEA. The DEA registration is specific to a particular location, activity, and controlled substance
schedule. For example, separate registrations are required for importation and manufacturing activities, and the authority granted under
each registration determines which schedules of controlled substances the registrant may handle. However, certain DEA registrations permit
coincident activities without obtaining a separate DEA registration, such as authorizing a manufacturer to also distribute controlled
substances produced by that registrant.
The CSA classifies controlled substances into one of five schedules
– Schedule I, II, III, IV, or V – depending on the potential for abuse and physical or psychological dependence. Schedule I
substances by definition have a high potential for abuse, have no currently accepted medical use in treatment in the U.S. and lack accepted
safety for use under medical supervision. They may not be marketed or sold for dispensing to patients in the U.S. Pharmaceutical products
having a currently accepted medical use and that are otherwise approved for marketing may be listed as Schedule II, III, IV, or V
substances depending on the comparative abuse potential of the drug or substance, with Schedule II substances presenting the highest
potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential
for abuse and dependence. Schedule II substances are subject to the strictest regulatory requirements involving registration, storage,
recordkeeping, reporting and security. In particular, distribution and dispensing of Schedule II drugs are strictly controlled. For example,
all Schedule II drug prescriptions cannot be refilled and must contain a written or electronic signature of a practitioner when presented
to a pharmacy. Schedules III, IV and V controlled substances are subject to recordkeeping, reporting and security requirements, but these
requirements are less restrictive than Schedule II drugs.
The DEA inspects manufacturers, distributors, importers, and exporters
to review compliance with the CSA and DEA regulations including security, record keeping and reporting prior to issuing a controlled substance
registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances
handled by the registrant. The most stringent requirements apply to manufacturers of Schedule I and Schedule II substances.
For example, manufacturers and distributors must store Schedule I and II drugs in secure vault with specific structural requirements.
Other physical security requirements that apply to all controlled substances include safes and cages, and the use of alarm systems and
surveillance cameras. Regulations also require that registrants restrict employee access to controlled substances. Once registered, manufacturing,
distribution, exporting or importing facilities must maintain records documenting the manufacture, receipt, distribution, import, or export
of all controlled substances. Manufacturers and distributors must also submit regular reports to the DEA of the distribution of Schedule I
and II controlled substances, Schedule III narcotic substances, and certain other designated substances. All DEA registrants must
report any controlled substance thefts or significant losses and must obtain authorization to destroy or dispose of controlled substances.
In addition to maintaining an importer and/or exporter registration, importers and exporters of controlled substances must obtain a permit
for every import or export of a Schedule I or II substance and a narcotic substance in Schedule III, IV and V. For all other drugs in
Schedule III, IV and V, importers and exporters must submit an import or export declaration. DEA conducts cyclic inspections to determine
whether registrants are complying with these requirements.
Practitioners such as pharmacies and physicians, as well as other types
of entities that handle controlled substances, such as researchers and analytical laboratories, are also subject to DEA registration,
recordkeeping, reporting, and security requirements on the receipt, storage, and dispensing of controlled substances.
The CSA also imposes quota requirements on certain controlled substances.
The DEA establishes annually an aggregate production quota for the amount of substances within Schedules I and II and certain Schedule
III substances, that may be produced in the U.S. based on the DEA’s estimate of the quantity needed to meet legitimate medical,
scientific, research and industrial needs. The aggregate quota for each controlled substance is allocated among the various individual
bulk manufacturers through an application process. Manufacturers of dosage forms are also subject to procurement quotas to obtain the
bulk active pharmaceutical ingredients to make finished drugs. Manufacturers may not exceed the manufacturing or procurement quota granted
in a given year. The quotas apply equally to the manufacturing of the active pharmaceutical ingredient and production of dosage forms.
The DEA may adjust aggregate production quotas and individual manufacturing or procurement quotas from time to time during the year, although
the DEA has substantial discretion concerning whether or not to make such adjustments.
Failure to maintain compliance with applicable DEA requirements, particularly
as manifested in the loss or diversion of controlled substances, can result in an enforcement action. The DEA may seek civil penalties,
refuse to renew necessary registrations, or initiate administrative proceedings to revoke those registrations. In certain circumstances,
violations of the CSA and DEA regulations could lead to criminal prosecution.
The various states, commonwealths, and the District
of Columbia, also regulate controlled substances and impose similar licensing, recordkeeping, and reporting requirements on entities that
handle controlled substances. Entities must independently comply with the various state requirements in addition to the federal controlled
substance requirements.
Other Healthcare Laws
In the United States, biotechnology company activities are subject
to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare
& Medicaid Services (CMS), other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General
and the Office for Civil Rights), the U.S. Department of Justice (DOJ) and individual U.S. Attorney offices within the DOJ, and state
and local governments.
The federal Anti-Kickback Statute prohibits, among
other things, persons and entities from knowingly and willfully offering, soliciting or receiving or providing remuneration, directly
or indirectly, in cash or in kind, to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or
order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This statute
has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary
managers, among others, on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain
common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that
involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for
an exception or safe harbor. In addition, a person or entity does not need to have actual knowledge of the Anti-Kickback Statute or specific
intent to violate it in order to commit a violation.
Federal civil and criminal false claims laws,
including the federal civil False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false
claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid.
This includes claims made to programs where the federal government reimburses, such as Medicare and Medicaid, as well as programs where
the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Recently, several pharmaceutical
and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services,
which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to
customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices,
including off-label promotion, may also violate false claims laws. Additionally, the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
federal civil False Claims Act. Most states also have statutes or regulations similar to the federal Anti-Kickback Statute and civil False
Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless
of the payor.
Other federal statutes pertaining to healthcare
fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration
to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is likely to influence the beneficiary to order a
receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), which prohibits, among other things, knowingly and willfully executing or
attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations
or promises of any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of
or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need
to have actual knowledge of the statute or specific intent to violate it in order to commit a violation.
Further, pursuant to the Patient Protection and
Affordable Care Act (ACA), the Centers for Medicare & Medicaid Services, or CMS, has issued a final rule that requires manufacturers
of prescription drugs to collect and report information on certain payments or transfers of value to physicians (defined to include doctors,
dentists, optometrists, podiatrists and chiropractors), physician assistants, certain types of advance practice nurses and teaching hospitals,
as well as ownership and investment interests held by physicians and their immediate family members. The reported data is made available
in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties.
In addition, several states now require prescription
drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to
individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision
of certain kinds of gifts or meals. Still other states require the posting of information relating to clinical studies and their outcomes.
Some states require the reporting of certain drug pricing information, including information pertaining to and justifying price increases.
In addition, certain states require pharmaceutical companies to implement compliance programs and/or marketing codes. Certain states and
local jurisdictions also require the registration of pharmaceutical sales and medical representatives. Compliance with these laws is difficult
and time consuming, and companies that do not comply with these state laws face civil penalties.
Efforts to ensure that business arrangements with
third parties comply with applicable healthcare laws and regulations involve substantial costs. If a drug company’s operations are
found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative
penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain
approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government
healthcare programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm.
Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks
cannot be entirely eliminated. Any action for an alleged or suspected violation can cause a drug company to incur significant legal expenses
and divert management’s attention from the operation of the business, even if such action is successfully defended.
Data privacy and security regulations by both the federal government
and the states in which business is conducted may also be applicable. HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act (HITECH), and its implementing regulations, imposes requirements relating to the privacy, security and transmission
of individually identifiable health information. HIPAA requires covered entities to limit the use and disclosure of protected health information
to specifically authorized situations and requires covered entities to implement security measures to protect health information that
they maintain in electronic form. Among other things, HITECH made HIPAA’s security standards directly applicable to business associates,
independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing
a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and
criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing
federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many
of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Healthcare Reform
Healthcare reforms that have been adopted, and
that may be adopted in the future, could result in further reductions in coverage and levels of reimbursement for pharmaceutical products,
increases in rebates payable under U.S. government rebate programs and additional downward pressure on pharmaceutical product prices.
On September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried
out by Congress, to reduce drug prices and drug payment. The Department of Health and Human Services (HHS) plan includes, among other
reform measures, proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing
price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price
transparency. Many similar proposals, including the plans to give Medicare Part D authority to negotiate drug prices, require drug manufacturers
to pay rebates on drugs whose prices increase greater than the rate of inflation, and cap out-of-pocket costs, have already been included
in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and other statutory, regulatory,
and administrative initiatives will be enacted and implemented.
Insurance Coverage and Reimbursement
Significant uncertainty exists as to the insurance
coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States, sales of any product
candidates for which regulatory approval for commercial sale is obtained will depend in part on the availability of coverage and adequate
reimbursement from third-party payors. Third-party payors include government authorities and health programs in the United States such
as Medicare and Medicaid, managed care providers, private health insurers and other organizations. These third-party payors are increasingly
reducing reimbursements for medical products and services. The process for determining whether a payor will provide coverage for a drug
product may be separate from the process for setting the reimbursement rate that the payor will pay for the drug product. Third-party
payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of FDA-approved drugs
for a particular indication. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement
rate will be approved. Further, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result,
the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical
support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied
consistently or obtained in the first instance.
Corporate Information
Our principal executive offices are located at
2222 Ponce de Leon Blvd., Floor 3, Coral Gables, Florida 33134 and our telephone number is (786) 629-1376. Our website address is www.relmada.com. The
information contained in, or that can be accessed through, our website is not part of, and is not incorporated in, this Report.
Available Information
Reports we file with the Securities and Exchange
Commission (SEC) pursuant to the Exchange Act of 1934, as amended (the Exchange Act), including annual and quarterly reports, and other
reports we file, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street NE, Washington,
D.C. 20549.
Human Capital
As of December 31, 2021, we had a total of 10
employees. We understand people are our greatest asset and that our innovation and operational excellence are ultimately noted in our
human capital. Our success depends in large part on our ability to recruit, develop and retain a qualified, productive, and engaged workforce.
Inclusion & Diversity
Inclusion and diversity is a focus of our corporate
human capital strategy. By embracing inclusion and diversity, we enhance our work environment and drive business success. We endeavor
to create a culture of inclusion in which our employees feel empowered to bring their full, authentic selves to work and pursue their
professional goals in a setting of equality. Fostering such a culture welcomes different perspectives and generates innovation and growth.
We honor the diversity of our employees—in gender, race/ethnicity, age, gender identity, sexual orientation, socio-economic status,
language, nationality, abilities and life experiences. As of December 31, 2021, our employee population was approximately 60% female.
Total Rewards and
Employee Engagement
We maintain a competitive
compensation and benefits package including incentive compensation tied to both company and individual performance, and retirement benefits.
Our performance-based compensation strategy is designed to recognize and reward employees for their contribution to our success, and we
strive to provide strong, equitable incentives for performance. Compensation is comprised of two elements: base compensation, which is
determined based upon a number of factors, including size, scope and impact of the employee’s role, the market value associated
with the employee’s role, leadership skills, length of service and individual performance; and an annual bonus, which is a cash
award determined based on a combination of individual and company performance during the period to which the bonus relates. We seek to
determine compensation on the basis of merit and without regard to demographic characteristics. During 2021, we employed a third-party
consultant to assist us in evaluating our pay practices. In conducting this exercise, we found no meaningful difference in compensation
based upon gender, race or any other defining characteristic examined.
COVID-19 Response
We moved swiftly in our
response to the COVID-19 pandemic to promote the safety of our associates and best serve our members and communities. In March of 2020,
we transitioned our workforce to remote work environments, while maintaining service operations. We continued to pay employees who missed
work for COVID-19 related reasons and avoided role reductions as a direct result of COVID-19.
ITEM 1A. RISK FACTORS
Our business faces significant risks. You should
carefully consider the risks described below, together with all of the other information included in our filings with the United States
Securities and Exchange Commission (SEC) when evaluating our business. If any of the following risks actually occurs, our business, financial
condition or results of operations could be materially adversely affected and the trading price of shares of our common stock could decline.
The occurrence of any of the following risks could cause our actual results to differ materially from those contained in forward-looking
statements we have made in this report and those we may make from time to time.
Summary of Risks
This section provides a summary of the risks that
may impact our performance in the future. For details of our various risk factors and their impacts, see “Risk Factors Discussion.”
Our risk factors are organized into the following
categories: 1) Risks related to our business, 2) Risks related to clinical and regulatory matters, 3) Risks related to our intellectual
property, 4) Risks related to government regulations, 5) Risks related to our reliance on third parties, and 6) Risks related to ownership
of our common stock.
Risks related to
our business
Business risks include risks associated with our
products and regulatory approval, licensing agreements, historical losses, managing growth, acquisitions, the COVID-19 pandemic, and Russia’s
Invasion of Ukraine. In general, the risks related to our business can cause variability in the future profits of the Company.
Risks related to
clinical and regulatory matters
Clinical and regulatory
matters include risks associated with clinical trials and the future ability to commercially market the product. In order for any of our
products to be commercialized and produce future profits, successful trials need to be completed with supporting data to receive regulatory
approval. Failing to complete the trial will significantly increase our cost of doing business. In addition, the active ingredient in
our products is a controlled substance which can affect the supply available for clinical trials, as well as commercial sales. A limited
supply could increase the time needed to complete clinical trials and overall costs including product liability claims. We could also
face potential fines or reputational risk if we do not comply. Developments from competitors and the ability to obtain market exclusivity
could also negatively impact future profits.
Risks related to
our intellectual property
Our products depend upon
securing and protecting critical intellectual property. Patent positions are highly uncertain and involve complex legal and factual questions.
Infringing upon patents or trade secrets could force us to cease or alter our product development efforts or obtain a license to continue
to develop or sale our products. These risks could not only impact the future profits of the company but also create adverse publicity
for us.
Risks related to
government regulations
We are required to comply
with various federal and state pharmaceutical and healthcare laws and regulations, and to maintain secure systems to protect sensitive
confidential information. Complying with the various regulations can increase our cost of doing business. We could also face potential
fines or reputational risk if we do not comply. Litigation or investigations can increase costs, negatively affect our operating results
and create adverse publicity for us.
Risks related to
our reliance on third parties
The Company relies on third parties to conduct preclinical and clinical
studies, as well as to manufacture our product candidates. Third parties’ failure to perform the trials as contractually required
could impact our ability to obtain regulatory approval. If our third-party manufacturers fail to meet our requirements and strict regulatory
requirements, our product development and commercialization efforts may be materially harmed.
Risks related to
ownership of our common stock
Common stocks risks include
risks associated with the limited market for our common stock, a potential issuance of a substantial number of additional shares, stock
price volatility, and reporting requirements of federal securities laws. The net effect of these risks can include reductions in future
profits, additional operating expenses, inability to meet liquidity needs, inability to access capital and increased cost of capital.
Risk Factors Discussion
Risks Related to Our Business
Our business depends on the success of esmethadone
(d-methadone, dextromethadone, REL-1017), our only product candidate currently in clinical development, which is in pivotal clinical trials
for the adjunctive treatment of MDD. If we are unable to obtain regulatory approval for and successfully commercialize REL-1017 or other
future product candidates, or we experience significant delays in doing so, our business will be materially harmed.
To date, the primary focus of our product development has been esmethadone
(d-methadone, dextromethadone, REL-1017) for the adjunctive and monotherapy treatment of patients with MDD. Currently, esmethadone is
our only product candidate under clinical development. This may make an investment in our Company riskier than similar companies that
have multiple product candidates in active development and that therefore may be able to better sustain a setback of a lead candidate.
Successful continued development and ultimate regulatory approval of esmethadone for the adjunctive treatment of MDD, and potentially
as a monotherapy for MDD, or other indications is critical to the future success of our business. We have invested, and will continue
to invest, a significant portion of our time and financial resources in the clinical development of esmethadone. If we cannot successfully
develop, obtain regulatory approval for and commercialize esmethadone, we may not be able to continue our operations. The future regulatory
and commercial success of esmethadone is subject to a number of risks, including the following:
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we may not be able to obtain adequate evidence from clinical trials of efficacy and safety for esmethadone for the adjunctive treatment of MDD, monotherapy for MDD or other indications; |
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we may not be able to demonstrate that the benefits of esmethadone for the adjunctive treatment of MDD, monotherapy for MDD or other indications outweigh the risks; |
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in our clinical trials for esmethadone, enrollment may be slower than anticipated and we may need additional clinical trial sites than originally planned, which could delay our clinical trial progress; |
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the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable foreign regulatory authorities for marketing approval; |
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patients in our clinical trials may suffer serious adverse effects for reasons that may or may not be related to esmethadone, which could delay or prevent further clinical development; |
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the standards implemented by clinical or regulatory agencies may change at any time and we cannot be certain what efficacy endpoints the FDA or foreign clinical or regulatory agencies may require in pivotal clinical trials with respect to the adjunctive treatment of MDD, monotherapy for MDD or any other indication for the approval of esmethadone; |
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the results of later stage clinical trials may not be as favorable as the results we have observed to date in our preclinical studies and Phase 1 and 2 clinical trials; |
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we cannot be certain of the number and type of clinical trials and preclinical or toxicology studies that the FDA or other regulatory agencies will require in order to approve esmethadone for the adjunctive treatment of MDD, monotherapy for MDD or any other indication; |
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we may not have sufficient financial and other resources to complete the necessary clinical trials for esmethadone, including, but not limited to, the clinical trials needed to obtain drug approval; |
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if approved for the adjunctive treatment of MDD or as a monotherapy for MDD, esmethadone will likely compete with products that may reach approval prior to esmethadone, products that are currently approved for the adjunctive treatment of MDD or as a monotherapy for MDD and the off-label use of currently marketed products for MDD; and |
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we may not be able to obtain, maintain or enforce our patents and other intellectual property rights. |
Esmethadone and any future product candidates
will be subject to rigorous and extensive clinical trials and extensive regulatory approval processes implemented by the FDA and comparable
foreign regulatory authorities before obtaining marketing approval from these regulatory authorities, if at all. The drug development
and approval process is lengthy and expensive, and approval is never certain. Investigational new drugs, such as esmethadone, may not
prove to be safe and effective in clinical trials. We have no direct experience as a company in conducting later stage clinical trials
required to obtain regulatory approval. We may be unable to conduct clinical trials at preferred sites, enlist clinical investigators,
enroll sufficient numbers of participants or begin or successfully complete clinical trials in a timely fashion, if at all. In addition,
the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical
trial may not become apparent until the clinical trial is well advanced. Because we have limited experience as a company designing clinical
trials, we may be unable to design and execute a clinical trial to support regulatory approval.
There is a high failure rate for drugs and biological
products proceeding through clinical trials. Failure can occur at any time during the clinical trial process. The results of preclinical
studies and early clinical trials of esmethadone or any future product candidate may not be predictive of the results of later-stage clinical
studies or trials and the results of studies or trials in one set of patients or line of treatment may not be predictive of those obtained
in another. In fact, many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage
clinical trials even after achieving promising results in preclinical studies and earlier stage clinical trials. In addition, data obtained
from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval.
Owing in part to the complexity of biological pathways, esmethadone or any future product candidate may not demonstrate in patients the
biochemical and pharmacological properties we anticipate based on laboratory studies or earlier stage clinical trials, and they may interact
with human biological systems or other drugs in unforeseen, ineffective or harmful ways. The number of patients exposed to product candidates
and the average exposure time in the clinical development programs may be inadequate to detect rare adverse events or findings that may
only be detected once a product candidate is administered to more patients and for greater periods of time. To date, our Phase 2 clinical
study has involved a small population of subjects with MDD, and, because of the small sample size in such trial, the results of this clinical
trial may be subject to substantial variability and may not be indicative of either future top-line results or final results. If we are
unable to successfully demonstrate the safety and efficacy of esmethadone or other future product candidates and receive the necessary
regulatory approvals, our business will be materially harmed.
Even if we do receive regulatory approval to market
esmethadone, any such approval may be subject to limitations on the indicated uses or patient populations for which we may market the
products. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we may be unable
to successfully develop or commercialize esmethadone. If we or any of our future development collaborators are unable to develop, or obtain
regulatory approval for, or, if approved, successfully commercialize esmethadone, we may not be able to generate sufficient revenue to
continue our business.
Top-line results may not accurately reflect
the complete results of the clinical study.
Preliminary data remains subject to audit and
verification procedures that may result in the final data being materially different from the preliminary data. As a result, preliminary
data should be viewed with caution until the final data are available.
Our license agreement
for esmethadone, our only product candidate currently under clinical development, could terminate under certain circumstances, including
if we terminate our Chief Executive Officer except for cause, and we would be unable to conduct our business as planned.
In January 2018, we entered
into an Intellectual Property Assignment Agreement (the “Assignment Agreement”) and License Agreement (the License Agreement
and together with the Assignment Agreement, the Agreements), with Dr. Charles E. Inturrisi and Dr. Paolo Manfredi (collectively, the “Licensor”).
Pursuant to the Assignment Agreement, we assigned our existing rights, including patents and patent applications, to esmethadone in the
context of psychiatric use to Licensor, and pursuant to the License Agreement, Licensor then granted us an exclusive perpetual, worldwide
license under the assigned intellectual property rights as well as patents and know-how covering certain new inventions developed by Licensor
and relating to esmethadone in neurological and other uses, to develop and commercialize esmethadone in all fields of use. The License
Agreement also grants to us rights in all future inventions developed by Licensor, whether or not in collaboration with us that relate
in any way to esmethadone or the use thereof. The License Agreement was amended in December 2019 to modify certain termination rights
relating to the Chief Executive Officer, which are described further below.
If we develop any new
inventions relating to esmethadone, we are required to do so in collaboration with Licensor, and to file patents covering such inventions
jointly in the name of the Company and Licensor. All such future inventions or patents shall be jointly owned by us and Licensor and,
will be included in and subject to the financial and other terms of the License Agreement.
The License Agreement
includes standard termination rights for Licensor in the event of our insolvency, challenge of the licensed patents and uncured material
breach of our obligations under the License Agreement. In addition, the License Agreement contains certain “Key Man” provisions
such that the Licensor may terminate the License Agreement if we terminate the employment of our Chief Executive Officer, Mr. Sergio Traversa,
for any reason other than for specified causes determined by a majority of our Board of Directors (including fraud, gross negligence,
unauthorized use of our confidential information, conduct including harassment or discrimination, breach of fiduciary duty or uncured
material breach), or if we (a) substantially modify Mr. Traversa’s job responsibilities or decision-making rights in connection
with the development and commercialization of esmethadone, (b) remove him from the role of Chief Executive Officer other than in connection
with a permitted change-of-control transaction, (c) materially reduce his compensation, or (d) assign or transfer our rights under the
License Agreement or the esmethadone intellectual property without Mr. Traversa’s consent, in each case (termination or the events
in (a) through (d) during the period commencing on the effective date and ending on the later of five years from the original effective
date of the License Agreement on December 31, 2022. The December 2019 amendment to the License Agreement
made certain clarifications to the nature of a termination for Cause, including to clarify that termination due to Mr. Traversa’s
death or disability does not give Licensor the right to terminate the License Agreement.
As a result of the provisions described above,
we are limited in our ability to terminate, as well as to decrease the salary or authority of, our Chief Executive Officer until December
31, 2022. In addition, the agreement provides that any assignor that we assign the agreement to must agree in writing to all terms of
the license, including the key man provisions, and as noted above, our Chief Executive Officer has the right to consent to any such assignment
of the agreement unless previously terminated for cause or due to death. As the license agreement relates to our only product candidate
currently under clinical development, these provisions may be deemed to have an anti-takeover effect and may delay, deter or prevent
a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result
in a premium being paid over the market price for the shares held by stockholders. If we fail to comply with the terms of the License
Agreement, our rights to those patents may be terminated, and we will be unable to conduct our business.
We have generated no revenue from commercial
sales to date and our future profitability is uncertain.
We have a limited operating history and our business
is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered
in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with this. Since we began
our business, we have focused on research, development and clinical trials of product candidates, and have incurred significant losses
since inception and generated no product revenues. If we continue to incur operating losses and fail to become a profitable company, we
may be unable to continue our operations. We expect to continue to operate at a net loss for at least the next several years as we continue
our research and development efforts, continue to conduct clinical trials and develop manufacturing, sales, marketing and distribution
capabilities. There can be no assurance that the products under development by us will be approved for sales in the US or elsewhere. Furthermore,
there can be no assurance that if such products are approved they will be successfully commercialized, and the extent of our future losses
and the timing of our profitability are highly uncertain.
International commercialization of our product
candidates faces significant obstacles.
We may plan to commercialize some of our products
internationally through collaborative relationships with foreign partners. We have limited foreign regulatory, clinical and commercial
resources. Future partners are critical to our international success. We may not be able to enter into collaboration agreements with appropriate
partners for important foreign markets on acceptable terms, or at all. Future collaborations with foreign partners may not be effective
or profitable for us. We will need to obtain approvals from the appropriate regulatory, pricing and reimbursement authorities to market
any of our proposed products internationally, and we may be unable to obtain foreign regulatory approvals. Pursuing foreign regulatory
approvals will be time-consuming and expensive. The regulations can vary among countries and foreign regulatory authorities may require
different or additional clinical trials than we conducted to obtain FDA approval for our product candidates. In addition, adverse clinical
trial results, such as death or injury due to side effects, could jeopardize not only regulatory approval, but if approval is granted,
may also lead to marketing restrictions. Our product candidates may also face foreign regulatory requirements applicable to controlled
substances.
We have a history of losses and we may never achieve or sustain
profitability.
We have incurred substantial losses since our
inception, and we may not achieve profitability for the foreseeable future, if at all. Since inception, we have an accumulated deficit
of approximately $305.1 million at December 31, 2021. The Company had cash, cash equivalents and short term investments of approximately
$211.9 million at December 31, 2021. Even if we succeed in developing and commercializing one or more of our product candidates, we expect
to incur substantial net losses and negative cash flows for the foreseeable future due in part to increasing research and development
expenses, including clinical trials, and increasing expenses from leasing additional facilities and hiring additional personnel. As a
result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these
revenues or achieve profitability in the future. Even if we do achieve profitability, we may not be able to sustain or increase profitability.
We have a limited operating history upon
which to base an investment decision.
Our limited operating history may limit your ability
to evaluate our prospects due to our limited historical financial data and our unproven potential to generate profits. You should evaluate
the likelihood of financial and operational success in light of the risks, uncertainties, expenses and difficulties associated with an
early-stage business, many of which may be beyond our control, including:
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our potential inability to continue to undertake preclinical studies, pharmaceutical development and clinical trials, |
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Our operations have been limited to organizing and staffing, on a limited
basis, our company, acquiring, developing and securing our proprietary technology and undertaking preclinical studies and clinical trials
of our principal product candidates. These operations provide a limited basis for you to assess our ability to commercialize our product
candidates and the advisability of investing in our common stock.
Our ability to use our net operating loss
carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, we had Federal, New York
State and New York City net operating loss (NOL) carryforwards of approximately $92,543,000, $91,755,000 and $91,371,000, respectively,
which begin expiring in 2027, 2032 and 2032, respectively. Under U.S. federal tax legislation enacted in 2017, informally titled the Tax
Cuts and Jobs Act, or Tax Act, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility
of such federal NOLs is limited to 80% of taxable income in the year. It is uncertain if and to what extent various states will conform
to the Tax Act. Under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership
change” (generally defined as a greater than 50 percentage-point cumulative change (by value) in the equity ownership of certain
stockholders over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes
to offset its post-change taxable income or taxes may be limited. We may also experience ownership changes as a result of stock offerings
or as a result of subsequent shifts in our stock ownership, some of which are outside our control. We have not completed an analysis to
determine whether any such limitations have been triggered. If any were determined to be triggered, our ability to use our current NOLs
and other pre-change tax attributes to offset post-change taxable income or taxes would be subject to limitation. We will be unable to
use our NOLs if we do not attain profitability sufficient to offset our available NOLs prior to their expiration.
We may not be successful in hiring and retaining
key employees.
Our future operations and successes depend in
large part upon the continued service of key members of our senior management team whom we are highly dependent upon to manage our business,
specifically Dr. Sergio Traversa, our Chief Executive Officer and Dr. Paolo Manfredi, Acting Chief Scientific Officer. If either terminates
employment with us, such a departure would have a material adverse effect on our business.
Our future success also depends on our ability
to identify, attract, hire or engage, retain and motivate other well-qualified managerial, technical, clinical and regulatory personnel.
We currently only have 10 full time employees and are likely to hire additional qualified personnel with expertise in nonclinical pharmacology
and toxicology, pharmaceutical development, clinical research, regulatory affairs, manufacturing, sales and marketing. We compete for
qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals,
particularly in the United States, is intense, and we may not be able to hire sufficient personnel to support our efforts. There can be
no assurance that these professionals will be available in the market, or that we will be able to retain existing professionals or to
meet or to continue to meet their compensation requirements. Furthermore, the cost base in relation to such compensation, which may include
equity compensation, may increase significantly, which could have a material adverse effect on us. Failure to establish and maintain an
effective management team and work force could adversely affect our ability to operate, grow and manage our business.
Managing our growth as we expand operations
may strain our resources.
We expect to need to grow rapidly in order to support ongoing and additional,
larger, and potentially international, pivotal clinical trials of our drug candidates, which will place a significant strain on our financial,
managerial and operational resources. In order to achieve and manage growth effectively, we must continue to improve and expand our operational
and financial management capabilities. Moreover, we will need to increase staffing and to train, motivate and manage our employees.
We may expand our business through the acquisition
of rights to new drug candidates that could disrupt our business, harm our financial condition and may also dilute current stockholders’
ownership interests in our company.
Our business strategy includes expanding our products
and capabilities, and we may seek acquisitions of drug candidates or technologies to do so. Acquisitions involve numerous risks, including
substantial cash expenditures; potentially dilutive issuance of equity securities; incurrence of debt and contingent liabilities, some
of which may be difficult or impossible to identify at the time of acquisition; difficulties in assimilating the acquired technologies
or the operations of the acquired companies; diverting our management’s attention away from other business concerns; risks of entering
markets in which we have limited or no direct experience; and the potential loss of our key employees or key employees of the acquired
companies.
We cannot assure you that any acquisition will
result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired product, company or business.
In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions.
We cannot assure you that we will be able to make the combination of our business with that of acquired products, businesses or companies
work or be successful. Furthermore, the development or expansion of our business or any acquired products, business or companies may require
a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms
or at all. We may also seek to raise funds by selling shares of our preferred or common stock, which could dilute each current stockholder’s
ownership interest in us.
Business interruptions could limit our ability
to operate our business.
Our operations as well as those of our collaborators
on which we depend are vulnerable to damage or interruption from computer viruses, human error, natural disasters, electrical and telecommunication
failures, international acts of terror and similar events. We have not established a formal disaster recovery plan and our back-up operations
and our business interruption insurance may not be adequate to compensate us for losses we may suffer. A significant business interruption
could result in losses or damages incurred by us and require us to cease or curtail our operations.
Our business could be adversely affected
by the effects of health epidemics, including the global COVID-19 pandemic.
In December 2019, a novel strain of COVID-19 was
reported in China. Since then, COVID-19 has spread globally, to include the United States. The spread of COVID-19 has resulted in the
World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease,
on March 11, 2020. Many countries around the world have imposed quarantines, travel restrictions, limitations on gatherings, closures
of businesses and other social distancing measures.
As local jurisdictions put restrictions in place, our ability to continue
to operate our business may also be limited. Such events may result in a period of business and manufacturing disruption, and in reduced
operations, any of which could materially affect our business, financial condition and results of operations.
The COVID-19 pandemic and efforts to contain the
outbreak have led to economic disruption, including declines in interest rates, extreme volatility in financial markets, fluctuations
in foreign currency exchange rates, reduced economic activity and a sharp increase in unemployment claims. While the potential economic
impact brought by COVID-19 may be difficult to assess or predict, a more protracted pandemic could result in significant disruption of
global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition,
a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common
shares.
The continued spread of COVID-19 globally could also adversely affect
our planned clinical trial operations, including our ability to initiate trials on expected timelines and recruit and retain patients
and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs
in their geography. Further, the COVID-19 outbreak could result in delays in our clinical trials due to prioritization of hospital resources
toward the outbreak, restrictions in travel, potential unwillingness of patients to enroll in trials at this time, or the inability of
patients to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare
services. In addition, we rely on independent clinical investigators, contract research organizations and other third-party service providers
to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, and the outbreak may affect
their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us.
Additionally, COVID-19 may also result in delays
in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with local and foreign regulators,
ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government
employees.
The global outbreak of COVID-19 continues to evolve.
The ultimate long-term impact of COVID-19 is highly uncertain and cannot be predicted with confidence. In addition, since COVID-19 is
a pandemic, it could materially affect our operations globally, including at our headquarters and at our future clinical trial sites throughout
the globe.
Our business could be adversely affected by health
epidemics in regions where we have significant manufacturing and distribution facilities, concentrations of clinical trial sites or other
business operations.
The ultimate impact of the COVID-19 outbreak or
a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts
on our business, our supply chain, clinical trials, healthcare systems or the global economy as a whole. However, these effects could
have a material impact on our operations, and, therefore, we will continue to monitor the COVID-19 situation closely and implement risk
mitigation as needed.
Risks Related to Russia’s Invasion
of Ukraine.
On February 24, 2022, Russia launched a large-scale
invasion of Ukraine. The United States and other countries and certain international organizations have imposed broad-ranging economic
sanctions on Russia and certain Russian individuals, banking entities and corporations as a response, and additional sanctions may be
imposed in the future. The extent and duration of the military action or future escalation of such hostilities, resulting sanctions and
future market disruptions and volatility are impossible to predict, but could be significant and could have a severe adverse effect on
the regional and global economies. The ramifications of the hostilities and sanctions may not be limited to Russia, Ukraine and
Russian and Ukrainian companies but may spill over to and negatively impact other regional and global economic markets (including Europe
and the United States), companies in other countries (particularly those that have done business with Russia and Ukraine) and on
various sectors, industries and the markets for credit, securities and commodities globally. In addition, Russia may take retaliatory
actions and other countermeasures, including cyberattacks and espionage against other countries and companies around the world, including
attacks on key infrastructure such as the power grid and the internet. The potential for a wider conflict could further increase
financial market volatility and could negatively affect our ability to raise additional capital when required. While we do not currently
conduct any business in Russia or Ukraine, the conflict and its effects could adversely affect our planned clinical trial operations,
including our ability to recruit and retain patients.
Risks Related to Clinical and Regulatory Matters
If we or our potential collaborators fail
to obtain the necessary regulatory approvals, or if such approvals are limited, we and our potential collaborators will not be allowed
to commercialize our drug candidates, and we will not generate product revenues.
Satisfaction of all regulatory requirements for commercialization of
a drug candidate typically takes many years, is dependent upon the type, complexity and novelty of the drug candidate, and requires the
expenditure of substantial resources for research and development. Our research and clinical approaches may not lead to drugs that the
FDA considers safe for humans and effective for indicated uses we are studying. The FDA may require studies in addition to those we are
conducting, in which case we or our collaborators would have to expend additional time and resources and would likely delay the date of
potentially receiving regulatory approval. The approval process may also be delayed by changes in government regulation, future legislation
or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory
approvals would:
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delay commercialization of, and product revenues from, our drug candidates; and |
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diminish the competitive advantages that we may have otherwise enjoyed, which would have an adverse effect on our operating results and financial condition. |
Even if we or our collaborators comply with all
FDA regulatory requirements, our drug candidates may never obtain regulatory approval. If we or our collaborators fail to obtain regulatory
approval for any of our drug candidates we will have fewer commercial products, if any, and corresponding lower product revenues, if any.
Even if our drug candidates receive regulatory approval, such approval may involve limitations on the indications and conditions of use
or marketing claims for our products. Further, later discovery of previously unknown problems or adverse events could result in additional
regulatory restrictions, including withdrawal of products. The FDA may also require us or our collaborators to commit to perform lengthy
Phase 4 post-approval clinical efficacy or safety studies. Our expending additional resources on such trials would have an adverse effect
on our operating results and financial condition.
In jurisdictions outside the United States, we
or our collaborators must receive marketing authorizations from the appropriate regulatory authorities before commercializing our drugs.
Regulatory approval processes outside the United States generally include all of the aforementioned requirements and risks associated
with FDA approval.
If we or our collaborators are unable to
design, conduct and complete successful clinical trials, our drug candidates will not be able to receive regulatory approval.
Before obtaining regulatory approvals for the
commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive nonclinical testing and clinical
trials that the product is both safe and effective for use in each target indication.
Results from early clinical trials may not support
moving a drug candidate to later-stage clinical trials. Phase 3 clinical trials may not demonstrate the safety or efficacy of our drug
candidates. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful. Results
of later clinical trials may not replicate the results of prior clinical trials and preclinical studies. Even if the results of Phase
3 clinical trials are positive, we or our collaborators may have to commit substantial time and additional resources to conducting further
preclinical studies and clinical trials before obtaining FDA approval for any of our drug candidates.
Clinical trials are very expensive and difficult
to design and implement, in part because they are subject to rigorous requirements. The clinical trial process also consumes a significant
amount of time. Furthermore, if participating patients in clinical trials suffer drug-related adverse reactions during the course of such
clinical trials, or if we, our collaborators or the FDA believe that participating patients are being exposed to unacceptable health risks,
such clinical trials will have to be suspended or terminated. Failure can occur at any stage of the clinical trials, and we or our collaborators
could encounter problems that cause abandonment or repetition of clinical trials.
Our clinical trials and our future clinical trials
for esmethadone measure clinical symptoms, such as depression that are not biologically measurable. The primary measure of depression
is subjective and can be influenced by factors outside of our control, and can vary widely from day to day for a particular patient, and
from patient to patient and site to site within a clinical study. The results we have obtained in completed animal studies or we have
observed in our clinical trials conducted to date may not be predictive of results from our future clinical trials. In addition, clinical
trial results from the study of depression are inherently difficult to predict.
We have a limited history of developing drug
candidates. We do not know whether any of our ongoing or planned clinical trials will result in marketable drugs.
In addition, completion of clinical trials can
be delayed by numerous factors, including:
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delays in identifying and agreeing on acceptable terms with prospective clinical trial sites; |
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slower than expected rates of patient recruitment and enrollment; |
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increases in time required to complete monitoring of patients during or after participation in a clinical trial. |
Any of these delays could significantly impact
the timing, approval and commercialization of our drug candidates and could significantly increase our overall costs of drug development.
We cannot predict whether regulatory agencies
will determine that the data from our clinical trials support marketing approval.
The FDA’s and other regulatory agencies’ decision to approve
our depression product candidate will depend on our ability to demonstrate with substantial clinical evidence through adequate well-controlled
clinical trials, that the product candidate is effective, as measured statistically by comparing the overall improvement in depression
in actively-treated patients against improvement in depression in the control group (a placebo control). However, there is a possibility
that our data may fail to show a statistically significant difference from the placebo control or the active control. Alternatively, there
is a possibility that our data may be statistically significant, but that the actual clinical benefit of the product candidates may not
be considered to be clinically significant, clinically relevant or clinically meaningful. Even if we believe that the data from our trials
will support marketing approval in the United States or in Europe, we cannot predict whether the agencies will agree with our analysis
and approve our applications.
Developments by competitors may establish
standards of care that affect our ability to conduct our clinical trials as planned.
Changes in standards related to clinical trial
design could affect our ability to design and conduct clinical trials as planned. In that case, both the cost and the amount of time required
to conduct a clinical trial could increase.
The DEA through its quota system limits
the availability of the active ingredients in certain of our current drug candidates and, as a result, the Company’s quotas for
these ingredients may not be sufficient to complete clinical trials, or to meet commercial demand or may result in clinical delays.
The DEA regulates certain controlled substance chemical compounds as
Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of abuse and Schedule V substances
the lowest risk. Esmethadone is the single isomer of methadone, a Schedule II compound, and its handling (including manufacture, research,
shipment, storage, sale and use) is subject to a high degree of federal and state oversight and regulation. Furthermore, the amount of
Schedule II substances that can be obtained for clinical trials and commercial distribution is limited by the DEA through its quota system.
Quotas may not be sufficient to complete clinical trials or meet commercial demand. There is a risk that federal statutes and DEA regulations
concerning applicable quotas may interfere with the supply of the drugs used in clinical trials for our product candidates, and, in the
future, the ability to manufacture and distribute esmethadone in the volume needed to meet commercial demand.
Conducting clinical trials of our drug candidates
or commercial sales of a drug candidate may expose us to expensive product liability claims and we may not be able to maintain product
liability insurance on reasonable terms or at all.
The risk of product liability is inherent in the
testing of pharmaceutical products. If we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities or be required to limit or terminate testing of one or more of our drug candidates. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the commercialization of
our drug candidates. We currently carry clinical trial insurance but do not carry product liability insurance. If we successfully commercialize
our drug candidates, we may face product liability claims, regardless of FDA approval for commercial manufacturing and sale. We may not
be able to obtain such insurance at a reasonable cost, if at all. Even if our agreements with any current or future corporate collaborators
entitle us to indemnification against product liability losses, such indemnification may not be available or adequate should any claim
arise.
If our drug candidates receive regulatory
approval, we and our collaborators will also be subject to ongoing FDA obligations and continued regulatory review, such as continued
safety reporting requirements, and we and our collaborators may also be subject to additional FDA post-marketing obligations or new regulations,
all of which may result in significant expense and limit our and our collaborators’ ability to commercialize our drugs.
Any regulatory approvals that our drug candidates
receive may also be subject to limitations on the indicated uses for which the drug may be marketed or contain requirements for costly
post-marketing follow-up studies. In addition, if the FDA approves any of our drug candidates, the manufacturing processes, labeling,
packaging, distribution, post-approval monitoring and adverse event reporting, storage, import, export, advertising, promotion and record
keeping for the drug will be subject to extensive and ongoing regulatory requirements. The FDA has significant post-market authority,
including the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials
to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market. The manufacturing facilities
used to manufacture our product candidates will also be subject to periodic review and inspection by the FDA and other regulatory agencies,
including for continued compliance with current good manufacturing practices (cGMPs) requirements. The discovery of any new or previously
unknown problems with our third-party manufacturers, manufacturing processes or facilities may result in restrictions on the product,
manufacturer or facility, including withdrawal of the product from the market. Any product promotion and advertising will also be subject
to regulatory requirements and continuing regulatory review. The FDA imposes stringent restrictions on manufacturers’ communications
regarding use of their products. If we promote our product candidates in a manner inconsistent with FDA-approved labeling or otherwise
not in compliance with FDA regulations, we may be subject to enforcement action. If we or our collaborators, manufacturers or service
providers fail to comply with applicable continuing regulatory requirements in the United States or foreign jurisdictions in which we
seek to market our products, we or they may be subject to, among other things, fines, warning or untitled letters, holds on clinical trials,
suspension or withdrawal of regulatory approval, product recalls and seizures, administrative detention of products, refusal to permit
the import or export of products, operating restrictions, injunction, civil penalties and criminal prosecution.
The FDA’s policies may change and additional government regulations
may be enacted that could prevent or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent
of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad.
Fast Track Designation may not lead to a faster development or
regulatory review or approval process.
We have obtained Fast
Track Designation for esmethadone for the adjunctive treatment of MDD. Fast Track Designation is granted if a drug is intended for the
treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition.
Fast Track Designation does not guarantee a faster development process, review or approval compared to conventional FDA procedures. The
FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development
program.
Even though we have obtained orphan drug designation in the United States
for esmethadone for the treatment of postherpetic neuralgia, we may not obtain or maintain orphan drug exclusivity for that
product candidate, and we may not obtain orphan drug designation or exclusivity for any of our other product candidates or indications.
The FDA may designate drugs for relatively small
patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended
to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United
States.
Generally, if a product with an orphan drug designation subsequently
receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing
exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same disease for seven years.
Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer
is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
We have obtained orphan drug designation for esmethadone for the treatment
of postherpetic neuralgia. If the product candidate were to obtain orphan drug exclusivity upon approval, such exclusivity would prevent
the FDA from approving another application to market a drug containing the same active moiety for the same orphan indication, except in
very limited circumstances, including when the FDA concludes that the later drug is safer, more effective or makes a major contribution
to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader
than the indication for which it received orphan designation.
Even though we have received orphan drug designation for esmethadone
for the treatment of postherpetic neuralgia, we may not be the first to obtain marketing approval for this active moiety for the orphan-designated
indication due to the uncertainties associated with developing pharmaceutical product candidates. Further, even if we obtain orphan drug
exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different
active moieties can be approved for the same condition or a drug with the same active moiety can be approved for a different indication.
Orphan drug designation by the FDA neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage
in the regulatory review or approval process. In addition, even if we intend to seek orphan drug designation for other product candidates
or indications, we may never receive such designations or obtain orphan drug exclusivity.
We may not be able to obtain marketing exclusivity
under the Hatch-Waxman Amendments or equivalent regulatory data exclusivity protection in other jurisdictions for our products.
We intend to rely, in part, on Hatch-Waxman
exclusivity for the commercialization of our products in the United States, if approved. The Hatch-Waxman Amendments provide marketing
exclusivity to the first applicant to gain approval of an NDA under specific provisions of the Federal Food, Drug, and Cosmetic Act.
For esmethadone, which we intend to elect to have not be considered the same active ingredient as methadone and therefore an NCE, we
anticipate obtaining 5-year exclusivity. If FDA were to determine that we do not meet the requirements to make the election, we may not
be able to obtain 5-year exclusivity for the product. In addition, under the statute, this election currently may only be made in an
NDA submitted before October 1, 2022. As we do not expect to submit an NDA before that date, if the statute is not amended to extend
the election, we would not obtain 5-year exclusivity for esmethadone, if approved.
There can be no assurance that European authorities will grant data
exclusivity for esmethadone, because it does not contain a new active molecule. Even if European data exclusivity is granted for esmethadone,
this may not protect us from direct competition. A competitor(s) with a generic version of our product may be able to obtain approval
of its product during our product’s period of data exclusivity, by submitting a marketing authorization application (MAA) with a
less than full package of nonclinical and clinical data.
We may need to focus our future efforts
in new therapeutic areas where we have little or no experience.
Although our primary strategic interest is in
the areas of depression, esmethadone has potential benefits in other therapeutic areas. If our drug development efforts in depression
fail, or if the competitive landscape or investment climate for antidepressant drug development is less attractive, we may need to change
the company’s strategic focus to include development of our product candidates, or of newly acquired product candidates, for therapeutic
areas other than depression. We have very limited drug development experience in other therapeutic areas and we may be unsuccessful in
making this change from a depression company to a company with a focus in areas other than depression or a company with a focus in multiple
therapeutic areas including depression.
Our product candidates contain controlled
substances, the supply of which may be limited by U.S. statutes and regulations, and the use of which may generate public controversy.
The active ingredients in esmethadone are listed by the CSA and regulations
promulgated by the DEA as controlled substances. The CSA and regulations promulgated by the DEA regulate certain drug substances in Schedule
I, II, III, IV or V, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the
lowest risk. These product candidates are also subject to the CSA and DEA regulations relating to their handling (i.e., manufacturing,
storage, distribution, prescribing and dispensing procedures).
Products containing controlled substances may
generate public controversy. Opponents of these products may seek restrictions on marketing and withdrawal of any regulatory approvals.
In addition, these opponents may seek to generate negative publicity in an effort to persuade the medical community to reject these products.
Political pressures and adverse publicity could lead to delays in, and increased expenses for, and limit or restrict the introduction
and marketing of our product candidates.
Failure to comply with the CSA or DEA regulations,
or the cost of compliance with these regulations, may adversely affect our business.
Esmethadone is subject to extensive regulation by the DEA. Although
esmethadone is substantially devoid of opioid activity, and psychotomimetic effects, it is currently classified as a Schedule II drug.
Upon approval, the DEA may continue to designate it as a controlled substance falling under a DEA controlled substance schedule.
Esmethadone is produced by separation from racemic methadone, a scheduled drug subject to extensive regulation by the DEA.
The manufacture, shipment, storage, sale and use of controlled substances
are subject to a high degree of regulation, including security, recordkeeping and reporting obligations enforced by the DEA. Schedule
II substances (as well as substances defined as narcotics in any Schedule) are subject to the strictest regulatory requirements and restrictions
involving registration, storage, security, recordkeeping and reporting. In particular, distribution and dispensing of Schedule II drugs
are strictly controlled. For example, all Schedule II drug prescriptions cannot be refilled and must contain a written or electronic signature
of a practitioner when presented to a pharmacy. This high degree of regulation can result in significant costs in order to comply with
the required regulations, which may have an adverse effect on the development and commercialization of our product candidates.
The DEA limits the availability and production of all scheduled substances,
including esmethadone, through a quota system. The DEA requires substantial evidence and documentation of expected legitimate medical
and scientific needs before assigning quotas to manufacturers. In future years, we may need greater amounts of controlled substances to
sustain our development program, and we will need significantly greater amounts to implement our commercialization plans if the FDA approves
our proposed formulations. Any delay or refusal by the DEA in establishing the procurement quota or a reduction in our quota for scheduled
controlled substances or a failure to increase it over time as we anticipate could delay or stop the clinical development or commercial
sale of some of our products or product candidates. This could have a material adverse effect on our business, results of operations,
financial condition and prospects.
If a supplier of an active pharmaceutical
ingredient (API) or a pharmaceutical excipient fails to provide us sufficient quantities, we may not be able to obtain an alternative
supply on a timely or acceptable basis.
Our pharmaceutical excipients and other APIs are multisource, although
not all sources have an active Drug Master File (DMF) with the FDA. (A DMF is a submission to the FDA used to provide confidential detailed
information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of drugs to support
drug development and approval). In addition, some of the countries for our multisource APIs may not be same as our drug manufacturing
locations. Thus, any disruption in supply from our preferred vendors could result in significant delays with our pharmaceutical development,
clinical trials, NDA submission, NDA approval or commercial sale of the finished product due to contract delays, the need to manufacture
a new batch of API, out of specification API, the need for import and export permits, and the failure of the newly sourced API to perform
to the standards of the previously sourced API.
Modifications to our products may require
new NDA approvals.
After a product candidate receives FDA approval, expanded uses or uses
in new indications of our products may require additional clinical trials and new regulatory approvals, including additional IND submissions
before we can begin clinical development and supplemental NDA approval prior to marketing and sales. If we are required to conduct additional
clinical studies, it would require additional expenditures and impact our operating results. Delays in obtaining required future approvals
could adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
Delays in the commencement or completion
of pharmaceutical development, manufacturing or clinical testing could result in increased costs to us and delay our ability to generate
revenues.
We do not know whether our pharmaceutical development, manufacturing
or clinical testing will be on time or be completed on schedule, if at all. For example, we may encounter delays during the manufacture
of pilot scale batches including delays with our contract development or manufacturing organization, sourcing satisfactory quantities
of APIs, narcotic import and export permits, sourcing of excipients, contract disputes with our third party vendors and manufacturers,
or failure of the product to meet specification. Similar delays may occur a during our cGMP manufacture of the product.
The commencement and completion of clinical trials
can be disrupted for a variety of reasons, including difficulties in:
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recruiting and enrolling patients to participate in a clinical trial; |
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reaching agreement on acceptable terms with prospective clinical research organizations and trial sites; |
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obtaining approval of the institutional review board (IRB) at each site selected for participation in our clinical trials; |
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manufacturing sufficient quantities of a product candidate; |
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A clinical trial may also be suspended or terminated
by us, the FDA or other regulatory authorities due to a number of factors, including:
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In addition, changes in regulatory requirements
and guidance may occur and we may need to amend clinical trial protocols to reflect these changes, which could impact the cost, timing
or successful completion of a clinical trial. If we experience delays in the commencement or completion of our clinical trials, the commercial
prospects for our product candidates will be harmed, and our ability to generate product revenues will be delayed. Many of the factors
that cause, or lead to, a delay in the commencement or completion of clinical trials may also lead to the denial of regulatory approval
of a product candidate.
Conducting successful clinical studies may
require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Patient enrollment in clinical trials and completion
of patient participation and follow-up depends on many factors, including the size of the patient population; the nature of the trial
protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability
of appropriate clinical trial investigators; support staff; the number of ongoing clinical trials in the same indication that compete
for the same patients; and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria for
participation in the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in our clinical trials
if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness
of our products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable
risks or discomforts. Patients may also not participate in our clinical trials if they choose to participate in contemporaneous clinical
trials of competitive products.
Adverse safety outcomes could affect our ability to conduct
our clinical trials or obtain approval of our product candidates.
Serious injury or death resulting from a failure
of one of our drug candidates during current or future clinical trials could result in the FDA delaying our clinical trials or denying
or delaying clearance or approval of a product. Even though an adverse event may not be the result of the failure of our drug candidate,
FDA or an IRB could delay or halt a clinical trial for an indefinite period of time while an adverse event is reviewed, and likely would
do so in the event of multiple such events. Any delay or termination of our current or future clinical trials as a result of the risks
summarized above, including delays in obtaining or maintaining required approvals from IRBs, delays in patient enrollment, the failure
of patients to continue to participate in a clinical trial, and delays or termination of clinical trials as a result of protocol modifications
or adverse events during the trials, may cause an increase in costs and delays in the submission of any NDAs to the FDA, delay the approval
and commercialization of our products or result in the failure of the clinical trial, which could adversely affect our business, operating
results and prospects. Lengthy delays in the completion of clinical trials of our products would adversely affect our business and prospects
and could cause us to cease operations.
On November 29, 2006, the FDA required a boxed warning to be added
to the Prescribing Information for racemic methadone, a parent compound to our esmethadone related to cardiac death. Although the decision
was based on case reports and not on a controlled clinical trial, as part of the development of esmethadone we are actively assessing
the cardiac safety profile of esmethadone in our Phase 3 clinical trials. There is no assurance that the results of our clinical studies
will demonstrate an absence of cardiac adverse events with esmethadone. An adverse safety outcome could result in a similar bolded warning
on the label of esmethadone or in a decision not to approve esmethadone, either one of which could have serious consequences for our continued
operation.
Esmethadone may require Risk Evaluation
and Mitigation Strategies (REMS).
Esmethadone, may require REMS. The REMS may include
requirements for special labeling or medication guides for patients, special communication plans to health care professionals and restrictions
on distribution and use. We cannot predict the specific REMS to be required as part of the FDA’s approval of any of our products.
Depending on the extent of the REMS requirements, our costs to commercialize our products may increase significantly. Furthermore, controlled
substances risks that are not adequately addressed through proposed REMS for our product candidates may also prevent or delay their approval
for commercialization.
Our products will face significant competition
in the markets for such products, and if they are unable to compete successfully, our business will suffer.
Our products candidates face, and will continue to face, intense competition
from large pharmaceutical companies, specialty pharmaceutical and biotechnology companies as well as academic and research institutions.
We compete in an industry that is characterized by: (i) rapid technological change, (ii) evolving industry standards, (iii) emerging competition
and (iv) new product introductions. Our competitors have existing products and technologies that will compete with our products and technologies
and may develop and commercialize additional products and technologies that will compete with our products and technologies. Because several
competing companies and institutions have greater financial resources than us, they may be able to: (i) provide broader services and product
lines, (ii) make greater investments in research and development, (R&D), and (iii) carry on larger R&D initiatives. Our
competitors also have greater development capabilities than we do and have substantially greater experience in undertaking nonclinical
and clinical testing of products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. They also have
greater name recognition and better access to customers than us. Our chief competitors include companies such as Johnson and Johnson,
Abbvie, Pfizer, Eli Lilly, Sage Therapeutics, and Axsome Therapeutics among others.
We may be exposed to liability claims associated
with the use of hazardous materials and chemicals.
Our research and development activities involve
the controlled use of hazardous materials and chemicals. Although we believe that our safety procedures for using, storing, handling and
disposing of these materials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental
injury or contamination from these materials. In the event of such an accident, we could be held liable for any resulting damages and
any liability could materially adversely affect our business, financial condition and results of operations. In addition, the federal,
state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials
and waste products may require us to incur substantial compliance costs that could materially adversely affect our business and financial
condition.
We may incur substantial liabilities and
may be required to limit commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products
entail an inherent risk of product liability. We may be held liable if serious adverse reactions from the use of our product candidates
occur. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required
to limit commercialization of our product candidates. Our inability to obtain sufficient product liability insurance at an acceptable
cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we
develop, alone or with corporate collaborators. We currently do not carry product liability insurance. We, or any corporate collaborators,
may not be able to obtain insurance at a reasonable cost, if at all. Even if our agreements with any future corporate collaborators entitle
us to indemnification against losses, such indemnification may not be available or adequate if any claim arises.
Risks Related to Our Intellectual Property
Our business depends upon securing and protecting
critical intellectual property.
Our commercial success will depend in part on
our obtaining and maintaining patent, trade secret, copyright and trademark protection of our technologies in the United States and other
jurisdictions as well as successfully enforcing this intellectual property and defending this intellectual property against third-party
challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable
intellectual property protection, such as patents or trade secrets, cover them. In particular, we place considerable emphasis on obtaining
patent and trade secret protection for significant new technologies, products and processes. Furthermore, the degree of future protection
of our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or
permit us to gain or keep our competitive advantage. Moreover, the degree of future protection of our proprietary rights is uncertain
for products that are currently in the early stages of development because we cannot predict which of these products will ultimately reach
the commercial market or whether the commercial versions of these products will incorporate proprietary technologies.
Our patent position is highly uncertain
and involves complex legal and factual questions.
Accordingly, we cannot predict the breadth of
claims that may be allowed or enforced in our patents or in third-party patents. For example, we or our licensors might not have been
the first to make the inventions covered by each of our pending patent applications and issued patents; we or our licensors might not
have been the first to file patent applications for these inventions; others may independently develop similar or alternative technologies
or duplicate any of our technologies; it is possible that none of our pending patent applications or the pending patent applications of
our licensors will result in issued patents; our issued patents and issued patents of our licensors may not provide a basis for commercially
viable technologies, or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties; and,
we may not develop additional proprietary technologies that are patentable.
As a result, our owned and licensed patents may
not be valid and we may not be able to obtain and enforce patents and to maintain trade secret protection for the full commercial extent
of our technology. The extent to which we are unable to do so could materially harm our business.
Unpatented trade secrets, improvements, confidential
know-how and continuing technological innovation are important to our scientific and commercial success. Although we attempt to and will
continue to attempt to protect our proprietary information through reliance on trade secret laws and the use of confidentiality agreements
with our corporate partners, collaborators, employees and consultants and other appropriate means, these measures may not effectively
prevent disclosure of our proprietary information, and, in any event, others may develop independently, or obtain access to, the same
or similar information.
Certain of our patent rights are licensed to us
by third parties. If we fail to comply with the terms of these license agreements, our rights to those patents may be terminated, and
we will be unable to conduct our business.
If we are found to be infringing on patents
or trade secrets owned by others, we may be forced to cease or alter our product development efforts, obtain a license to continue the
development or sale of our products, and/or pay damages.
Our manufacturing processes and potential products
may violate proprietary rights of patents that have been or may be granted to competitors, universities or others, or the trade secrets
of those persons and entities. As the pharmaceutical industry expands and more patents are issued, the risk increases that our processes
and potential products may give rise to claims that they infringe the patents or trade secrets of others. These other persons could bring
legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected product
or process. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain
a license in order to continue to conduct clinical tests, manufacture or market the affected product or use the affected process. Required
licenses may not be available on acceptable terms, if at all, and the results of litigation are uncertain. If we become involved in litigation
or other proceedings, it could consume a substantial portion of our financial resources and the efforts of our personnel.
Our ability to protect and enforce our patents
does not guaranty that we will secure the right to commercialize our patents.
A patent is a limited monopoly right conferred
upon an inventor, and his successors in title, in return for the making and disclosing of a new and non-obvious invention. This monopoly
is of limited duration but, while in force, allows the patent holder to prevent others from making and/or using his invention. While a
patent gives the holder this right to exclude others, it is not a license to commercialize the invention, where other permissions may
be required for permissible commercialization to occur. For example, a drug cannot be marketed without the appropriate authorization from
the FDA, regardless of the existence of a patent covering the product. Further, the invention, even if patented itself, cannot be commercialized
if it infringes the valid patent rights of another party.
Intellectual property rights do not necessarily
address all potential threats to our competitive advantage.
The degree of future protection afforded by our
intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business,
or permit us to maintain our competitive advantage. The following examples are illustrative:
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others may be able to make product that is similar to our current and future product candidates we intend to commercialize that is not covered by the patents that we own or license and have the right to enforce; |
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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
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it is possible that our current and future patent applications will
not lead to issued patents; |
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issued patents that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges; and |
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our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; and we may not develop additional proprietary technologies that are patentable. |
Risks Related to Government Regulation
We may undertake international operations,
which will subject us to risks inherent with operations outside of the United States.
Although we do not have any foreign operations
at this time, we intend to seek to obtain market clearances in foreign markets that we deem to generate significant opportunities. However,
even with the cooperating of a commercialization partner, conducting drug development in foreign countries involves inherent risks, including,
but not limited to: difficulties in staffing, funding and managing foreign operations; unexpected changes in regulatory requirements;
export restrictions; tariffs and other trade barriers; difficulties in protecting, acquiring, enforcing and litigating intellectual property
rights; fluctuations in currency exchange rates; and potentially adverse tax consequences.
If we were to experience any of the difficulties
listed above, or any other difficulties, any international development activities and our overall financial condition may suffer and cause
us to reduce or discontinue our international development and registration efforts.
We depend on our information technology
systems and those of our third-party collaborators, service providers, contractors or consultants. Our internal computer systems, or those
of our third-party collaborators, service providers, contractors or consultants, may fail or suffer security breaches, disruptions, or
incidents, which could result in a material disruption of our development programs or loss of data or compromise the privacy, security,
integrity or confidentiality of sensitive information related to our business and have a material adverse effect on our reputation, business,
financial condition or results of operations.
In the ordinary course of our business, we collect,
store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal
information. Our internal technology systems and infrastructure, and those of our current or future third-party collaborators, service
providers, contractors and consultants are vulnerable to damage from computer viruses, unauthorized access or use resulting from malware,
natural disasters, terrorism, war and telecommunication and electrical failures, denial-of-service attacks, cyber-attacks or cyber-intrusions
over the internet, hacking, phishing and other social engineering attacks, persons inside our organizations (including employees or contractors),
loss or theft, or persons with access to systems inside our organization. Attacks on information technology systems are increasing in
their frequency, levels of persistence, sophistication and intensity, and they are being conducted by increasingly sophisticated and organized
foreign governments, groups and individuals with a wide range of motives and expertise. In addition to extracting or accessing sensitive
information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and
other means to affect service reliability and threaten the security, confidentiality, integrity and availability of information. The prevalent
use of mobile devices that access sensitive information also increases the risk of data security incidents which could lead to the loss
of confidential information or other intellectual property. While to our knowledge we have not experienced any material system failure,
accident or security breach to date, if such an event were to occur and cause interruptions in our operations or the operations of third-party
collaborators, service providers, contractors and consultants, it could result in a material disruption of our development programs and
significant reputational, financial, legal, regulatory, business or operational harm. The costs to us to mitigate, investigate and respond
to potential security incidents, breaches, disruptions, network security problems, bugs, viruses, worms, malicious software programs and
security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information
technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions,
delays, cessation of service and other harm to our business and our competitive position.
Failure to comply with existing or future
laws and regulations related to privacy or data security could lead to government enforcement actions (which could include civil or criminal
fines or penalties), private litigation, other liabilities, and/or adverse publicity. Compliance or the failure to comply with such laws
could increase the costs of our products and services, could limit their use or adoption, and could otherwise negatively affect our operating
results and business.
Regulation of data processing is evolving, as
federal, state, and foreign governments continue to adopt new, or modify existing, laws and regulations addressing data privacy and security,
and the collection, processing, storage, transfer, and use of data. We and our partners may be subject to current, new, or modified federal,
state, and foreign data privacy and protection laws and regulations (e.g., laws and regulations that address data privacy and data security
including, without limitation, health data). These new or proposed laws and regulations are subject to differing interpretations and may
be inconsistent among jurisdictions, and guidance on implementation and compliance practices are often updated or otherwise revised, which
adds to the complexity of processing personal data. These and other requirements could require us or our partners to incur additional
costs to achieve compliance, limit our competitiveness, necessitate the acceptance of more onerous obligations in our contracts, restrict
our ability to use, store, transfer, and process data, impact our or our partners’ ability to process or use data in order to support
the provision of our products or services, affect our or our partners’ ability to offer our products and services in certain locations,
or cause regulators to reject, limit or disrupt our clinical trial activities.
Failure to comply with U.S. and international
data privacy and protection laws and regulations could result in government enforcement actions (which could include civil or criminal
penalties, fines or sanctions), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
Moreover, patients about whom we or our partners obtain information, as well as the providers who share this information with us, may
contractually limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights, failed
to comply with data protection laws, or breached our contractual obligations related to security or privacy, even if we are not found
liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business. Compliance
with data protection laws may be time-consuming, require additional resources and could result in increased expenses, reduce overall demand
for our products and services and make it more difficult to meet expectations of or commitments to customers or partners.
Our operations and relationships with future
customers, providers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and
regulations, which could expose us to penalties including criminal sanctions, civil penalties, contractual damages, reputational harm
and diminished profits and future earnings.
Healthcare providers and third-party payors will
play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future
arrangements with providers, third-party payors and customers will subject us to broadly applicable fraud and abuse and other healthcare
laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute
any product candidates for which we obtain marketing approval.
Restrictions under applicable U.S. federal and
state healthcare laws and regulations include the following:
| ● | the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either
the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under
federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback
Statute or specific intent to violate it in order to have committed a violation; |
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| ● | federal false claims laws, including the federal False Claims Act, imposes criminal and civil penalties,
including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented,
to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an
obligation to pay money to the federal government. In addition, the government may assert that a claim including items or services resulting
from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims
Act; |
| ● | HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing
or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent
to violate it in order to have committed a violation; |
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| ● | the federal Physician Payment Sunshine Act 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 report payments and other transfers of value provided during the previous year to physicians, as defined
by such law, physician assistants, certain types of advance practice nurses, and teaching hospitals, as well as certain ownership and
investment interests held by such physicians and their immediate family, which includes annual data collection and reporting obligations; |
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| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may
apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party
payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical 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;
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| ● | some state laws require pharmaceutical companies to comply with the pharmaceutical 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. |
Efforts to ensure that our business arrangements with third parties
will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities
will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable
fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages,
fines, imprisonment, exclusion of product candidates from government-funded healthcare programs, such as Medicare and Medicaid, disgorgement,
contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations.
If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded
healthcare programs.
Risks Related to Our Reliance on Third Parties
We have no manufacturing capabilities and
depend on other parties for our manufacturing operations. If these manufacturers fail to meet our requirements and strict regulatory requirements,
our product development and commercialization efforts may be materially harmed.
We do not own or operate facilities for drug manufacturing,
storage, distribution or quality testing. We currently rely, and may continue to rely, on third-party contract manufacturers to manufacture
APIs, drug products and other components of our product candidates. Reliance on third-party manufacturers may expose us to different risks
than if we were to manufacture product candidates ourselves.
The manufacturing process for a product candidate
is subject to FDA and foreign regulatory authority review. We, and our suppliers and manufacturers, must meet applicable manufacturing
requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory
standards, such as cGMPs. Securing marketing approval also requires the submission of information about the product manufacturing process
to, and inspection of manufacturing facilities by, the FDA and foreign regulatory authorities. If our contract manufacturers cannot successfully
manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or comparable foreign regulatory
authorities, we may not be able to rely on their manufacturing facilities for the manufacture of our product candidates. Moreover, we
do not control the manufacturing process at our contract manufacturers and are completely dependent on them for compliance with current
regulatory requirements. In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations
in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other
reasons, we may be forced to enter into an agreement with another third party, which we may not be able to do on reasonable terms, if
at all. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary
to the original manufacturer and we may have difficulty transferring such to another third party. These factors would increase our reliance
on such manufacturer or require us to obtain a license from such manufacturer in order to enable us, or to have another third party, manufacture
our product candidates.
We expect to continue to rely on third-party manufacturers
if we receive regulatory approval for any product candidate. To the extent that we have existing, or enter into future, manufacturing
arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner consistent with
contractual and regulatory requirements, including those related to quality control and assurance. Any manufacturing facilities used to
produce our products will be subject to periodic review and inspection by the FDA and foreign regulatory authorities, including for continued
compliance with cGMP requirements, quality control, quality assurance and corresponding maintenance of records and documents. If we are
unable to obtain or maintain third-party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not
be able to develop and commercialize our product candidates successfully. Our or a third party’s failure to execute on our manufacturing
requirements, comply with cGMPs or maintain a compliance status acceptable to the FDA or foreign regulatory authorities could adversely
affect our business in a number of ways, including:
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an inability to initiate or continue clinical trials of product candidates under development; |
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delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates; |
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subjecting third-party manufacturing facilities to additional inspections by regulatory authorities; |
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requirements to cease distribution or to recall batches of our product candidates; and |
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Our contract manufacturers may experience manufacturing
difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our contract manufacturers
were to encounter difficulties, our ability to provide our product candidates to patients in preclinical and clinical trials, or to provide
product for treatment of patients once approved, would be jeopardized.
We intend to rely on third parties to conduct
our preclinical studies and clinical trials. If these third parties do not perform as contractually required or otherwise expected, we
may not be able to obtain regulatory approval for our product candidates.
We do not currently, or in the future, intend
to conduct preclinical studies or clinical trials on our own, and instead will rely on third parties, such as contract research organizations
(CROs), medical institutions, clinical investigators and contract laboratories, to assist us with our preclinical studies and clinical
trials. Accordingly, we will have less control over the timing, quality and other aspects of preclinical studies and clinical trials than
we would have had we conducted them on our own. These investigators, CROs and consultants are not our employees and we will have limited
control over the amount of time and resources that they dedicate to our programs. These third parties may have contractual relationships
with other entities, some of which may be our competitors, which may draw time and resources from our programs. The third parties with
which we may contract might not be diligent, careful or timely in conducting our preclinical studies or clinical trials, resulting in
the preclinical studies or clinical trials being delayed or unsuccessful.
If we cannot contract with acceptable third parties
on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy legal and regulatory
requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical development programs could
be delayed and otherwise adversely affected. In all events, we will be responsible for ensuring that each of our preclinical studies and
clinical trials are conducted in accordance with the general investigational plan and protocols for the trial as well as applicable legal
and regulatory requirements. The FDA generally requires preclinical studies to be conducted in accordance with good laboratory practices
and clinical trials to be conducted in accordance with good clinical practices, including for designing, conducting, recording and reporting
the results of preclinical studies and clinical trials to assure that data and reported results are credible and accurate and that the
rights, integrity and confidentiality of clinical trial participants are protected. Our reliance on third parties that we do not control
will not relieve us of these responsibilities and requirements. Any adverse development or delay in our preclinical studies or clinical
trials as a result of our reliance on third parties could have a material and adverse effect on our business, financial condition, results
of operations and prospects.
Risks Related to Ownership of Our Common Stock
There is a limited market for our common
stock that may make it more difficult to dispose of your stock.
Our common stock is currently listed on the Nasdaq
Global Select Market under the symbol “RLMD”. There is a limited trading market for our common stock. Accordingly, there can
be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to
sell shares of our common stock, or the prices at which holders may be able to sell their common stock.
A sale of a substantial number of shares
of our common stock may cause the price of the common stock to decline.
If our stockholders sell substantial amounts of our common stock in
the public market, the market price of our common stock could fall. These sales also may make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem reasonable or appropriate. Stockholders who have held their
shares for at least six months are able to sell their shares pursuant to Rule 144 under the Securities Act of 1933, as amended (the Securities
Act). We have registered under separate registration statements in aggregate up to 21,041,717 shares of our common stock for sale into
the public market by certain selling stockholders named therein. These shares represent a large number of shares of our common stock,
and if sold in the market all at once or at about the same time, could depress the market price of our common stock during the period
the registration statement remains effective and could also affect our ability to raise equity capital.
We are subject to the reporting requirements
of federal securities laws, which can be expensive and may divert resources from other projects, thus impairing our ability grow.
We are a public reporting company and, accordingly, subject to the
information and reporting requirements of the Exchange Act and other federal securities laws, including compliance with the Sarbanes-Oxley
Act of 2002 (the Sarbanes-Oxley Act). The costs of preparing and filing annual and quarterly reports, proxy statements and other information
with the SEC and furnishing audited reports to stockholders cause our expenses to be higher than they would be if we remained privately
held.
It may be time consuming, difficult and costly
for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire
additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls
and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not
be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings with
the SEC current.
If we fail to establish and maintain an
effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability
to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our
common stock.
Effective internal control is necessary for us
to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not
be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation
with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial
condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered
failures of internal controls exist, and may in the future discover areas of our internal control that need improvement. In addition,
as a smaller reporting company, our independent registered public accounting firm is not required to formally attest to the effectiveness
of our internal control over financial reporting so long as we remain a smaller reporting company, which could increase the likelihood
of undiscovered errors in our internal controls or reported financial statements as compared to issuers whose independent registered public
accounting firms have provided such attestations.
Our stock price may be volatile.
The market price of our common stock is likely
to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including
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changes in our industry; |
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competitive pricing pressures; |
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our ability to obtain working capital financing; |
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additions or departures of key personnel; |
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock; |
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sales of our common stock; |
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our ability to execute our business plan; |
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operating results that fall below expectations; |
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regulatory developments; |
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economic and other external factors; |
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period-to-period fluctuations in our financial results; and |
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inability to develop or acquire new or needed technology or products. |
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations
may also materially and adversely affect the market price of our common stock.
The Nevada Revised Statutes and our articles
of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our Company, prevent attempts
to replace or remove current management and reduce the market price of our stock.
Provisions in our articles of incorporation and
bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example,
our articles of incorporation authorize our board of directors to issue up to 200,000,000 shares of “blank check” preferred
stock. As a result, without further stockholder approval, the board of directors has the authority to attach special rights, including
voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third
party to acquire us.
We are also subject to the anti-takeover provisions
of the Nevada Revised Statutes (NRS). Depending on the number of residents in the state of Nevada who own our shares, we could be subject
to the provisions of Sections 78.378 et seq. of the Nevada Revised Statutes, which, unless otherwise provided in the Company’s articles
of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting
shares. Our articles of incorporation and by-laws do not contain any provision which would currently keep the change of control restrictions
of Section 78.378 from applying to us.
In addition, our articles of incorporation and
amended and restated bylaws provide that our board of directors is classified into three classes of directors with staggered three-year
terms. Only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for
the remainder of their respective three-year terms. A third party may be discouraged from making a tender offer or
otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the
directors on a classified board of directors.
Our bylaws provides that a Nevada court
and the federal district courts of the United States will be the exclusive forum for substantially all disputes between us and our stockholders,
which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers
or employees.
Pursuant to our bylaws, to the fullest extent
permitted by law, and unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark
County, Nevada, is the sole and exclusive forum for any stockholder (including a beneficial owner of stock) to bring (a) any derivative
action or proceeding brought in the name or right of the Company or on our behalf, (b) any action asserting a claim of, or a claim based
on, breach of any fiduciary duty owed by any current or former director, officer, employee, agent or stockholder of the Company to the
Company or the Company’s stockholders, (c) any action arising or asserting a claim arising pursuant to any provision of NRS Chapters
78 or 92A or any provision of the articles of incorporation or our bylaws or (d) any action asserting a claim against us or any current
or former director, officer, employee or stockholder (including a beneficial owner of stock) governed by the internal affairs doctrine,
including, without limitation, any action to interpret, apply, enforce or determine the validity of our articles of incorporation or bylaws.
By its terms, to the fullest extent permitted by law, our forum selection provision applies to actions arising under the Securities Act
or Exchange Act. (However, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any
duty or liability created by the Exchange Act or the rules and regulations thereunder, and the Company does not intend for its exclusive
forum jurisdiction provision to apply to Exchange Act claims.) These choice of forum provisions may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees. If a
court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur
additional costs associated with resolving such action in other jurisdictions, which could harm our business.