ITEM 1. BUSINESS
On July 18, 2019, the Company filed
a certificate of amendment (the “Certificate of Amendment”) to the Company’s certificate of incorporation (the
“Certificate”) to change the Company’s name from “ContraVir Pharmaceuticals, Inc.” to “Hepion
Pharmaceuticals, Inc.” The name change became effective as of July 18, 2019.
Overview
We are a biopharmaceutical company headquartered
in Edison, New Jersey, focused on the development of pleiotropic drug therapy for treatment of chronic liver disease. This therapeutic
approach targets fibrosis and hepatocellular carcinoma (“HCC”) associated with non-alcoholic steatohepatitis (“NASH”),
viral hepatitis, and other liver diseases. Our cyclophilin inhibitor, CRV431, is being developed to offer benefits to address
these multiple complex pathologies. CRV431 is a cyclophilin inhibitor that targets multiple biochemical pathways involved in the
progression of liver disease. Preclinical studies with CRV431 in NASH models demonstrated consistent reductions in liver inflammation,
fibrosis, and cancerous tumors. CRV431 additionally shows antiviral activity towards hepatitis B, C, and D viruses which also
trigger liver disease.
NASH is the form of liver disease that
is triggered by what has come to be known as the “Western diet”, characterized especially by high-fat, high-sugar,
and processed foods. Among the effects of a prolonged Western diet is fat accumulation in liver cells (steatosis) which is described
as non-alcoholic fatty liver disease (“NAFLD”) and can predispose cells to injury. NAFLD may evolve
into NASH when the fatty liver begins to progress through stages of cell injury, inflammation, fibrosis, and carcinogenesis. People
who develop NASH often have additional predisposing conditions such as diabetes and hypertension, but the exact biochemical events
that trigger and maintain the progression are not well known. Many people in the early stages of disease do not have significant
symptoms and therefore do not know that they have it. NASH becomes evident and a major concern when the liver becomes fibrotic
and puts the individual at increased risk of developing cirrhosis and other complications. Individuals with advanced liver fibrosis
have significantly higher risk of developing liver cancer, although cancer may also arise in some patients before significant
hepatitis or fibrosis. NASH is increasing worldwide at an alarming rate due to the spread of the Western diet, obesity, and other
related conditions. Approximately 4-5% of the global population is estimated to have NASH, and that proportion is higher in the
USA. It is predicted that NASH will become the leading reason for individuals requiring a liver transplant in the USA as early
as 2020. Considering the serious outcomes linked to advancing NASH, the economic and social burden of the disease is enormous.
There are no simple blood tests to diagnose or track the progression of NASH, and no drugs are approved to specifically treat
the disease.
HCC is the major type of liver cancer,
accounting for 85-90% of all cases. NASH, hepatitis virus infection, and alcohol consumption all are major causes of HCC. Globally,
over 700,000 people die each year from liver cancer which is second only to lung cancer among all cancer-related deaths.
The high mortality is due to the fact that only around half of all people who develop HCC (in developed countries) receive the
diagnosis early enough to have an opportunity for therapeutic intervention. Additionally, recurrence rates are high, and current
treatment options remain limited.
HCC is a type of cancer in which the tissue
microenvironment plays a major role in its development. In most cases HCC is preceded by significant, long-term damage to liver
cells, inflammation and fibrosis. One-third of people with cirrhosis, a very advanced stage of liver disease, will eventually
progress to HCC. The chronic injury to the liver leads to many genetic mutations that eventually lead to transformation of cells
and formation of tumors. The noxious tissue microenvironment also promotes cancer by altering the function of immune cells and
endothelial cells which form tumor-supporting blood vessels. These various events underscore the importance of halting liver injury
and scarring as early and effectively as possible to prevent cancer development.
Viral hepatitis may be linked to one or
more viruses including hepatitis A, B, C, D, or E. Hepatitis B virus (“HBV”) is one of many hepatitis viruses that
selectively infect human liver cells and can establish persistent infections under certain conditions. Chronic infections, especially
by HBV, HCV, and HDV, cause progressive liver inflammation, fibrosis, cirrhosis, and cancer. Collectively, these infections represent
one of the 3 major triggers of progressive liver disease (NAFLD/NASH and alcohol being the others).
An HBV vaccine is available that, if administered prior
to HBV infection, assists the body in neutralizing the virus and blocking infection. However, vaccination is not efficacious
for people who are already infected with HBV, and the vaccine has not been historically available to everyone. As a result, an
estimated 240 million people worldwide have chronic HBV infection. Anti-HBV medications are used widely by chronically infected
individuals but usually are only effective in decreasing viral replication and viremia (virus in the blood), and NOT in eradicating
HBV from the liver. This is because HBV, unlike HCV, has evolved clever ways of persisting in liver cells and evading the immune
system. Thus, despite vaccines and anti-viral medications, chronic HBV infection remains a huge global health problem. Chronic
HBV infection is the leading cause of hepatocellular carcinoma, which kills around 350,000 people per year. A similar number of
people die each year from cirrhosis and other complications arising from HBV.
We are developing CRV431 as our lead molecule.
CRV431 is a cyclophilin inhibitor that targets specific isomerases that play an important role in protein folding in health and
in disease. To date, in vitro and/or in vivo studies have demonstrated reductions in HBV DNA, HBsAg, HBeAg, inhibition
of virus uptake (NTCP transport inhibition), and stimulation of innate immunity. Importantly, in vivo studies in a NASH
model of fibrosis and HCC have repeatedly demonstrated CRV431 reduces fibrosis scores and overall liver tumor burden. Hence, CRV431
is a pleiotropic molecule that may not only treat liver disease but may also serve to reduce important risk factors (e.g., HBV)
for developing the disease. We have completed a phase 1 study with CRV431 demonstrating safety, tolerability, and pharmacokinetics
(PK).
CRV431
CRV431 is a novel drug candidate designed
to target a class of proteins called cyclophilins, of which there are many isoforms. Cyclophilins play a role in health and in
the pathogenesis of certain diseases and are known as peptidyl prolyl isomerases. The isomerase activity plays an important role
in several biological processes including, for example, folding of proteins to confer certain 3-dimensional configurations. Additionally,
specific host cyclophilins (e.g., cyclophilin A, B, C, D) play a role in the pathogenesis of many diseases, including
liver disease and viral hepatitis.
Cyclophilins are pleiotropic enzymes that
play a role in injury and steatosis through mechanisms including cell death occurring through mitochondrial pore permeability
(cyclophilin D). Inhibition of cyclophilin D, therefore, may play an important role in protection from cell death. Cyclophilin
A binding to CD147 is known to play a role in inflammation, cyclophilin B plays a role in fibrosis through collagen production,
and cyclophilins also play a role in cirrhosis and cancer (e.g., cell proliferation and metastasis). Cyclophilin inhibition with
CRV431, therefore, may play an important role in reducing liver disease.
Important risk factors for development
of liver disease include viral hepatitis (HBV, HCV, HDV), alcohol, and non-alcoholic fatty liver disease and the more aggressive
form called non-alcoholic steatohepatitis. The life cycle of certain viruses, including for example, HBV, HIV, and hepatitis C
virus (“HCV”) infections are dependent on host proteins (cyclophilins) for the role they play in the virus life cycle
and propagation of the virus. CRV431 has been developed to inhibit the role of host cyclophilins and therefore interfere in viral
propagation. CRV431 does not directly target the virus and, as such, should be less susceptible to drug resistance, borne from
viral mutations.
Thus far, in vitro testing
of CRV431 has been conducted in-house and in collaboration with external groups including for example, the Scripps Research Institute
(Scripps). Data in various cell lines of either transfected or infected HBV demonstrates nanomolar efficacy (EC50 values) and
micromolar toxicity (CC50 values). The selective index (“SI”), therefore, is wide and suggests that CRV431 presents
a viable clinical drug candidate for the treatment of viral infections, including HBV. Additional testing in a transgenic mouse
model of HBV indicated that CRV431 reduced HBV DNA in the liver and HBsAg in serum. CRV431 is orally active and appears to be
well tolerated.
On May 10, 2018, we submitted an Investigational
New Drug Application (“IND”) to the U.S. Food and Drug Administration (“FDA”) to support initiation of
our CRV431 HBV clinical development program in the United States and received approval in June 2018. We completed the first
segment of our Phase 1 clinical activities for CRV431 in October 2018 wherein we reached a major clinical milestone of positive
data from a Phase I trial of CRV431 in humans. This achievement triggered the first milestone payment, as stated in the Merger
Agreement for the acquisition of Ciclofilin Pharmaceuticals, Inc. (“Ciclofilin”) and we paid a related milestone
payment of $1,000,000 and issued 1,439 shares of our common stock with a fair value of $55,398, representing 2.5% of our issued
and outstanding common stock as of June, 2016, to the Ciclofilin shareholders.
On June 17, 2019, we
submitted an IND to the FDA to support initiation of our CRV431 NASH clinical development program in the
United States and received approval in July 2019. We completed the first segment of a Phase 1 multiple ascending dose clinical
trial in December 2019.
TXL
TXL is a novel lipid acyclic nucleoside
phosphonate that is designed to deliver high intracellular concentrations of the active antiviral agent tenofovir diphosphate.
TXL’s novel structure results in decreased circulating levels of tenofovir (TFV), lowering systemic exposure and thereby
reducing the potential for renal side effects. We have completed Phase 1 and Phase 2 clinical trials in healthy volunteers and
HBV patients, demonstrating an efficacious agent with favorable safety and tolerability profile.
After a thorough review of the business
opportunity of TXL and the available resources of the Company to continue development of TXL, the Company made the decision to
terminate the License Agreement by and between us and Chimerix, dated December 17, 2014.
On April 2, 2019, we delivered
a notification to Chimerix of its intention to terminate the License Agreement by and between us and Chimerix, dated
December 17, 2014. The termination of the License Agreement became effective on June 1, 2019. Pursuant to the License
Agreement, Chimerix granted Hepion rights for the development and commercialization of TXL. Upon the effectiveness of the termination
of the License Agreement on June 1, 2019, Chimerix reacquired all worldwide rights to TXL.
Hepion made the decision to terminate the
License Agreement following its decision to no longer pursue development of TXL, and to focus its resources and development programs
on further advancing CRV431.
Intellectual Property
Patents and other proprietary intellectual
rights are crucial in our business and establishing and maintaining these rights are essential to justify the development of our
product candidate. We have sought, and intend to continue to seek, patent protection for our inventions and rely upon patents,
trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain a competitive
advantage for our product candidate. In order to protect these rights, know-how and trade secrets, we typically require employees,
consultants, collaborators and advisors to enter into confidentiality agreements with us, generally stating that they will not
disclose any confidential information about us to third parties for a certain period of time, and will otherwise not use confidential
information for anyone’s benefit but ours.
As patent applications in the U.S. are
maintained in secrecy until patents are published or issued, unless earlier publication is required under applicable law or in
connection with patents filed under the Patent Cooperation Treaty (“PCT”) or as publication of discoveries in the
scientific or patent literature often lags behind the actual discoveries, we cannot be certain that we or our licensors were the
first to make the inventions described in our pending patent applications or that we or our licensors were the first to file patent
applications for such inventions. Furthermore, the patent positions of biotechnology and pharmaceutical companies are highly uncertain
and involve complex legal and factual questions, and therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents or their enforceability cannot be predicted.
Pursuant to the terms of the Uruguay Round
Agreements Act, patents filed on or after June 8, 1995 have a term of 20 years from the date of filing, somewhat irrespective
of the period of time it may take for the patent to ultimately issue. This may shorten the period of patent protection afforded
to our products as patent applications in the biopharmaceutical sector often take considerable time to issue. Under the Drug Price
Competition and Patent Term Restoration Act of 1984, a sponsor may obtain marketing data exclusivity for a period of time following
FDA approval of certain drug applications, regardless of patent status, if the drug is a new chemical entity or if new clinical
studies were used to support the marketing application for the drug. The Drug Price Competition and Patent Term Restoration Act
of 1984 also allows a patent owner to obtain an extension of applicable patent terms for a period equal to one-half the period
of time elapsed between the filing of an IND and the filing of the corresponding New Drug Application (“NDA”) plus
the period of time between the filing of the NDA and FDA approval, with a five year maximum patent extension. We cannot be sure
that we will be able to take advantage of either the patent term extension or marketing data exclusivity provisions of this law.
On June 13, 2016 we completed our
merger with Ciclofilin Pharmaceuticals, Inc. (“CPI”) acquiring all its outstanding equity interests. Ciclofilin’s
lead asset, CPI-431-32, which we renamed CRV431, strengthens our liver disease portfolio and is currently in preclinical
development for the treatment of liver fibrosis and in development against hepatitis B virus (HBV). On February 14, 2014,
CPI, through its wholly owned subsidiary, had entered into a Purchase and Sale Agreement to acquire Aurinia Pharmaceuticals Inc.
(“Aurinia”) entire interest in CRV431. There was no upfront consideration. There are future milestone payments of
up to CAD $2.9 million, which are to be paid within 30 days of achieving such milestone. In addition to the milestone payments,
future payment obligations (in Canadian Dollars “CAD”) include a royalty of 2.5% of net sales. The amount payable
under the foregoing royalty obligation is uncapped.
Patents extend for varying periods according
to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained.
The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of
its coverage and the availability of legal remedies in the country.
While trade secret protection is an essential
element of our business and we have taken security measures to protect our proprietary information and trade secrets, we cannot
give assurance that our unpatented proprietary technology will afford us significant commercial protection. We seek to protect
our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and
consultants also sign agreements requiring that they assign to us their interests in intellectual property arising from their
work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with
us and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or
invalidated, and if so, there may not be an adequate corrective remedy available. Accordingly, we cannot ensure that employees,
consultants or third parties will not breach the confidentiality provisions in our contracts, infringe or misappropriate our trade
secrets and other proprietary rights or that measures we are taking to protect our proprietary rights will be adequate.
In the future, third parties may file claims
asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will
assert such claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business.
If we are forced to defend ourselves against such claims, whether they are with or without merit and whether they are resolved
in favor of, or against, our licensors or us, we may face costly litigation and the diversion of management’s attention
and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements.
These agreements, if necessary, may be unavailable in terms acceptable to us, or at all.
Sales and Marketing
We currently do not have any commercialization
or sales and marketing capabilities, and currently have no plans to invest in or build such capabilities internally. Currently,
we anticipate partnering or collaborating with, or licensing certain rights to, other larger pharmaceutical or biopharmaceutical
companies to support the development of our antiviral product candidate through late-stage clinical development and, if successful,
commercialization. However, we may decide not to license any development and commercialization rights to our product candidate
in the future.
Manufacturing
We do not own or operate any facilities
in which we can formulate and manufacture our product candidate. We intend to rely on contract manufacturers to produce all materials
required to conduct preclinical studies and clinical trials under current good manufacturing practices (“cGMP”), with
management and oversight of these activities by our management team. We have identified alternate sources of supply and other
contract manufacturers that can produce materials for our preclinical and clinical trial requirements on a timely basis. However,
if an existing or future contract manufacture fails to deliver on schedule, or at all, it could delay or interrupt the development
process for our product candidate and affect our operating results and estimated timelines.
We intend to use contract manufacturers
to produce clinical trial material for use in the clinical trials of CRV431.
Pharmaceutical Pricing and Reimbursement
In the U.S. and most foreign markets, any
revenue associated with the sale of our product candidate, if approved for sale, will depend largely upon the availability of
reimbursement from third-party payers. Third-party payers include various government health authorities such as The Centers for
Medicare and Medicaid Services (“CMS”), which administers Medicare and Medicaid in the U.S., managed-care providers,
private health insurers and other organizations. Third-party payers are increasingly challenging the price and examining the cost-effectiveness
of medical products and services, including pharmaceuticals. In addition, significant uncertainty exists as to the reimbursement
status of newly approved pharmaceutical products. Our products may ultimately not be considered cost-effective, and adequate third-party
reimbursement may not be available to enable us to maintain price levels sufficient to support a profitable operation or generate
an appropriate return on our investment in product development.
The U.S. and foreign governments periodically
propose and pass legislation designed to reduce the cost of healthcare and pharmaceutical products. Accordingly, legislation and
regulations affecting the pricing of pharmaceuticals may change before our product candidate is ever approved for sale. In addition,
the adoption of new legislation could further limit reimbursement for pharmaceuticals. Further, an increasing emphasis on managed
care in the U.S. has and will continue to increase the pressure on pharmaceutical pricing. The marketability of our products may
suffer if the government and other third-party payers fail to provide adequate coverage and reimbursement rates for our product
candidate.
We, and our existing collaborators, intend
to obtain coverage and reimbursement from these third-party payers for any of our products that may be approved for sale; however,
we cannot assure you that we will be successful in obtaining adequate coverage, reimbursement, or pricing, if any.
Regulatory Matters
Overview
The preclinical and clinical testing, manufacture,
labeling, storage, distribution, promotion, sale, export, reporting and record-keeping of drug products and product candidates
are subject to extensive regulation by numerous governmental authorities in the U.S., principally the FDA and corresponding state
agencies, and regulatory agencies in foreign countries.
Non-compliance with applicable regulatory
requirements can result in, among other things, total or partial suspension of the clinical development of a product candidate,
manufacturing and marketing, failure of the FDA or similar regulatory agency in other countries to grant marketing approval, withdrawal
of marketing approvals, fines, injunctions, seizure of products and criminal prosecution.
U.S. Regulatory Approval
Pursuant to FDA regulations, we are required
to successfully undertake a long and rigorous development process before our product candidate can be marketed or sold in the
U.S. This regulatory process typically includes the following steps:
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the
completion of satisfactory preclinical studies under the FDA’s Good Laboratory
Practices, or GLP, regulation;
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the
submission and acceptance of an IND that must be reviewed by the FDA or Clinical Trial
Application that must be reviewed by similar regulatory agencies in other countries and
become effective before human clinical trials may begin;
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obtaining
the approval of an Institutional Review Board, or IRB, or Ethics Committee, or EC, at
each site where we plan to conduct a clinical trial to protect the welfare and rights
of human subjects in clinical trials;
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the
successful completion of a series of adequate and well- controlled human clinical trials
to establish the safety, potency, efficacy and purity of any product candidate for its
intended use, which conform to the FDA’s good clinical practice, or GCP, regulations;
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the
development and demonstration of manufacturing processes that conform to FDA-mandated
current Good Manufacturing Practices, or cGMPs; and
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the
submission to, and review and approval by, the FDA of a New Drug Application, or NDA,
or a Biologic License Application, or BLA, prior to any commercial sale or shipment of
a product.
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Successfully completing this development
process requires a substantial amount of time and financial resources. We cannot assure you that this process will result in the
granting of an approval for our product candidate on a timely basis, if at all, or that we will have sufficient financial resources
to see the process for our product candidate through to completion.
Preclinical Studies
Preclinical studies generally include laboratory,
or in vitro, evaluation of a product candidate, its chemistry, formulation, stability and toxicity, as well as certain in vivo
animal studies to assess a product’s potential safety and biologic activity. We must submit the results of these preclinical
studies, together with other information, including manufacturing records, analytical data and proposed clinical trial protocols,
to the FDA as part of an IND, which must be reviewed and become effective before we may begin any human clinical trials. An IND
generally becomes effective approximately 30 days after receipt by the FDA, unless the FDA, within this 30-day time period,
raises material concerns or questions about the intended conduct of the trials and imposes what is referred to as a clinical hold.
If our product candidate is placed on clinical hold, we may be required to resolve any outstanding issues to the satisfaction
of the FDA before we could begin, or continue, clinical trials of such product candidate. Preclinical studies supportive of an
IND generally take a year or more to complete, and there is no guarantee that an IND based on those studies will become effective,
allowing human clinical testing to begin.
Certain preclinical studies must be conducted
in compliance with the FDA’s GLP regulations and the U.S. Department of Agriculture’s Animal Welfare Act. Violations
of these regulations can, in some cases, lead to invalidation of the studies, requiring such studies to be conducted again.
Clinical Trials
This clinical trial phase of drug development
follows a successful IND submission and involves the activities necessary to demonstrate the safety, tolerability, biologic activity,
efficacy and dosage of an investigational new drug substance in humans, as well as the ability to produce the drug substance in
accordance with the FDA’s cGMP requirements. Clinical trials are conducted under protocols detailing, among other things,
the objectives of the study and the parameters to be used in assessing the safety and the activity or efficacy of the product
candidate. Each clinical trial protocol must be submitted to the FDA as part of the IND prior to beginning the trial. Each trial
and the clinical protocol must be reviewed, approved and conducted under the auspices of an IRB and, with limited exceptions,
requires the patient’s informed consent to participate in the trial. Sponsors, investigators, and IRBs also must satisfy
extensive GCPs, including regulations and guidelines for obtaining informed consent from the study subjects, complying with the
protocol and investigational plan, adequately monitoring the clinical trial, and reporting any serious adverse events on a timely
basis. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health or safety risk.
Clinical trials to support an NDA or BLA
for marketing approval are typically conducted in three sequential phases: Phase 1, 2 and 3, with Phase 4 clinical trials
often conducted after marketing approval has been granted. The FDA may require sponsors to conduct Phase 4 clinical trials
to study certain safety issues or other patient populations. Data from these activities are compiled in an NDA or a BLA for submission
to the FDA requesting approval to market the drug. These phases may be compressed, may overlap, or may be omitted in some circumstances.
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Phase 1:
After an IND becomes effective, Phase 1 human clinical trials can begin. A product
candidate is typically introduced either into healthy human subjects or in some cases,
patients with the medical condition for which the product candidate is intended to be
used. Generally, the purpose of a Phase 1 trial is to assess a product candidate’s
safety and the ability of the human body to tolerate it at different dose levels. Absorption,
metabolism, distribution and pharmacokinetic trials are also generally performed at this
stage. Phase 1 trials typically evaluate these aspects of the investigational drug
in both single doses, as well as multiple doses.
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Phase 2:
During Phase 2 clinical trials, a product candidate is generally studied in
an exploratory trial or trials in a limited number of patients with the disease or medical
condition for which it is intended to be used in order to (i) further identify any
possible adverse side effects and safety risks, (ii) assess the preliminary or potential
efficacy or biologic activity of the product candidate for specific targeted diseases
or medical conditions, and (iii) assess dose tolerance and determine the optimal
dose for a subsequent Phase 2 or Phase 3 trial. Phase 2 trials generally
involve patients who are divided into one or more groups that will get one of several
dose levels of the product candidate, and a control group that is not treated with the
product candidate but either receives a placebo or a drug already on the market for the
same indication. Typically, two or more Phase 2 studies will be conducted for a
product candidate prior to advancing to Phase 3.
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Phase 3:
If and when one or more Phase 2 trials demonstrate that a specific dose or range
of doses of a product candidate is potentially effective and has an acceptable safety
profile, one or more Phase 3 trials may be undertaken to further demonstrate or
confirm the clinical efficacy and safety of the investigational drug in an expanded patient
population, with the goal of evaluating its overall risk-benefit relationship. Phase 3
trials are generally designed to reach a specific goal or endpoint, the achievement of
which is intended to demonstrate the product candidate’s clinical efficacy. The
successful demonstration of clinical efficacy and safety in one or more Phase 3
trials is typically a prerequisite to the filing of an NDA or BLA for a product candidate.
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In the case of product candidates being
developed for serious or life- threatening diseases, such as HBV, Phase 1 trials may be conducted in patients with the respective
disease rather than in healthy volunteers. These studies may provide initial evidence of activity or efficacy traditionally obtained
in Phase II clinical trials, and therefore these trials may be referred to as Phase 1/2 or Phase 1b clinical trials.
A company may request an “end-of-Phase 2
Meeting” with the FDA to assess the safety of the dose regimen to be studied in the Phase 3 clinical trial, to evaluate
the planned design of a Phase 3 trial, and to identify any additional information that will be needed to support a NDA. If
a Phase 3 clinical trial has been the subject of discussion at an “end- of-Phase 2 Meeting,” the trial sponsor
may be eligible for a Special Protocol Assessment (“SPA”), by the FDA, a process by which the FDA, at the request
of the sponsor, will evaluate the trial protocol and issues relating to the protocol within 45 days to assess whether it
is deemed to be adequate to meet the scientific and regulatory requirements identified by the sponsor. If the FDA and the sponsor
reach agreement on the design and size of a Phase 3 clinical trial intended to form the primary basis of an efficacy claim
in an NDA or BLA, the FDA may reduce the understanding to writing. The SPA, however, is not a guarantee of product approval by
the FDA, or approval of any permissible claims about the product.
Throughout the various phases of clinical
development, samples of the product candidate made in different batches are tested for stability to establish any shelf life constraints.
In addition, large-scale production protocols and written standard operating procedures for each aspect of commercial manufacture
and testing must be developed. Phase 1, 2, and 3 testing may not be completed successfully within any specified time period,
if at all. The FDA closely monitors the progress of each of the three phases of clinical development that are conducted under
an IND and may, at its discretion, reevaluate, alter, suspend, or terminate further evaluation or trials based upon the data accumulated
to that point and the FDA’s assessment of the risk/benefit ratio to the subject or patient. The FDA, the sponsor, or an
IRB may suspend or terminate a clinical trial at any time for various reasons, including a finding that the subjects or patients
are being exposed to an unacceptable health or safety risk. The FDA can also request additional clinical trials be conducted as
a condition to product approval or advancement to the next stage of development. Additionally, new government requirements may
be established that could delay or prevent regulatory approval of products under development. Furthermore, IRBs, which are
independent entities constituted to protect human subjects in the institutions in which clinical trials are being conducted, have
the authority to suspend clinical trials in their respective institutions at any time for a variety of reasons, including safety
issues. A Data Safety Monitoring Board may suspend or terminate a clinical trial at any time on various grounds, including a finding
that the subjects or patients are being exposed to an unacceptable health or safety risk.
Clinical trials performed outside the U.S.
under an IND must meet the same requirements that apply to studies conducted in the U.S. The FDA may accept a foreign clinical
study not conducted under an IND only if the study is well- designed, well-conducted, performed by qualified investigators, and
conforms to the ethical principles contained in the Declaration of Helsinki, or with the laws and regulations of the country in
which the research was conducted, whichever provides greater protection of the human subjects.
Certain information about clinical trials,
including a description of the study, participation criteria, location of study sites, and contact information, is required to
be sent to the National Institutes of Health, (“NIH”) for inclusion in a publicly-accessible database that is available
at www.clinicaltrials.gov. Sponsors also are subject to certain state laws imposing requirements to make publicly available certain
information on clinical trial results. In addition, the Food and Drug Administration Amendments Act of 2007 directed the FDA to
issue regulations that will require sponsors to submit to the NIH the results of all controlled clinical studies, other than Phase 1
studies.
New Drug and Biologics License Applications
If and when we believe that all the requisite
clinical trials for a product candidate have been completed with satisfactory and supporting clinical data, we must submit a NDA
or BLA to the FDA in order to obtain approval for the marketing and sale of a product candidate in the U.S. Among many other items,
an NDA or BLA typically includes the results of all preclinical and toxicology studies and human clinical trials and a description
of the manufacturing process and quality control methods. The FDA must approve the NDA or BLA prior to the marketing and sale
of the related product. The FDA may deny an NDA or BLA if it believes all applicable regulatory criteria are not satisfied, or
it may require additional data, including clinical, toxicology, safety or manufacturing data prior to approval. The FDA has 60 days
from its receipt of an NDA or BLA to review the application to ensure that it is sufficiently complete for a substantive review
before accepting it for filing. The FDA may request additional information rather than accept an NDA or BLA for filing. In this
event, the NDA or BLA must be amended with the additional information. The FDA may also refer applications for novel drug products
or drug products which present difficult questions of safety or efficacy to an 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. The
FDA is not bound by the recommendation of an advisory committee.
An NDA or BLA can receive either standard
or priority review. A product candidate representing a potentially significant improvement in the treatment, prevention or diagnosis
of a life threatening or serious disease may receive a priority review. In addition, product candidates studied for their safety
and effectiveness in treating serious or life-threatening illnesses that provide meaningful therapeutic benefit over existing
treatments may also receive accelerated approval on the basis of adequate and well-controlled clinical trials establishing that
the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on the basis
of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require
that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing Phase 4 clinical
trials. Priority review and accelerated approval do not change the standards for approval but may expedite the approval process.
If the results of the FDA’s evaluation
of the NDA or BLA, and inspection of manufacturing facilities and clinical sites are favorable, the FDA will issue an approval
letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for a specific indication.
As a condition of NDA or BLA approval, the FDA may require post-approval testing, including Phase 4 trials, and surveillance
to monitor the drug’s safety or efficacy and may impose other conditions, including labeling or distribution restrictions
which can materially impact the potential market and profitability of the drug. Once granted, product approvals may be withdrawn
if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
If the FDA determines that it cannot approve
the application in its present form, it generally issues what is referred to as a complete response letter. A complete response
letter will describe all the specific deficiencies that the agency has identified in an application that must be met in order
to secure final approval of the NDA or BLA. If and when those conditions are met to the FDA’s satisfaction, the FDA will
typically re-review the application and possibly issue an approval letter. However, even after submitting this additional information,
the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. It can take several
years for the FDA to approve an NDA or BLA once it is submitted, and the actual time required for any product candidate to be
approved may vary substantially, depending upon the nature, complexity and novelty of the product candidate.
We cannot assure you that the FDA, or any
other similar regulatory agency in another country, will grant approval for our product candidate on a timely basis, if at all.
Success in preclinical or early-stage clinical trials does not assure success in later stage clinical trials. Data obtained from
preclinical and clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay,
limit or prevent regulatory approval.
Post-Approval Regulations
If and when a product candidate receives
regulatory approval to be marketed and sold, the approval is typically limited to a specific clinical indication or use. Further,
even after regulatory approval is obtained, subsequent discovery of previously unknown safety problems with a product may result
in restrictions on its use, or even complete withdrawal of the product from the market. Any FDA-approved products manufactured
or distributed by us are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse
events or experiences. Further, drug manufacturers and their subcontractors are required to register their establishments with
the FDA and state agencies and are subject to periodic inspections by the FDA and state agencies for compliance with cGMP regulations,
which impose rigorous procedural and documentation requirements upon us and our contract manufacturers. We cannot be certain that
we, or our present or future contract manufacturers or suppliers, will be able to comply with cGMP regulations and other FDA regulatory
requirements. Failure to comply with these requirements may result in, among other things, total or partial suspension of production
activities for our current and future product candidates, failure of the FDA to grant approval for marketing of such product candidate,
and withdrawal, suspension, or revocation of marketing approvals.
If the FDA approves our product candidate,
we, or our collaborators if applicable, and our contract manufacturers must provide the FDA with certain updated safety, efficacy
and manufacturing information. Product changes, as well as certain changes in the manufacturing process or facilities where the
manufacturing occurs, or other post-approval changes may necessitate additional FDA review and approval. We rely, and expect to
continue to rely, on third parties for the formulation and manufacture of clinical and commercial quantities of our products.
Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt
production or distribution or require substantial resources to correct.
The labeling, advertising, promotion, marketing
and distribution of an approved drug or biologic product must also comply with FDA and Federal Trade Commission (“FTC”)
requirements which include, among others, standards and regulations for direct-to-consumer advertising, off-label promotion, industry
sponsored scientific and educational activities, and promotional activities involving the Internet. The FDA and FTC have very
broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a Warning
Letter directing us to correct deviations from regulatory standards and enforcement actions that can include seizures, fines,
injunctions and criminal prosecution.
The FDA’s policies may change in
the future and additional government regulations may be enacted that could prevent or delay regulatory approval of our product
candidate. Moreover, increased attention to the containment of health care costs in the U.S. and in foreign markets could result
in new government regulations that could have a material adverse effect on our business. We cannot predict the likelihood, nature
or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the
U.S. or abroad, or the impact such changes could have on our business.
Once an approval is granted, the FDA may
withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches
the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes
and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance
programs to monitor the effect of approved products that have been commercialized, and in some circumstances the FDA has the power
to prevent or limit further marketing of a product based on the results of these post-marketing programs.
From time to time, legislation is drafted,
introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing
and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by
the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative
changes will be enacted, or whether FDA regulations, guidance or interpretations will change or what the impact of such changes,
if any, may be.
Foreign Regulatory Approval
In addition to regulations in the U.S.,
we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial
sales and distribution of our products.
Whether or not we obtain FDA approval for
a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of
clinical trials or marketing of the product in those countries. Certain countries outside of the U.S. have a similar process that
requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials.
In Europe, for example, a clinical trial application, or CTA, must be submitted to each country’s national health authority
and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s
requirements, clinical trial development may proceed.
The requirements and process governing
the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical
trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their
origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational
drug under European Union regulatory systems, we must submit a marketing authorization application. The application used to file
the NDA in the U.S. is similar to that required in Europe, with the exception of, among other things, country-specific document
requirements. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country.
In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the
ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign
regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
Medicines can be authorized in the European
Union by using either the centralized authorization procedure or national authorization procedures.
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Centralized
procedure. The EMA implemented the centralized procedure for the approval of human
medicines to facilitate marketing authorizations that are valid throughout the European
Union. This procedure results in a single marketing authorization issued by the EMA that
is valid across the European Union, as well as Iceland, Liechtenstein and Norway. The
centralized procedure is compulsory for human medicines that are: derived from biotechnology
processes, such as genetic engineering, contain a new active substance indicated for
the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative
disorders or autoimmune diseases and other immune dysfunctions, and officially designated
orphan medicines.
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For
medicines that do not fall within these categories, an applicant has the option of submitting
an application for a centralized marketing authorization to the EMA, as long as the medicine
concerned is a significant therapeutic, scientific or technical innovation, or if its
authorization would be in the interest of public health.
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National
authorization procedures. There are also two other possible routes to authorize medicinal
products in several countries, which are available for investigational drug products
that fall outside the scope of the centralized procedure:
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Decentralized
procedure. Using the decentralized procedure, an applicant may apply for simultaneous
authorization in more than one European Union country of medicinal products that have
not yet been authorized in any European Union country and that do not fall within the
mandatory scope of the centralized procedure.
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Mutual
recognition procedure. In the mutual recognition procedure, a medicine is first authorized
in one European Union Member State, in accordance with the national procedures of that
country. Following this, further marketing authorizations can be sought from other European
Union countries in a procedure whereby the countries concerned agree to recognize the
validity of the original, national marketing authorization.
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Employees
As of December 31, 2019, we had 12 employees.
Our relations with our employees are satisfactory.
Corporate Information
We were incorporated under the laws of
the State of Delaware in May 2013. Our principal executive offices are located at 399 Thornall Street, First Floor, Edison,
New Jersey. Our telephone number is (732) 902-4000. We also maintain a research laboratory in Edmonton, Canada
Available Information
Our annual report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the United States Securities and Exchange
Commission, or the SEC, and all amendments to these filings, are available, free of charge, on our website at www.Hepion.com as
soon as reasonably practicable following our filing of any of these reports with the SEC. You can also obtain copies free of charge
by contacting our Investor Relations department at our office address listed above. The public may read and copy any materials
we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Room 1580, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically
with the SEC at www.sec.gov. The information posted on or accessible through these websites are not incorporated into this filing.
ITEM 1A. RISK FACTORS
An investment in our common stock involves
a high degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors,
in addition to the other information included in this Annual Report, including our financial statements and related notes, before
deciding whether to invest in shares of our common stock. The occurrence of any of the adverse developments described in the following
risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that
case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
We have incurred losses since inception, anticipate that
we will incur continued losses for the foreseeable future indicating the possibility that we may not be able to operate in the
future.
As of the years ended December 31, 2019
and 2018, we had an accumulated deficit of $83.2 million, and $76.5 million, respectively. We expect to incur significant and
increasing operating losses for the next several years as we expand our research and development efforts, continue our clinical
trials, acquire or license technologies, advance other product candidates into clinical development, complete clinical trials,
seek regulatory approval and, if we receive FDA approval, commercialize our products. Primarily as a result of our losses incurred
to date, our expected continued future losses, and limited cash balances, management concluded that there is substantial doubt
about our ability to continue as a going concern. Our independent registered public accounting firm has also included in its report
an explanatory paragraph regarding this uncertainty. Our ability to continue as a going concern is contingent upon, among other
factors, the sale of the shares of our common stock or obtaining alternate financing. We cannot provide any assurance that we
will be able to raise additional capital.
If we are unable to secure additional capital,
we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to
conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant
delays in our clinical and regulatory efforts, which is critical to the realization of our business plan. The accompanying financial
statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. It is not
possible for us to predict at this time the potential success of our business. The revenue and income potential of our business
and operations are currently unknown. If we cannot continue as a viable entity, you may lose some or all of your investment in
our company.
We
will require substantial additional funding which may not be available to us on acceptable terms, or at all. If we fail to raise
the necessary additional capital, we may be unable to complete the development and commercialization of our product candidate
or continue our development programs.
We expect to significantly increase our
spending to advance the preclinical and clinical development of our product candidate and launch and commercialize any product
candidate for which we receive regulatory approval, including building our own commercial organizations to address certain markets.
We will require additional capital for the further development and commercialization of our product candidate, as well as to fund
our other operating expenses and capital expenditures.
We cannot be certain that additional funding
will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product
candidate. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than
otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could
significantly harm our business, financial condition and prospects.
Our future capital requirements will depend
on many factors, including:
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the
progress of the development of our product candidate;
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the
number of product candidates we pursue;
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the
time and costs involved in obtaining regulatory approvals;
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the
costs involved in filing and prosecuting patent applications and enforcing or defending
patent claims;
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our
plans to establish sales, marketing and/or manufacturing capabilities;
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the
effect of competing technological and market developments;
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the
terms and timing of any collaborative, licensing and other arrangements that we may establish;
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general
market conditions for offerings from biopharmaceutical companies;
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our
ability to establish, enforce and maintain selected strategic alliances and activities
required for product commercialization; and
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our
revenues, if any, from successful development and commercialization of our product candidate.
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In order to carry out our business plan
and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to
raise additional funds through strategic collaborations, licensing arrangements, public or private equity or debt financing, bank
lines of credit, asset sales, government grants, or other arrangements. We cannot be sure that any additional funding, if needed,
will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive
to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest
costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights
to certain of our product candidate or marketing territories. Our inability to raise capital when needed would harm our business,
financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations
altogether.
Our product candidate CVRV431 is
in the early stages of development and its commercial viability remains subject to the successful outcome of current and future
preclinical studies, clinical trials, regulatory approvals and the risks generally inherent in the development of a pharmaceutical
product candidate. If we are unable to successfully advance or develop our product candidate, our business will be materially
harmed.
In the near-term, failure to successfully
advance the development of our product candidate may have a material adverse effect on us. To date, we have not successfully developed
or commercially marketed, distributed or sold any product candidate. The success of our business depends primarily upon our ability
to successfully advance the development of our product candidate through preclinical studies and clinical trials, have our product
candidate approved for sale by the FDA or regulatory authorities in other countries, and ultimately have our product candidate
successfully commercialized by us or a strategic partner. We cannot assure you that the results of our ongoing preclinical studies
or clinical trials will support or justify the continued development of our product candidate, or that we will receive approval
from the FDA, or similar regulatory authorities in other countries, to advance the development of our product candidate.
Our product candidate must satisfy rigorous
regulatory standards of safety and efficacy before we can advance or complete their clinical development, or they can be approved
for sale. To satisfy these standards, we must engage in expensive and lengthy preclinical studies and clinical trials, develop
acceptable manufacturing processes, and obtain regulatory approval of our product candidate. Despite these efforts, our product
candidate may not:
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offer
therapeutic or other medical benefits over existing drugs or other product candidates
in development to treat the same patient population;
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be
proven to be safe and effective in current and future preclinical studies or clinical
trials;
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have
the desired effects;
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be
free from undesirable or unexpected effects;
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meet
applicable regulatory standards;
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be
capable of being formulated and manufactured in commercially suitable quantities and
at an acceptable cost; or
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be
successfully commercialized by us or by collaborators.
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Even if we demonstrate favorable results
in preclinical studies and early-stage clinical trials, we cannot assure you that the results of late-stage clinical trials will
be favorable enough to support the continued development of our product candidate. Several companies in the pharmaceutical and
biopharmaceutical industries have experienced significant delays, setbacks and failures in all stages of development, including
late-stage clinical trials, even after achieving promising results in preclinical testing or early-stage clinical trials. Accordingly,
results from completed preclinical studies and early-stage clinical trials of our product candidate may not be predictive of the
results we may obtain in later-stage trials. Furthermore, even if the data collected from preclinical studies and clinical trials
involving our product candidate demonstrate a satisfactory safety and efficacy profile, such results may not be sufficient to
support the submission of a New Drug Application, or NDA or a biologics license application, or BLA to obtain regulatory approval
from the FDA in the U.S., or other similar regulatory agencies in other jurisdictions, which is required to market and sell the
product.
Our product candidate will require significant
additional research and development efforts, the commitment of substantial financial resources, and regulatory approvals prior
to advancing into further clinical development or being commercialized by us or collaborators. We cannot assure you that our product
candidate will successfully progress through the drug development process or will result in commercially viable products. We do
not expect our product candidate to be commercialized by us or collaborators for at least several years.
Our product candidate may exhibit
undesirable side effects when used alone or in combination with other approved pharmaceutical products or investigational new
drugs, which may delay or preclude further development or regulatory approval or limit their use if approved.
Throughout the drug development process,
we must continually demonstrate the safety and tolerability of our product candidate to obtain regulatory approval to further
advance clinical development or to market them. Even if our product candidate demonstrates biologic activity and clinical efficacy,
any unacceptable adverse side effects or toxicities, when administered alone or in the presence of other pharmaceutical products,
which can arise at any stage of development, may outweigh potential benefits. In preclinical studies and clinical trials were
conducted to date, our product candidate has demonstrated an acceptable safety profile, although these studies and trials have
involved a small number of subjects or patients over a limited period of time. We may observe adverse or significant adverse events
or drug-drug interactions in future preclinical studies or clinical trial candidates, which could result in the delay or termination
of development, prevent regulatory approval, or limit market acceptance if ultimately approved.
If the results of preclinical studies
or clinical trials for our product candidate, including those that are subject to existing or future license or collaboration
agreements, are unfavorable or delayed, we could be delayed or precluded from the further development or commercialization of
our product candidate, which could materially harm our business.
In
order to further advance the development of, and ultimately receive regulatory approval to sell, our product candidate, we must
conduct extensive preclinical studies and clinical trials to demonstrate their safety and efficacy to the satisfaction of the
FDA or similar regulatory authorities in other countries, as the case may be. Preclinical studies and clinical trials are expensive,
complex, can take many years to complete, and have highly uncertain outcomes. Delays, setbacks, or failures can occur at any time,
or in any phase of preclinical or clinical testing, and can result from concerns about safety or toxicity, a lack of demonstrated
efficacy or superior efficacy over other similar products that have been approved for sale or are in more advanced stages of development,
poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conduct the
trials. The results of prior preclinical studies or clinical trials are not necessarily predictive of the results we may observe
in later stage clinical trials. In many cases, product candidates in clinical development may fail to show desired safety and
efficacy characteristics despite having favorably demonstrated such characteristics in preclinical studies or earlier stage clinical
trials.
In addition, we may experience numerous
unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay or impede our
ability to advance the development of, receive regulatory approval for, or commercialize our product candidate, including, but
not limited to:
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communications
with the FDA, or similar regulatory authorities in different countries, regarding the
scope or design of a trial or trials;
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regulatory
authorities (including an Institutional Review Board or Ethical Committee) or IRB or
EC, not authorizing us to commence or conduct a clinical trial at a prospective trial
site;
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enrollment
in our clinical trials being delayed, or proceeding at a slower pace than we expected,
because we have difficulty recruiting patients or participants dropping out of our clinical
trials at a higher rate than we anticipated;
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our third-party
contractors, upon whom we rely for conducting preclinical studies, clinical trials and
manufacturing of our trial materials, may fail to comply with regulatory requirements
or meet their contractual obligations to us in a timely manner;
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having
to suspend or ultimately terminate our clinical trials if participants are being exposed
to unacceptable health or safety risks;
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IRBs,
ECs or regulators requiring that we hold, suspend or terminate our preclinical studies
and clinical trials for various reasons, including non-compliance with regulatory requirements;
and
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the
supply or quality of drug material necessary to conduct our preclinical studies or clinical
trials being insufficient, inadequate or unavailable.
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Even if the data collected from preclinical
studies or clinical trials involving our product candidate demonstrate a satisfactory safety and efficacy profile, such results
may not be sufficient to support the submission of a NDA or BLA to obtain regulatory approval from the FDA in the U.S., or other
similar foreign regulatory authorities in foreign jurisdictions, which is required to market and sell the product.
If third party vendors upon whom we
intend to rely on to conduct our preclinical studies or clinical trials do not perform or fail to comply with strict regulations,
these studies or trials of our product candidate may be delayed, terminated, or fail, or we could incur significant additional
expenses, which could materially harm our business.
We have limited resources dedicated to
designing, conducting and managing preclinical studies and clinical trials. We intend to rely on third parties, including clinical
research organizations, consultants and principal investigators, to assist us in designing, managing, monitoring and conducting
our preclinical studies and clinical trials. We intend to rely on these vendors and individuals to perform many facets of the
drug development process, including certain preclinical studies, the recruitment of sites and patients for participation in our
clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting our trials
in compliance with the trial protocol, including safety monitoring and applicable regulations. If these third parties fail to
perform satisfactorily, or do not adequately fulfill their obligations under the terms of our agreements with them, we may not
be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies
and clinical trials of our product candidate may be delayed or prove unsuccessful. Further, the FDA, or other similar foreign
regulatory authorities, may inspect some of the clinical sites participating in our clinical trials in the U.S., or our third-party
vendors’ sites, to determine if our clinical trials are being conducted according to Good Clinical Practices or GCPs. If
we or the FDA determine that our third-party vendors are not in compliance with, or have not conducted our clinical trials according
to, applicable regulations we may be forced to delay, repeat or terminate such clinical trials.
We have limited capacity for recruiting
and managing clinical trials, which could impair our timing to initiate or complete clinical trials of our product candidate and
materially harm our business.
We have limited capacity to recruit and
manage the clinical trials necessary to obtain FDA approval or approval by other regulatory authorities. By contrast, larger pharmaceutical
and bio-pharmaceutical companies often have substantial staff with extensive experience in conducting clinical trials with multiple
product candidates across multiple indications. In addition, they may have greater financial resources to compete for the same
clinical investigators and patients that we are attempting to recruit for our clinical trials.
If approved and commercialized, CRV431
intends to compete with numerous therapies for the treatment of NASH that are currently in development. To our knowledge, other
potential competitors are in both later and earlier stages of development. If potential competitors are successful in completing
drug development for their product candidates and obtain approval from the FDA, they could limit the demand for CRV431.
As a result, we may be at a competitive
disadvantage that could delay the initiation, recruitment, timing, completion of our clinical trials and obtaining regulatory
approvals, if at all, for our product candidate.
We, and our collaborators, must comply
with extensive government regulations in order to advance our product candidate through the development process and ultimately
obtain and maintain marketing approval for our products in the U.S. and abroad.
The product candidate that we, or our collaborators,
are developing require regulatory approval to advance through clinical development and to ultimately be marketed and sold and
are subject to extensive and rigorous domestic and foreign government regulation. In the U.S., the FDA regulates, among other
things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion,
sale and distribution of pharmaceutical and biopharmaceutical products.
Our product candidate is also subject to
similar regulation by foreign governments to the extent we seek to develop or market them in those countries. We, or our collaborators,
must provide the FDA and foreign regulatory authorities, if applicable, with preclinical and clinical data, as well as data supporting
an acceptable manufacturing process, that appropriately demonstrate our product candidates’ safety and efficacy before they
can be approved for the targeted indications. Our product candidate has not been approved for sale in the U.S. or any foreign
market, and we cannot predict whether we or our collaborators will obtain regulatory approval for any product candidate we are
developing or plan to develop. The regulatory review and approval process can take many years, is dependent upon the type, complexity,
novelty of, and medical need for the product candidate, requires the expenditure of substantial resources, and involves post-marketing
surveillance and vigilance and ongoing requirements for post-marketing studies or Phase 4 clinical trials. In addition, we
or our collaborators may encounter delays in, or fail to gain, regulatory approval for our product candidate based upon additional
governmental regulation resulting from future legislative, administrative action or changes in FDA’s or other similar foreign
regulatory authorities’ policy or interpretation during the period of product development. Delays or failures in obtaining
regulatory approval to advance our product candidate through clinical development, and ultimately commercialize them, may:
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adversely
impact our ability to raise sufficient capital to fund the development of our product
candidate;
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adversely
affect our ability to further develop or commercialize our product candidate;
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diminish
any competitive advantages that we or our collaborators may have or attain; and
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adversely
affect the receipt of potential milestone payments and royalties from the sale of our
products or product revenues.
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Furthermore, any regulatory approvals,
if granted, may later be withdrawn. If we or our collaborators fail to comply with applicable regulatory requirements at any time,
or if post-approval safety concerns arise, we or our collaborators may be subject to restrictions or a number of actions, including:
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delays,
suspension or termination of clinical trials related to our products;
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refusal
by regulatory authorities to review pending applications or supplements to approved applications;
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product
recalls or seizures;
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suspension
of manufacturing;
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withdrawals
of previously approved marketing applications; and
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fines,
civil penalties and criminal prosecutions.
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Additionally, at any time we or our collaborators
may voluntarily suspend or terminate the preclinical or clinical development of a product candidate, or withdraw any approved
product from the market if we believe that it may pose an unacceptable safety risk to patients, or if the product candidate or
approved product no longer meets our business objectives. The ability to develop or market a pharmaceutical product outside of
the U.S. is contingent upon receiving appropriate authorization from the respective foreign regulatory authorities. Foreign regulatory
approval processes typically include many, if not all, of the risks and requirements associated with the FDA regulatory process
for drug development and may include additional risks.
We have limited experience in the development
of small molecule antiviral product candidates and therefore may encounter difficulties developing our product candidate or managing
our operations in the future.
Our product candidate, CRV431 is a chemical
compound, also referred to as small molecules. We have limited experience in the discovery, development and manufacturing of these
small molecule antiviral compounds. In order to successfully develop our product candidate, we must continuously supplement our
research, clinical development, regulatory, medicinal chemistry, virology and manufacturing capabilities through the addition
of key employees, consultants or third-party contractors to provide certain capabilities and skill sets that we do not possess.
Furthermore, we have adopted an operating
model that largely relies on the outsourcing of several responsibilities and key activities to third-party consultants, and contract
research and manufacturing organizations in order to advance the development of our product candidate. Therefore, our success
depends in part on our ability to retain highly qualified key management personnel, and directors to develop, implement and execute
our business strategy, operate the Company and oversee the activities of our consultants and contractors, as well as academic
and corporate advisors or consultants to assist us in this regard. We are currently highly dependent upon the efforts of our management
team. In order to develop our product candidate, we need to retain or attract certain personnel, consultants or advisors with
experience in the drug development activities of small molecules that include a number of disciplines, including research and
development, clinical trials, medical matters, government regulation of pharmaceuticals, manufacturing, formulation and chemistry,
business development, accounting, finance, regulatory affairs, human resources and information systems. We are highly dependent
upon our senior management and scientific staff, particularly Dr. Robert Foster, our Chief Executive Officer. The loss of
services of Dr. Foster or our other member of senior management could delay or prevent the successful completion of our planned
clinical trials or the commercialization of our product candidate.
Our success depends in part on our continued
ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop
and maintain important relationships with leading academic institutions, clinicians and scientists. The competition for qualified
personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnel as we expand our
clinical development and commercial activities. While we have not had difficulties recruiting qualified individuals, to date,
we may not be able to attract and retain quality personnel on acceptable terms given the competition for such personnel among
biotechnology, pharmaceutical and other companies. Although we have not experienced material difficulties in retaining key personnel
in the past, we may not be able to continue to do so in the future on acceptable terms, if at all. If we lose any key managers
or employees or are unable to attract and retain qualified key personnel, directors, advisors or consultants, the development
of our product candidate could be delayed or terminated, and our business may be harmed.
We will need to obtain FDA approval
of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.
A pharmaceutical product cannot be marketed
in the U.S. or other countries until we have completed rigorous and extensive regulatory review processes, including approval
of a brand name. Any brand names we intend to use for our product candidate will require approval from the FDA regardless of whether
we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or the PTO. The FDA typically conducts
a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA
may also object to a product brand name if the FDA believes the name inappropriately implies medical claims. If the FDA objects
to any of our proposed product brand names, we may be required to adopt an alternative brand name for our product candidate. If
we adopt an alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate
and may be required to expend significant additional resources in an effort to identify a suitable product brand name that would
qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may
be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability
to commercialize our product candidate.
Clinical trials involve a lengthy and
expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Our product candidate may not prove to
be safe and efficacious in clinical trials and may not meet all the applicable regulatory requirements needed to receive regulatory
approval. In order to receive regulatory approval for the commercialization of our product candidate, we must conduct, at our
own expense, extensive preclinical testing and clinical trials to demonstrate safety and efficacy of our product candidate for
the intended indication of use. Clinical testing is expensive, can take many years to complete, if at all, and its outcome is
uncertain. Failure can occur at any time during the clinical trial process.
The results of preclinical studies and
early clinical trials of new drugs do not necessarily predict the results of later-stage clinical trials. The design of our clinical
trials is based on many assumptions about the expected effects of our product candidate, and if those assumptions are incorrect
it may not produce statistically significant results. Preliminary results may not be confirmed on full analysis of the detailed
results of an early clinical trial. Product candidates in later stages of clinical trials may fail to show safety and efficacy
sufficient to support intended use claims despite having progressed through initial clinical testing. The data collected from
clinical trials of our product candidate may not be sufficient to support the filing of an NDA or to obtain regulatory approval
in the United States or elsewhere. Because of the uncertainties associated with drug development and regulatory approval, we cannot
determine if or when we will have an approved product for commercialization or achieve sales or profits.
Delays in clinical testing could result
in increased costs to us and delay our ability to generate revenue.
We may experience delays in clinical testing
of our product candidate. We do not know whether planned clinical trials will begin on time, will need to be redesigned or will
be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory
approval to commence a clinical trial, in securing clinical trial agreements with prospective sites with acceptable terms, in
obtaining institutional review board approval to conduct a clinical trial at a prospective site, in recruiting patients to participate
in a clinical trial, related to the COVID-19 pandemic, or in obtaining sufficient supplies of clinical trial materials. Many factors
affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility
criteria for the clinical trial, competing clinical trials and new drugs approved for the conditions we are investigating. Clinical
investigators will need to decide whether to offer their patients enrollment in clinical trials of our product candidate versus
treating these patients with commercially available drugs that have established safety and efficacy profiles. Any delays in completing
our clinical trials will increase our costs, slow down our product development, timeliness and approval process and delay our
ability to generate revenue.
The regulatory approval processes of
the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately
unable to obtain regulatory approval for our product candidate, our business will be substantially harmed.
The time required to obtain approval by
the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical
trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval
policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product
candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product
candidate and it is possible that our existing product candidate or any product candidate we may seek to develop in the future
will ever obtain regulatory approval.
Our product candidate could fail to receive
regulatory approval for many reasons, including the following:
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the
FDA or comparable foreign regulatory authorities may disagree with the design or implementation
of our clinical trials;
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we
may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory
authorities that a product candidate is safe and effective for its proposed indication;
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the
results of clinical trials may not meet the level of statistical significance required
by the FDA or comparable foreign regulatory authorities for approval;
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the
FDA or comparable foreign regulatory authorities may disagree with our interpretation
of data from preclinical studies or clinical trials;
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the
data collected from clinical trials of our product candidate may not be sufficient to
support the submission of an NDA or other submission or to obtain regulatory approval
in the United States or elsewhere;
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the
FDA or comparable foreign regulatory authorities may fail to approve the manufacturing
processes or facilities of third-party manufacturers with which we contract for clinical
and commercial supplies;
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the
FDA or comparable foreign regulatory authorities may fail to approve the companion diagnostics
we contemplate developing with partners; and
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the
approval policies or regulations of the FDA or comparable foreign regulatory authorities
may significantly change in a manner rendering our clinical data insufficient for approval.
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This lengthy approval process as well as
the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product
candidate, which would significantly harm our business, results of operations and prospects.
In addition, even if we were to obtain
approval, regulatory authorities may approve our product candidate for fewer or more limited indications than we request, may
grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with
a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product
candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidate.
We have not previously submitted a biologics
license application, or BLA, or a New Drug Application, or NDA, to the FDA, or similar drug approval filings to comparable foreign
authorities, for our product candidate, and we cannot be certain that our product candidate will be successful in clinical trials
or receive regulatory approval. Further, our product candidate may not receive regulatory approval even if they are successful
in clinical trials. If we do not receive regulatory approvals for our product candidate, we may not be able to continue our operations.
Even if we successfully obtain regulatory approvals to market our product candidate, our revenues will be dependent, in part,
upon our collaborators’ ability to obtain regulatory approval of the companion diagnostics to be used with our product candidate,
as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the
markets for patients that we are targeting for our product candidate are not as significant as we estimate, we may not generate
significant revenues from sales of such products, if approved.
We plan to seek regulatory approval and
to commercialize our product candidate, directly or with a collaborator, worldwide including the United States, the European Union
and other additional foreign countries which we have not yet identified. While the scope of regulatory approval is similar in
other countries, to obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory
requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial
sales, pricing and distribution of our product candidate, and we cannot predict success in these jurisdictions.
We may be required to suspend or discontinue
clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidate.
Our clinical trials may be suspended at
any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe
that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order
the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not
being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the
clinical trial patients.
Administering any of our product candidate
to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product
candidate and could result in the FDA or other regulatory authorities denying further development or approval of our product candidate
for any or all targeted indications. Ultimately, our product candidate may prove to be unsafe for human use. Moreover, we could
be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result
of participating in our clinical trials.
If we fail to comply with healthcare
regulations, we could face substantial enforcement actions, including civil and criminal penalties and our business, operations
and financial condition could be adversely affected.
As a developer of pharmaceuticals, even
though we do not intend to make referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers,
certain federal and state healthcare laws and regulations pertaining to fraud and abuse, false claims and patients’ privacy
rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse laws and patient privacy
laws of both the federal government and the states in which we conduct our business. The laws include:
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the
federal healthcare program anti-kickback law, which prohibits, among other things, persons
from soliciting, receiving or providing remuneration, directly or indirectly, to induce
either the referral of an individual, for an item or service or the purchasing or ordering
of a good or service, for which payment may be made under federal healthcare programs
such as the Medicare and Medicaid programs;
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federal
false claims laws which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or
other third-party payers that are false or fraudulent, and which may apply to entities
like us which provide coding and billing information to customers;
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the
federal Health Insurance Portability and Accountability Act of 1996, which prohibits
executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters and which also imposes certain requirements relating to
the privacy, security and transmission of individually identifiable health information;
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the
Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug
manufacturing and product marketing, prohibits manufacturers from marketing drug products
for off-label use and regulates the distribution of drug samples; and
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state
law equivalents of each of the above federal laws, such as anti-kickback and false claims
laws which may apply to items or services reimbursed by any third-party payer, including
commercial insurers, and state laws governing the privacy and security of health information
in certain circumstances, many of which differ from each other in significant ways and
often are not preempted by federal laws, thus complicating compliance efforts.
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If our operations are found to be in violation
of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including
civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines,
curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot
be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses and divert management’s attention from the operation of our business. Moreover, achieving
and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
If we are unable to satisfy regulatory
requirements, we may not be able to commercialize our product candidate.
We need FDA approval prior to marketing
our product candidate in the United States. If we fail to obtain FDA approval to market our product candidate, we will be unable
to sell our product candidate in the United States and we will not generate any revenue.
The FDA’s review and approval process,
including among other things, evaluation of preclinical studies and clinical trials of a product candidate as well as the manufacturing
process and facility, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with
substantial evidence from well-designed and well-controlled pre- clinical testing and clinical trials that the product candidate
is both safe and effective for each indication for which approval is sought. Satisfaction of these requirements typically takes
several years, and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical
product. We cannot predict if or when we will submit an NDA for approval for our product candidate currently under development.
Any approvals we may obtain may not cover all the clinical indications for which we are seeking approval or may contain significant
limitations on the conditions of use.
The FDA has substantial discretion in the
NDA review process and may either refuse to file our NDA for substantive review or may decide that our data is insufficient to
support approval of our product candidate for the claimed intended uses. Following any regulatory approval of our product candidate,
we will be subject to continuing regulatory obligations such as safety reporting, required and additional post marketing obligations,
and regulatory oversight of promotion and marketing. Even if we receive regulatory approvals, the FDA may subsequently seek to
withdraw approval of our NDA if we determine that new data or a reevaluation of existing data show the product is unsafe for use
under the conditions of use upon the basis of which the NDA was approved, or based on new evidence of adverse effects or adverse
clinical experience, or upon other new information. If the FDA does not file or approve our NDA or withdraws approval of our NDA,
the FDA may require that we conduct additional clinical trials, preclinical or manufacturing studies and submit that data before
it will reconsider our application. Depending on the extent of these or any other requested studies, approval of any applications
that we submit may be delayed by several years, may require us to expend more resources than we have available, or may never be
obtained at all.
We will also be subject to a wide variety
of foreign regulations governing the development, manufacture and marketing of our products to the extent we seek regulatory approval
to develop and market our product candidate in a foreign jurisdiction. As of the date hereof we have not identified any foreign
jurisdictions which we intend to seek approval from. Whether or not FDA approval has been obtained, approval of a product by the
comparable regulatory authorities of foreign countries must still be obtained prior to marketing the product in those countries.
The approval process varies, and the time needed to secure approval in any region such as the European Union or in a country with
an independent review procedure may be longer or shorter than that required for FDA approval. We cannot assure you that clinical
trials conducted in one country will be accepted by other countries or that an approval in one country or region will result in
approval elsewhere.
If our product candidate is unable to compete effectively
with marketed drugs targeting similar indications as our product candidate, our commercial opportunity will be reduced or eliminated.
We face competition generally from established
pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public
research institutions. Many of our competitors have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products
than we do. Small or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large, established companies. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize
any drugs that are safer, more effective, have fewer side effects or are less expensive than our product candidate. These potential
competitors compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial
sites and patient enrollment for clinical trials, as well as in acquiring technologies and technology licenses complementary to
our programs or advantageous to our business.
If approved and commercialized, CRV431
intends to compete with at numerous therapies for the treatment of NASH that are currently in development. To our knowledge, other
potential competitors are in both later and earlier stages of development. If potential competitors are successful in completing
drug development for their product candidates and obtain approval from the FDA, they could limit the demand for CRV431.
We expect that our ability to compete effectively
will depend upon our ability to:
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successfully
identify and develop key points of product differentiations from currently available
therapies;
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successfully
and rapidly complete clinical trials and submit for and obtain all requisite regulatory
approvals in a cost-effective manner;
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maintain
a proprietary position for our products and manufacturing processes and other related
product technology;
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attract
and retain key personnel;
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develop
relationships with physicians prescribing these products; and
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build
an adequate sales and marketing infrastructure for our product candidate.
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Because we will be competing against significantly
larger companies with established track records, we will have to demonstrate that, based on experience, clinical data, side-effect
profiles and other factors, our products, if approved, are competitive with other products. If we are unable to compete effectively
and differentiate our products from other marketed shingles drugs, we may never generate meaningful revenue.
We currently have no sales and marketing organization.
If we are unable to establish a direct sales force in the United States to promote our products, the commercial opportunity for
our products may be diminished.
We currently have no sales and marketing
organization. We will incur significant additional expenses and commit significant additional management resources to establish
our sales force. We may not be able to establish these capabilities despite these additional expenditures. We will also have to
compete with other pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel. If we
elect to rely on third parties to sell our product candidate in the United States, we may receive less revenue than if we sold
our products directly. In addition, although we would intend to use due diligence in monitoring their activities, we may have
little or no control over the sales efforts of those third parties. In the event we are unable to develop our own sales force
or collaborate with a third party to sell our product candidate, we may not be able to commercialize our product candidate which
would negatively impact our ability to generate revenue.
We
may need others to market and commercialize our product candidate in international markets.
In the future, if appropriate regulatory
approvals are obtained, we may commercialize our product candidate in international markets. However, we have not decided how
to commercialize our product candidate in those markets. We may decide to build our own sales force or sell our products through
third parties. If we decide to sell our product candidate in international markets through a third party, we may not be able to
enter into any marketing arrangements on favorable terms or at all. In addition, these arrangements could result in lower levels
of income to us than if we marketed our product candidate entirely on our own. If we are unable to enter into a marketing arrangement
for our product candidate in international markets, we may not be able to develop an effective international sales force to successfully
commercialize those products in international markets. If we fail to enter into marketing arrangements for our products and are
unable to develop an effective international sales force, our ability to generate revenue would be limited.
If the manufacturers upon whom we rely fail to produce
our product candidate, in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable
to pharmaceutical drug manufacturers, we may face delays in the development and commercialization of our product candidate.
We do not currently possess internal manufacturing
capacity. We plan to utilize the services of contract manufacturers to manufacture our clinical supplies. Any curtailment in the
availability of CRV431, however, could result in production or other delays with consequent adverse effects on us. In addition,
because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material
suppliers may result in production delays or higher raw material costs.
We continue to pursue active pharmaceutical
ingredients, or API, and drug product supply agreements with other manufacturers. We may be required to agree to minimum volume
requirements, exclusivity arrangements or other restrictions with the contract manufacturers. We may not be able to enter into
long-term agreements on commercially reasonable terms, or at all. If we change or add manufacturers, the FDA and comparable foreign
regulators may require approval of the changes. Approval of these changes could require new testing by the manufacturer and compliance
inspections to ensure the manufacturer is conforming to all applicable laws and regulations and good manufacturing practices or
GMP. In addition, the new manufacturers would have to be educated in or independently develop the processes necessary to produce
our product candidate.
The manufacture of pharmaceutical products
requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process
controls. Manufacturers of pharmaceutical products may encounter difficulties in production, particularly in scaling up production.
These problems include difficulties with production costs and yields, quality control, including stability of the product and
quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign regulations.
In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials,
increase the costs associated with conducting our clinical trials and, depending upon the period of delay, require us to commence
new clinical trials at significant additional expense or to terminate a clinical trial.
We are responsible for ensuring that each
of our contract manufacturers comply with the GMP requirements of the FDA and other regulatory authorities from which we seek
to obtain product approval. These requirements include, among other things, quality control, quality assurance and the maintenance
of records and documentation. The approval process for NDAs includes a review of the manufacturer’s compliance with GMP
requirements. We are responsible for regularly assessing a contract manufacturer’s compliance with GMP requirements through
record reviews and periodic audits and for ensuring that the contract manufacturer takes responsibility and corrective action
for any identified deviations. Manufacturers our product candidate may be unable to comply with these GMP requirements and with
other FDA and foreign regulatory requirements, if any.
While we will oversee compliance by our
contract manufacturers, ultimately, we will not have control over our manufacturers’ compliance with these regulations and
standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension
or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety our product candidate
is compromised due to a manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to
obtain regulatory approval for or successfully commercialize our product candidate, and we may be held liable for any injuries
sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization
of our product candidate, entail higher costs or result in us being unable to effectively commercialize our product candidate.
Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis and at commercially reasonable
prices, we may be unable to meet demand for any approved products and would lose potential revenues.
We may not be able to manufacture our product candidate
in commercial quantities, which would prevent us from commercializing our product candidate.
To date, our product candidate has been
manufactured in small quantities for preclinical studies and clinical trials. If our product candidate is approved by the FDA
or comparable regulatory authorities in other countries for commercial sale, we will need to manufacture such product candidate
in larger quantities. We may not be able to increase successfully the manufacturing capacity for our product candidate in a timely
or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which the FDA
must review and approve. If we are unable to increase successfully the manufacturing capacity for a product candidate, the clinical
trials as well as the regulatory approval or commercial launch of that product candidate may be delayed or there may be a shortage
in supply. Our product candidate requires precise, high quality manufacturing. Our failure to achieve and maintain these high
quality manufacturing standards in collaboration with our third-party manufacturers, including the incidence of manufacturing
errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery,
cost overruns or other problems that could harm our business, financial condition and results of operations.
Materials necessary to manufacture our product candidate
may not be available on commercially reasonable terms, or at all, which may delay the development and commercialization of our
product candidate.
We rely on the third-party manufacturers
of our product candidate to purchase from third-party suppliers the materials necessary to produce bulk APIs, and our product
candidate for our clinical trials, and we will rely on such manufacturers to purchase such materials to produce the APIs and finished
products for any commercial distribution of our products if we obtain marketing approval. Suppliers may not sell these materials
to our manufacturers at the time they need them in order to meet our required delivery schedule or on commercially reasonable
terms, if at all. We do not have any control over the process or timing of the acquisition of these materials by our manufacturers.
Moreover, we currently do not have any agreements to produce these materials. If our manufacturers are unable to obtain these
materials for our clinical trials, testing of the affected product candidate would be delayed, which may significantly impact
our ability to develop the product candidate. If we or our manufacturers are unable to purchase these materials after regulatory
approval has been obtained for one of our products, the commercial launch of such product would be delayed or there would be a
shortage in supply of such product, which would harm our ability to generate revenues from such product and achieve or sustain
profitability.
Our product candidate, if approved for sale, may not
gain acceptance among physicians, patients and the medical community, thereby limiting our potential to generate revenues.
If
our product candidate is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance
of any approved product by physicians, healthcare professionals and third-party payers and our profitability and growth will depend
on several factors, including:
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demonstration
of safety and efficacy;
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changes
in the practice guidelines and the standard of care for the targeted indication;
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relative
convenience and ease of administration;
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the prevalence
and severity of any adverse side effects;
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budget
impact of adoption of our product on relevant drug formularies and the availability,
cost and potential advantages of alternative treatments, including less expensive generic
drugs;
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pricing,
reimbursement and cost effectiveness, which may be subject to regulatory control;
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effectiveness
of our or any of our partners’ sales and marketing strategies;
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the
product labeling or product insert required by the FDA or regulatory authority in other
countries; and
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the
availability of adequate third-party insurance coverage or reimbursement.
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If any product candidates that we develop
does not provide a treatment regimen that is as beneficial as, or is perceived as being as beneficial as, the current standard
of care or otherwise does not provide patient benefit, that product candidates, if approved for commercial sale by the FDA or
other regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved
products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price
and our ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not
achieve an adequate level of acceptance by physicians, patients and third-party payers, our ability to generate revenues from
that product would be substantially reduced. In addition, our efforts to educate the medical community and third-party payers
on the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies
on product promotion, and may never be successful.
Guidelines and recommendations published by various organizations
can impact the use of our product.
Government agencies promulgate regulations
and guidelines directly applicable to us and to our product. In addition, professional societies, practice management groups,
private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines
or recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or
organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations
or guidelines suggesting the reduced use of our products or the use of competitive or alternative products that are followed by
patients and health care providers could result in decreased use of our proposed product.
If third-party contract manufacturers
upon whom we rely to formulate and manufacture our product candidate do not perform, fail to manufacture according to our specifications
or fail to comply with strict regulations, our preclinical studies or clinical trials could be adversely affected and the development
of our product candidate could be delayed or terminated or we could incur significant additional expenses.
We do not own or operate any manufacturing
facilities. We intend to rely on third-party contractors, at least for the foreseeable future, to formulate and manufacture these
preclinical and clinical materials. Our reliance on third- party contract manufacturers exposes us to a number of risks, any of
which could delay or prevent the completion of our preclinical studies or clinical trials, or the regulatory approval or commercialization
of our product candidate, result in higher costs, or deprive us of potential product revenues. Some of these risks include:
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our
third-party contractors failing to develop an acceptable formulation to support later-stage
clinical trials for, or the commercialization of, our product candidates;
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our
contract manufacturers failing to manufacture our product candidate according to their
own standards, our specifications, cGMPs, or otherwise manufacturing material that we
or the FDA may deem to be unsuitable in our clinical trials;
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our
contract manufacturers being unable to increase the scale of, increase the capacity for,
or reformulate the form of our product candidate. We may experience a shortage in supply,
or the cost to manufacture our products may increase to the point where it adversely
affects the cost of our product candidate. We cannot assure you that our contract manufacturers
will be able to manufacture our products at a suitable scale, or we will be able to find
alternative manufacturers acceptable to us that can do so;
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our
contract manufacturers placing a priority on the manufacture of their own products, or
other customers’ products;
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our
contract manufacturers failing to perform as agreed or not remain in the contract manufacturing
business; and
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our
contract manufacturers’ plants being closed as a result of regulatory sanctions
or a natural disaster.
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Manufacturers of pharmaceutical products
are subject to ongoing periodic inspections by the FDA, the U.S. Drug Enforcement Administration (“DEA”) and corresponding
state and foreign agencies to ensure strict compliance with FDA-mandated current good marketing practices or cGMPs, other government
regulations and corresponding foreign standards. While we are obligated to audit their performance, we do not have control over
our third-party contract manufacturers’ compliance with these regulations and standards. Failure by our third-party manufacturers,
or us, to comply with applicable regulations could result in sanctions being imposed on us or the drug manufacturer from the production
of other third-party products. These sanctions may include fines, injunctions, civil penalties, failure of the government to grant
pre-market approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating restrictions
and criminal prosecutions, any of which could significantly and adversely affect our business.
In the event that we need to change
our third-party contract manufacturers, our preclinical studies, clinical trials or the commercialization of our product candidate
could be delayed, adversely affected or terminated, or such a change may result in significantly higher costs.
Due to regulatory restrictions inherent
in an IND, NDA or BLA, various steps in the manufacture of our product candidate may need to be sole-sourced. In accordance with
cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further
preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing
our current or future contract manufacturers may be difficult for us and could be costly, which could result in our inability
to manufacture our product candidate for an extended period of time and therefore a delay in the development of our product candidate.
Further, in order to maintain our development time lines in the event of a change in our third-party contract manufacturer, we
may incur significantly higher costs to manufacture our product candidate.
Our industry is highly competitive
and subject to rapid technological changes. As a result, we may be unable to compete successfully or develop innovative products,
which could harm our business.
Our industry is highly competitive and
characterized by rapid technological change. Key competitive factors in our industry include, among others, the ability to successfully
advance the development of a product candidate through preclinical and clinical trials; the efficacy, toxicological, safety, resistance
or cross-resistance, and dosing profile of a product or product candidate; the timing and scope of regulatory approvals, if ever
achieved; reimbursement rates for and the average selling price of competing products and pharmaceutical products in general;
the availability of raw materials and qualified contract manufacturing and manufacturing capacity; manufacturing costs; establishing
and maintaining intellectual property and patent rights and their protection; and sales and marketing capabilities. If ultimately
approved, CRV431 or any other product candidate we may develop, would compete against existing therapies or other product candidates
in various stages of clinical development that we believe may potentially become available in the future.
Developing a pharmaceutical product candidate
is a highly competitive, expensive and risky activity with a long business cycle. Many organizations, including the large pharmaceutical
and biopharmaceutical companies that have existing products on the market or in clinical development that could compete with our
product candidate have substantially more resources than we have, and much greater capabilities and experience than we have in
research and discovery, designing and conducting preclinical studies and clinical trials, operating in a highly regulated environment,
manufacturing drug substances and drug products, and marketing and sales. Our competitors may be more successful than we are in
obtaining FDA or other regulatory approvals for their product candidates and achieving broad market acceptance once they are approved.
Our competitors’ drugs or product candidates may be more effective, have fewer negative side effects, be more convenient
to administer, have a more favorable resistance profile, or be more effectively marketed and sold than any drug we, or our potential
collaborators, may develop or commercialize. New drugs or classes of drugs from competitors may render our product candidate obsolete
or non-competitive before we are able to successfully develop them or, if approved, before we can recover the expenses of developing
and commercializing them. We anticipate that we or our collaborators will face intense and increasing competition as new drugs
and drug classes enter the market and advanced technologies or new drug targets become available. If our product candidate does
not demonstrate any competitive advantages over existing drugs, new drugs or product candidate, we or our future collaborators
may terminate the development or commercialization of our product candidate at any time.
We anticipate that our product candidate
if successfully developed and approved, will compete directly or indirectly with existing drugs, some of which are generic. Generic
drugs are drugs whose patent protection has expired, and generally have an average selling price substantially lower than drugs
protected by intellectual property rights. Unless a patented drug can differentiate itself from a generic drug in a meaningful
manner, the existence of generic competition in any indication may impose significant pricing pressure on competing patented drugs.
We also face, and will continue to face,
intense competition from other companies for collaborative arrangements with pharmaceutical and biopharmaceutical companies, and
for attracting investigators and clinical sites capable of conducting our preclinical studies and clinical trials. These competitors,
either alone or with their collaborators, may succeed in developing technologies or products that are safer, more effective, less
expensive or easier to administer than ours. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals
for their product candidates more rapidly than we can. Companies that can complete clinical trials, obtain required regulatory
approvals and commercialize their products before their competitors may achieve a significant competitive advantage, including
certain patent and FDA marketing exclusivity rights that could delay the ability of competitors to market certain products. We
cannot assure you that product candidates resulting from our research and development efforts, or from joint efforts with our
collaborators, will be able to compete successfully with our competitors’ existing products or products under development.
We do not currently have any internal drug discovery
capabilities, and therefore we are dependent on in-licensing or acquiring development programs from third parties in order to
obtain additional product candidates.
If in the future we decide to further expand
our pipeline, we will be dependent on in-licensing or acquiring product candidates as we do not have significant internal discovery
capabilities at this time. Accordingly, in order to generate and expand our development pipeline, we have relied, and will continue
to rely, on obtaining discoveries, new technologies, intellectual property and product candidates from third parties through sponsored
research, in-licensing arrangements or acquisitions. We may face substantial competition from other biotechnology and pharmaceutical
companies, many of which may have greater resources then we have, in obtaining these in-licensing, sponsored research or acquisition
opportunities. Additional in-licensing or acquisition opportunities may not be available to us on terms we find acceptable, if
at all. In-licensed compounds that appear promising in research or in preclinical studies may fail to progress into further preclinical
studies or clinical trials.
If a product liability claim is successfully brought
against us for uninsured liabilities, or such claim exceeds our insurance coverage, we could be forced to pay substantial damage
awards that could materially harm our business.
The use of any of our existing or future
product candidates in clinical trials and the sale of any approved pharmaceutical products may expose us to significant product
liability claims. We currently have product liability insurance coverage for our clinical trials in the amount of $10.0 million.
Such insurance coverage may not protect us against any or all the product liability claims that may be brought against us in the
future. We may not be able to acquire or maintain adequate product liability insurance coverage at a commercially reasonable cost
or in sufficient amounts or scope to protect us against potential losses. In the event a product liability claim is brought against
us, we may be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from
a claim brought successfully against us. In the event our product candidate is approved for sale by the FDA and commercialized,
we may need to substantially increase the amount of our product liability coverage. Defending any product liability claim or claims
could require us to expend significant financial and managerial resources, which could have an adverse effect on our business.
If our use of hazardous materials results in contamination
or injury, we could suffer significant financial loss.
Our research activities, through third
parties, involve the controlled use of certain hazardous materials and medical waste. Notwithstanding the regulations controlling
the use and disposal of these materials, as well as the safety procedures we undertake, we cannot eliminate the risk of accidental
contamination or injury from these materials. In the event of an accident or environmental discharge or exposure, we may be held
liable for any resulting damages, which may exceed our financial resources and have an adverse effect on our business.
Our operations could be disrupted if
our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are subject to cyber-attacks.
Our business depends on the efficient and
uninterrupted operation of our computer and communications systems and networks, hardware and software systems and our other information
technology. We collect and maintain information, which includes confidential and proprietary information as well as personal information
regarding our collaborators and employees, in digital form. Data maintained in digital form is subject to risk of malware, computer
viruses, computer hacking, acts of data theft, phishing, other cyber-attacks and employee error or malfeasance, which are increasing
in frequency and sophistication. In July 2019, one of our employees was victim to a phishing incident, to which we have taken
certain actions in response to and to which we do not anticipate significant disruption to our business or future prospects. Despite
our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of data compromise cannot be eliminated
entirely, and risks associated with intrusion, tampering, and theft remain. In addition, we may not have sufficient insurance
coverage with respect to system failures or cyber-attacks. A failure of our systems, or an inability to successfully expand the
capacity of these systems, or an inability to successfully integrate new technologies into our existing systems could have a material
adverse effect on our business, results of operations, financial condition, and cash flows.
A pandemic, epidemic
or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.
The recent outbreak of COVID-19 originated
in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States and several European
countries. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. The COVID-19 pandemic is affecting
the United States and global economies and may affect our operations and those of third parties on which we rely, including by
causing disruptions in the supply of our product candidate and the conduct of current and future clinical trials. In addition,
the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews
and approvals, including with respect to our product candidate. The evolving COVID-19 pandemic is also likely to directly or indirectly
impact the pace of enrollment in our CRV431 clinical trials for at least the next several months and possibly longer as patients
may avoid or may not be able to travel to healthcare facilities and physicians' offices unless due to a health emergency and clinical
trial staff can no longer get to the clinic. Such facilities and offices may also be required to focus limited resources on non-clinical
trial matters, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial services
related to CRV431. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is
difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to
access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic
is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business,
financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could
have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we
rely.
Business disruptions could seriously harm future revenue
and financial condition and increase our costs and expenses.
Our operations, and those of our third-party
manufacturers, CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications
failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural
or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any
of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
If a natural disaster, power outage or
other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure,
such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may
be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Any disaster recovery
and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may
incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could
have a material adverse effect on our business.
In addition, we rely on a third-party manufacturer to
manufacture API for our product candidate. Any disruption in production or inability of our manufacturer to produce or ship adequate
quantities to meet our needs, whether as a result of a natural disaster or other causes (such as the recent outbreak of the coronavirus),
could impair our ability to operate our business on a day-to-day basis and to continue our research and development of our product
candidate. In addition, we are exposed to the possibility of product supply disruption and increased costs in the event of changes
in the policies of the United States or political unrest in areas in which we do business. Any recall of the manufacturing lots
or similar action regarding our API used in clinical trials could delay the trials or detract from the integrity of the trial
data and its potential use in future regulatory filings. In addition, manufacturing interruptions or failure to comply with regulatory
requirements by any of these manufacturers could significantly delay clinical development of potential products and reduce third-party
or clinical researcher interest and support of proposed trials. These interruptions or failures could also impede commercialization
of our product candidate and impair our competitive position.
Risks
Relating to the Commercialization of our Product Candidate
We may delay or terminate the development of a product
candidate at any time if we believe the perceived market or commercial opportunity does not justify further investment, which
could materially harm our business.
Even though the results of preclinical
studies and clinical trials that we have conducted or may conduct in the future may support further development of one or more
of our product candidates, we may delay, suspend or terminate the future development of a product candidate at any time for strategic,
business, financial or other reasons, including the determination or belief that the emerging profile of the product candidate
is such that it may not receive FDA approval, gain meaningful market acceptance, generate a significant return to shareholders,
or otherwise provide any competitive advantages in its intended indication or market.
If we fail to enter into collaborations,
license agreements or other transactions with third parties to accelerate the development of our product candidate, we will bear
the risk of developmental failure.
We plan to seek out-licensing opportunities
as a way to accelerate the development of our product candidate. There is no guarantee that we will enter into a future transaction
on favorable terms, or at all, or that discussions will initiate or progress on our desired timelines. Completing transactions
of this nature is difficult and time-consuming. Potentially interested parties may decline to re-engage or may terminate discussions
based upon their assessment of our competitive, financial, regulatory or intellectual property position or for any other reason.
Furthermore, we may choose to defer consummating a transaction relating to our product candidate until additional clinical data
are obtained. If we decide to not actively pursue a transaction until we have additional clinical data, we and our stockholders
will bear the risk that our product candidate fails prior to any future transaction.
If we fail to enter into or maintain
collaborations or other sales, marketing and distribution arrangements with third parties to commercialize our product candidate,
or otherwise fail to establish marketing and sales capabilities, we may not be able to successfully commercialize our products.
We currently have no infrastructure to
support the commercialization of our product candidate, and have little, if any, experience in the commercialization of pharmaceutical
products. Therefore, if our product candidate is successfully developed and ultimately approved for sale, our future profitability
will depend largely on our ability to access or develop suitable marketing and sales capabilities. We anticipate that we will
need to establish relationships with other companies, through license and collaborations agreements, to commercialize our product
candidate in the U.S. and in other countries around the world. To the extent that we enter into these license and collaboration
agreements, or marketing and sales arrangements with other companies to sell, promote or market our products in the U.S. or abroad,
our product revenues, which may be in the form of indirect revenue, a royalty, or a split of profits, will depend largely on their
efforts, which may not be successful. In the event we develop a sales force and marketing capabilities, this may result in us
incurring significant costs before the time that we may generate any significant product revenues. We may not be able to attract
and retain qualified third parties or marketing or sales personnel or be able to establish marketing capabilities or an effective
sales force.
If government and third-party payers fail to provide
adequate reimbursement or coverage for our products or those we develop through collaborations, our revenues and potential for
profitability will be harmed.
In the U.S. and most foreign markets, our
product revenues, and therefore the inherent value of our product candidate, will depend largely upon the reimbursement rates
established by third-party payers for such product candidate or products. Such third-party payers include government health administration
authorities, managed-care organizations, private health insurers and other similar organizations. These third-party payers are
increasingly challenging the price and examining the cost effectiveness of medical products, services and pharmaceuticals. In
addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs or pharmaceutical products.
Further, the comparative effectiveness of new compounds over existing therapies and the assessment of other non-clinical outcomes
are increasingly being considered in the decision by these payers to establish reimbursement rates. We may also need to conduct
post-marketing clinical trials in order to demonstrate the cost-effectiveness of our products. Such studies may require us to
commit a significant amount of management time and financial resources. We cannot assure you that any products we successfully
develop will be reimbursed in part, or at all, by any third-party payers in any countries.
Domestic and foreign governments continue
to propose legislation designed to expand the coverage, yet reduce the cost, of healthcare, including pharmaceutical drugs. In
some foreign markets, governmental agencies control prescription drugs’ pricing and profitability. In the U.S. significant
changes in federal health care policy have been recently approved and will mostly likely result in reduced reimbursement rates
in the future. We expect that there will continue to be federal and state proposals to implement more governmental control over
reimbursement rates of pharmaceutical products. In addition, we expect that increasing emphasis on managed care and government
intervention in the U.S. healthcare system will continue to put downward pressure on the pricing of pharmaceutical products domestically.
Cost control initiatives could decrease the price that we receive for any of our product candidates that may be approved for sale
in the future, which would limit our revenues and profitability. Accordingly, legislation and regulations affecting the pricing
of pharmaceutical products may change before our product candidate is approved for sale, which could further limit or eliminate
reimbursement rates for our product candidate.
If any product candidate that we develop independently
or through collaborations is approved but does not gain meaningful acceptance in its intended market, we are not likely to generate
significant revenues or become profitable.
Even if our product candidate is successfully
developed and we or a collaborator obtain the requisite regulatory approvals to commercialize it in the future, it may not gain
market acceptance or utilization among physicians, patients or third-party payers. The degree of market acceptance that our product
candidate may achieve will depend on several factors, including:
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the
therapeutic efficacy or perceived benefit of the product relative to existing therapies,
if they exist;
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the
timing of market approval and existing market for competitive drugs;
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the
level of reimbursement provided by payers to cover the cost of the product to patients;
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the
net cost of the product to the user or payer;
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the
convenience and ease of administration of our product;
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the
product’s potential advantages over existing or alternative therapies;
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the
actual or perceived safety of similar classes of products;
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the
actual or perceived existence, prevalence and severity of negative side effects;
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the
effectiveness of sales, marketing and distribution capabilities; and
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the
scope of the product label approved by the FDA.
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There can be no assurance that physicians
will choose to prescribe or administer our product, if approved, to the intended patient population. If our product does not achieve
meaningful market acceptance, or if the market for our product proves to be smaller than anticipated, we may not generate significant
revenues or ever become profitable.
Even if we or a collaborator achieve market acceptance
for our product, we may experience downward pricing pressure on the price of our product due to social or political pressure to
lower the cost of drugs, which would reduce our revenue and future profitability.
Pressure from social activist groups and
future government regulations, whose goal it is to reduce the cost of drugs, particularly in less developed nations, also may
put downward pressure on the price of drugs, which could result in downward pressure on the prices of our product in the future.
We may be unable to successfully develop a product candidate
that is the subject of collaboration if our collaborator does not perform, terminates our agreement, or delays the development
of our product candidate.
We
expect to continue to enter into and rely on license and collaboration agreements or other business arrangements with third parties
to further develop and/or commercialize our existing and future product candidates. Such collaborators or partners may not perform
as agreed upon or anticipated, fail to comply with strict regulations, or elect to delay or terminate their efforts in developing
or commercializing our product candidates even though we have met our obligations under the arrangement. For example, if an existing
or future collaborator does not devote sufficient time and resources to our collaboration arrangement, we may not realize the
full potential benefits of the arrangement, and our results of operations may be adversely affected.
A majority of the potential revenue from
existing and future collaborations will likely consist of contingent payments, such as payments for achieving development or regulatory
milestones and royalties payable on the sales of approved products. The milestone and royalty revenues that we may receive under
these collaborations will depend primarily upon our collaborator’s ability to successfully develop and commercialize our
product candidate. In addition, our collaborators may decide to enter into arrangements with third parties to commercialize products
developed under our existing or future collaborations using our technologies, which could reduce the milestone and royalty revenue
that we may receive, if any. In many cases, we will not be directly involved in the development or commercialization of our product
candidate and, accordingly, will depend entirely on our collaborators. Our collaboration partners may fail to develop or effectively
commercialize our product candidates because they:
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do
not allocate the necessary resources due to internal constraints, such as limited personnel
with the requisite scientific expertise, limited capital resources, or the belief that
other product candidates or other internal programs may have a higher likelihood of obtaining
regulatory approval or may potentially generate a greater return on investment;
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do
not have sufficient resources necessary to fully support the product candidates through
clinical development, regulatory approval and commercialization;
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are
unable to obtain the necessary regulatory approvals; or
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may
re-evaluate the importance and their support for developing our product candidate pipeline
due to a change in management, business operations or financial strategy.
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In addition, a collaborator may decide
to pursue the development of a competitive product candidate developed outside of our collaboration with them. Conflicts may also
arise if there is a dispute about the progress of, or other activities related to, the clinical development or commercialization
of a product candidate, the achievement and payment of a milestone amount, the ownership of intellectual property that is developed
during the course of the collaborative arrangement, or other licensing agreement terms. If a collaboration partner fails to develop
or effectively commercialize our product candidate for any of these reasons, we may not be able to replace them with another partner
willing to develop and commercialize our product candidate under similar terms, if at all. Similarly, we may disagree with a collaborator
as to which party owns newly or jointly developed intellectual property. Should an agreement be revised or terminated as a result
of a dispute and before we have realized the anticipated benefits of the collaboration, we may not be able to obtain certain development
support or revenues that we anticipated receiving. We may also be unable to obtain, on terms acceptable to us, a license from
such collaboration partner to any of its intellectual property that may be necessary or useful for us to continue to develop and
commercialize the product candidate.
If we are unable to adequately protect or expand our
intellectual property related to our current or future product candidates, our business prospects could be harmed.
Our success, competitive position and future
revenues will depend in part on our ability to obtain and maintain patent protection for our product candidates, methods, processes
and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and
to operate without infringing the proprietary rights of third parties.
We will be able to protect our proprietary
intellectual property rights from unauthorized use by third parties only to the extent that our proprietary rights are covered
by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of pharmaceutical and biopharmaceutical
companies involves complex legal and factual questions, and, therefore, we cannot predict with certainty whether we will be able
to ultimately enforce our patents or proprietary rights. Therefore, any issued patents that we own or otherwise have intellectual
property rights to may be challenged, invalidated or circumvented, and may not provide us with the protection against competitors
that we anticipate. The degree of future protection for our proprietary intellectual property rights is uncertain because issued
patents and other legal means afford only limited protection and may not adequately protect our rights or permit us to gain or
keep our competitive advantage. Our future patent position will be influenced by the following factors:
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we
or our licensors may not have been the first to discover the inventions covered by each
of our or our licensors’ pending patent applications and issued patents, and we
may have to engage in expensive and protracted interference proceedings to determine
priority of invention;
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our
or our licensors’ pending patent applications may not result in issued patents;
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our
or our licensors’ issued patents may not provide a basis for commercially viable
products, may not provide us with any competitive advantages, or may be challenged by
third parties; and
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third
parties may develop intellectual property around our or our licensors’ patent claims
to design competitive intellectual property and ultimately product candidates that fall
outside the scope of our or our licensors’ patents.
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Because of the extensive time required
for the development, testing and regulatory review and approval of a product candidate, it is possible that before our product
candidate can be approved for sale and commercialized, our relevant patent rights may expire, or such patent rights may remain
in force for only a short period following approval and commercialization. Patent expiration could adversely affect our ability
to protect future product development and, consequently, our operating results and financial position. Also, patent rights may
not provide us with adequate proprietary protection or competitive advantages against competitors with similar technologies. The
laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the U.S.
and those countries may lack adequate rules and procedures for defending our intellectual property rights. For example, we
may not be able to prevent a third party from infringing our patents in a country that does not recognize or enforce patent rights,
or that imposes compulsory licenses on or restricts the prices of life-saving drugs. Changes in either patent laws or in interpretations
of patent laws in the U.S. and other countries may diminish the value of our intellectual property.
We may not develop or obtain rights to
products or processes that are patentable. Even if we or our licensors do obtain patents, such patents may not adequately protect
the products or technologies we own or have licensed, or otherwise be limited in scope. In addition, we may not have total control
over the patent prosecution of subject matter that we license from others. Accordingly, we may be unable to exercise the same
degree of control over this intellectual property as we would over our own. Others may challenge, seek to invalidate, infringe
or circumvent any pending or issued patents we own or license, and rights we receive under those issued patents may not provide
competitive advantages to us. We cannot assure you as to the degree of protection that will be afforded by any of our issued or
pending patents, or those licensed by us.
If a third party claims we are infringing on its intellectual
property rights, we could incur significant expenses, or be prevented from further developing or commercializing our product candidates.
Our success will also depend on our ability
to operate without infringing the patents and other proprietary intellectual property rights of third parties. This is generally
referred to as having the “freedom to operate”. The biotechnology and pharmaceutical industries are characterized
by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual
property claims, United States Patent and Trademark Office, or USPTO, interference proceedings and related legal and administrative
proceedings, both in the U.S. and internationally, involve complex legal and factual questions. As a result, such proceedings
are lengthy, costly and time-consuming and their outcome is highly uncertain. We may become involved in protracted and expensive
litigation in order to determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether
we have the freedom to operate with respect to the intellectual property rights of others.
Patent applications in the U.S. are, in
most cases, maintained in secrecy until approximately 18 months after the patent application is filed. The publication of
discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying
discoveries were made. Therefore, patent applications relating to products similar to our product candidate may have already been
filed by others without our knowledge. In the event that a third party has also filed a patent application covering our product
candidate or other claims, we may have to participate in an adversarial proceeding, known as an interference proceeding in the
USPT office, or similar proceedings in other countries to determine the priority of invention. In the event an infringement claim
is brought against us, we may be required to pay substantial legal fees and other expenses to defend such a claim and, if we are
unsuccessful in defending the claim, we may be prevented from pursuing the development and commercialization of a product candidate
and may be subject to injunctions and/or damage awards.
In the future, the USPTO or a foreign patent
office may grant patent rights to our product candidate or other claims to third parties. Subject to the issuance of these future
patents, the claims of which will be unknown until issued, we may need to obtain a license or sublicense to these rights in order
to have the appropriate freedom to further develop or commercialize them. Any required licenses may not be available to us on
acceptable terms, if at all. If we need to obtain such licenses or sublicenses, but are unable to do so, we could encounter delays
in the development of our product candidate, or be prevented from developing, manufacturing and commercializing our product candidate
at all. If it is determined that we have infringed an issued patent and do not have the freedom to operate, we could be subject
to injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where we have in-licensed intellectual
property, our failure to comply with the terms and conditions of such agreements could harm our business.
It is becoming common for third parties
to challenge patent claims on any successful product candidate or approved drug. If we or our collaborators become involved in
any patent litigation, interference or other legal proceedings, we could incur substantial expense, and the efforts of our technical
and management personnel will be significantly diverted. A negative outcome of such litigation or proceedings may expose us to
the loss of our proprietary position or to significant liabilities or require us to seek licenses that may not be available from
third parties on commercially acceptable terms, if at all. We may be restricted or prevented from developing, manufacturing and
selling our product candidate in the event of an adverse determination in a judicial or administrative proceeding, or if we fail
to obtain necessary licenses.
We cannot be sure that any patents will
be issued or that patents licensed to us will be issued from any of our patent applications or, should any patents issue, that
we will be provided with adequate protection against potentially competitive products. Furthermore, we cannot be sure that patents
issued or licensed to us will be of any commercial value, or that private parties or competitors will not successfully challenge
these patents or circumvent our patent position in the U.S. or abroad. In the absence of adequate patent protection, our business
may be adversely affected by competitors who develop comparable technology or products.
Confidentiality agreements with employees and others
may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately protect our intellectual
property.
We rely on trade secrets to protect our
technology, especially where we do not believe patent protection is obtainable, or prior to us filing patent applications on inventions
we may make from time to time. However, trade secrets are difficult to protect. In order to protect our proprietary technology
and processes, we also rely in part on confidentiality and intellectual property assignment agreements with our corporate partners,
employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not
effectively prevent disclosure of confidential information nor result in the effective assignment to us of intellectual property,
and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of
the agreements. In addition, others may independently discover our trade secrets and proprietary information, and in such case,
we could not assert any trade secret rights against such party. Enforcing a claim that a third-party illegally obtained and is
using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside
the U.S. may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce
and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect
our competitive business position.
Our failure to successfully discover, acquire, develop
and market additional product candidates or approved products would impair our ability to grow.
As part of our growth strategy, we intend
to develop and market additional products and product candidates. We are pursuing various therapeutic opportunities through our
pipeline. We may spend several years completing our development of any current or future internal product candidate, and failure
can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. In addition,
because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic
scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly
upon our ability to identify, select, discover and acquire promising pharmaceutical product candidates and products. Failure of
this strategy would impair our ability to grow.
The process of proposing, negotiating and
implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including
some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of
product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of
third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote
resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated
benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable,
or at all.
In addition, future acquisitions may entail
numerous operational and financial risks, including:
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disruption
of our business and diversion of our management’s time and attention to develop
acquired products or technologies;
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incurrence
of substantial debt, dilutive issuances of securities or depletion of cash to pay for
acquisitions;
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higher
than expected acquisition and integration costs;
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difficulty
in combining the operations and personnel of any acquired businesses with our operations
and personnel;
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increased
amortization expenses;
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impairment
of relationships with key suppliers or customers of any acquired businesses due to changes
in management and ownership;
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inability
to motivate key employees of any acquired businesses; and
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assumption
of known and unknown liabilities.
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Further, any product candidate that we
acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval
by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical
product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective
for approval by regulatory authorities.
Even if our product candidate receive regulatory approval,
it may still face future development and regulatory difficulties.
Even if U.S. regulatory approval is obtained,
the FDA may still impose significant restrictions on a product’s indicated uses or impose ongoing requirements for potentially
costly post-approval studies. Our product candidate would also be subject to ongoing FDA requirements governing the labeling,
packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market information. In addition,
manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other
regulatory authorities for compliance with GMP regulations. If we or a regulatory agency discovers previously unknown problems
with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product
is manufactured, a regulatory agency may impose restrictions on that product or the manufacturer, including requiring withdrawal
of the product from the market or suspension of manufacturing. If we, our product candidate or the manufacturing facilities for
our product candidate fail to comply with applicable regulatory requirements, a regulatory agency may:
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impose
civil or criminal penalties;
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suspend
regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve pending applications or supplements to applications filed by us;
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impose
restrictions on operations, including costly new manufacturing requirements;
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seize
or detain products or request us to initiate a product recall; or
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pursue
and obtain an injunction.
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Even if our product candidate receives regulatory approval
in the United States, we may never receive approval to commercialize it outside of the United States.
In the future, we may seek to commercialize
our product candidate in foreign countries outside of the United States. In order to market any products outside of the United
States, we must establish and comply with numerous and varying regulatory requirements of other jurisdictions regarding safety
and efficacy. Approval procedures vary among jurisdictions and can involve product testing and administrative review periods different
from, and greater than, those in the United States. The time required to obtain approval in other jurisdictions might differ from
that required to obtain FDA approval. The regulatory approval process in other jurisdictions may include all the risks detailed
above regarding FDA approval in the United States as well as other risks. Regulatory approval in one jurisdiction does not ensure
regulatory approval in another, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative
effect on the regulatory processes in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or setback
in obtaining such approvals could have the same adverse effects detailed above regarding FDA approval in the United States. As
described above, such effects include the risks that our product candidate may not be approved for all indications for use included
in proposed labeling or for any indications at all, which could limit the uses of our product candidate and have an adverse effect
on our products’ commercial potential or require costly post-marketing studies.
We intend to rely on third parties to conduct our clinical
trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be
able to seek or obtain regulatory approval for or commercialize our product candidate.
We intend to enter into agreements with
third-party contract research organizations, or CROs, under which we will delegate to the CROs the responsibility to coordinate
and monitor the conduct of our clinical trials and to manage data for our clinical programs. We, our CROs and our clinical sites
are required to comply with current Good Clinical Practices, or cGCPs, regulations and guidelines issued by the FDA and by similar
governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor
the activities conducted by our CROs and at our clinical sites to confirm compliance with these requirements. In the future, if
we, our CROs or our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may
be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications.
In addition, our clinical trials must be conducted with product produced under cGMP regulations and will require a large number
of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the
regulatory approval process.
If CROs do not successfully carry out their
contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the
clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or
for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval
for or successfully commercialize our product candidate. As a result, our financial results and the commercial prospects for our
product candidate would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
We will need to increase the size of our organization.
We are a small company with 12 employees
as of December 31, 2019. To continue our clinical trials and commercialize our product candidate, we will need to expand our employee
base for managerial, operational, financial and other resources. Future growth will impose significant added responsibilities
on members of management, including the need to identify, recruit, maintain and integrate additional employees. Over the next
12 months depending on the progress of our planned clinical trials and capital raising efforts, we plan to add additional
employees to assist us with our clinical programs. Our future financial performance and our ability to commercialize our product
candidate and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end,
we must be able to:
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manage
development efforts effectively;
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manage
our clinical trials effectively;
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integrate
additional management, administrative, manufacturing and sales and marketing personnel;
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maintain
sufficient administrative, accounting and management information systems and controls;
and
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hire
and train additional qualified personnel.
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We may not be able to accomplish these
tasks, and our failure to accomplish any of them could harm our financial results and impact our ability to achieve development
milestones.
Reimbursement may not be available for our product candidate,
which would impede sales.
Market acceptance and sales of our product
candidate may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage
as well as levels at which government authorities and third- party payers, such as private health insurers and health maintenance
organizations, reimburse patients for the price they pay for our products as well as levels at which these payers pay directly
for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement
will be available for any of these products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the
demand for, or the price of, our products. We have not commenced efforts to have our product candidate reimbursed by government
or third-party payers. If coverage and reimbursement are not available or are available only at limited levels, we may not be
able to commercialize our products.
In recent years, officials have made numerous
proposals to change the health care system in the United States. These proposals include measures that would limit or prohibit
payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries,
particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. If our products
are or become subject to government regulation that limits or prohibits payment for our products, or that subjects the price of
our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products.
As a result of legislative proposals and
the trend towards managed health care in the United States, third-party payers are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements
and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA
has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse
patients for their use of newly- approved drugs, which in turn will put pressure on the pricing of drugs.
Healthcare reform measures could hinder or prevent our
product candidate’s commercial success.
The U.S. government and other governments
have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact the
pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available
from governmental agencies or other third-party payers. The continuing efforts of the U.S. and foreign governments, insurance
companies, managed care organizations and other payers of health care services to contain or reduce health care costs may adversely
affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve
and maintain profitability.
New laws, regulations and judicial decisions,
or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery
or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise
our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging
due to several reasons, including policies advanced by the current executive administration in the United States, new healthcare
legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the United States
and some foreign jurisdictions, there have been several legislative and regulatory proposals to change the health care system
in ways that could affect our ability to sell our products profitably.
For example, in March 2010, President
Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
the PPACA. This law will substantially change the way healthcare is financed by both government health plans and private insurers,
and significantly impact the pharmaceutical industry. The PPACA contains several provisions that are expected to impact our business
and operations in ways that may negatively affect our potential revenues in the future. For example, the PPACA imposes a non-deductible
excise tax on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S. government programs which
we believe will increase the cost of our products. In addition, as part of the PPACA’s provisions closing a funding gap
that currently exists in the Medicare Part D prescription drug program (commonly known as the “donut hole”),
we will be required to provide a discount on branded prescription drugs equal to 50% of the government-negotiated price, for drugs
provided to certain beneficiaries who fall within the donut hole. Similarly, PPACA increases the level of Medicaid rebates payable
by manufacturers of brand-name drugs from 15.1% to 23.1% and requires collection of rebates for drugs paid by Medicaid managed
care organizations. The PPACA also includes significant changes to the 340B drug discount program including expansion of the list
of eligible covered entities that may purchase drugs under the program. At the same time, the expansion in eligibility for health
insurance benefits created under PPACA is expected to increase the number of patients with insurance coverage who may receive
our products. While it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation
will have on our business, they could have a material adverse effect on our business and financial condition.
Some of the provisions of the PPACA have
yet to be implemented, and there have been legal and political challenges to certain aspects of the PPACA. Since January 2017,
President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements
mandated by the PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of
the PPACA. While Congress has not passed repeal legislation, the Tax Cuts and Jobs Act of 2018 includes a provision repealing,
effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail
to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.
On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate
is a critical and inseverable feature of the PPACA, and therefore, because it was repealed as part of the TCJA, the remaining
provisions of the PPACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the
District Court's decision that the individual mandate was unconstitutional but remanded the case back to the District Court to
determine whether the remaining provisions of the PPACA are invalid as well. It is unclear how these decisions, subsequent appeals
and other efforts to challenge, repeal or replace the PPACA will affect the law or our business. Additionally, on January 22,
2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of
certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored
insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise
tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the
PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut
hole.” More recently, in July 2018, CMS published a final rule permitting further collections and payments to and from certain
PPACA qualified health plans and health insurance issuers under the PPACA risk adjustment program in response to the outcome of
federal district court litigation regarding the method CMS uses to determine this risk adjustment. Congress may consider other
legislation to repeal or replace elements of the PPACA.
Congress periodically adopts legislation
like the PPACA and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, that modifies Medicare reimbursement
and coverage policies pertaining to prescription drugs. Implementation of these laws is subject to ongoing revision through regulatory
and sub regulatory policies. Congress also may consider additional changes to Medicare policies, potentially including Medicare
prescription drug policies, as part of ongoing budget negotiations. While the scope of any such legislation is uncertain at this
time, there can be no assurances that future legislation or regulations will not decrease the coverage and price that we may receive
for our proposed products. Other third-party payers are increasingly challenging the prices charged for medical products and services.
It will be time consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and
private payors. Our proposed products may not be considered cost-effective, and coverage and reimbursement may not be available
or sufficient to allow us to sell our proposed products on a profitable basis. Further federal and state proposals and health
care reforms are likely which could limit the prices that can be charged for the product candidate that we develop and may further
limit our commercial opportunities. Our results of operations could be materially adversely affected by proposed healthcare reforms,
by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts
that private insurers will pay and by other health care reforms that may be enacted or adopted in the future.
In September 2007, the Food and Drug
Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to
require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk
evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in delays or
increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance with post-approval
regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.
Our clinical activities involve the handling of hazardous
materials, and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our clinical activities involve the controlled
storage, use and disposal of hazardous materials. We are subject to federal, state, city and local environmental, health and safety
laws and regulations governing, among other matters, the use, manufacture, storage, handling and disposal of these hazardous materials.
We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or if we
fail to comply with such laws and regulations, local, city, state or federal authorities may curtail the use of these materials
and interrupt our business operations or impose sanctions, such as fines, and we could be held liable for any resulting damages
or liabilities. We do not currently maintain hazardous materials insurance coverage.
Risks Related to Our Common Stock
If we fail to comply with the rules under the Sarbanes-Oxley
Act of 2002 related to accounting controls and procedures in the future, or, if we discover additional material weaknesses and
other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising
capital could be more difficult. Our management determined that our disclosure controls and procedures and internal controls were
ineffective as of December 31, 2019 and 2018, and if they continue to be ineffective could result in material misstatements in
our financial statements.
If we fail to comply with the rules under
the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures in the future, or, if we discover material weaknesses
and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising
capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessment of the effectiveness
of our internal control over financial reporting. As of December 31, 2019 and 2018, our management has determined that we had
material weaknesses in our control environment and in the period end financial close and reporting process. If additional material
weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal
control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for
us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial
reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported
financial information, and the trading price of our Common Stock could drop significantly.
If we fail to comply with the continued minimum closing
bid requirements of the Nasdaq Capital Market LLC (“Nasdaq”) or other requirements for continued listing, our common
stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
On August 29,
2018, we received a written notice (the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) that we
were not in compliance with Nasdaq Listing Rule 5550(a)(2),( the “Rule”) as the minimum bid price of our common
stock had been below $1.00 per share for 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A),
we had until February 25, 2019, to regain compliance with the minimum bid price requirement. On February 27, 2019, we received
a letter from Nasdaq indicating that, based upon our continued non-compliance with the minimum bid price requirement as well as
the fact that we have not yet held an annual meeting of shareholders within twelve months of the end of our fiscal year end, our
common stock would be subject to delisting unless we timely request a hearing before a Nasdaq Hearings Panel (the “Panel”).
Additionally, on March 18, 2019, we received an additional letter from Nasdaq
notifying us that we failed to comply with the minimum $2.5 million stockholders' equity requirement for continued listing
under Nasdaq Listing Rule 5550(b) (the "Stockholders' Equity Rule"). Nasdaq indicated that this matter served as
an additional basis for delisting our securities from Nasdaq and that the Panel will consider this matter. We requested a hearing
before the Panel, which was held on April 11, 2019. On May 3, 2019, the Panel notified us that they accepted our compliance
plan and granted us an extension until August 26, 2019 to regain compliance with the above noted criteria. On May 31,
2019 we implemented a reverse stock split of our outstanding common stock. Our common stock began trading on a split-adjusted
basis on June 3, 2019.
A delisting of our common stock from The
Nasdaq Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction
in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing
sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer
business development opportunities.
The market price of our common stock may be volatile
and adversely affected by several factors.
The market price of our common stock could
fluctuate significantly in response to various factors and events, including:
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our
ability to integrate operations, technology, products and services;
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our
ability to execute our business plan;
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operating
results below expectations;
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our
issuance of additional securities, including debt or equity or a combination thereof,
which will be necessary to fund our operating expenses;
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announcements
of technological innovations or new products by us or our competitors;
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loss
of any strategic relationship;
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industry
developments, including, without limitation, changes in healthcare policies or practices
or third-party reimbursement policies;
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economic
and other external factors;
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period-to-period
fluctuations in our financial results;
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catastrophic
weather and/or global disease outbreaks, such as the recent COVID-19 pandemic; and
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whether
an active trading market in our common stock develops and is maintained.
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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 stock market in general has recently
experienced relatively large price and volume fluctuations, particularly in response to the COVID-19 outbreak. In particular,
the market prices of securities of smaller biotechnology and medical device companies have experienced dramatic fluctuations that
often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could
result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. In
addition, price volatility may increase if the trading volume of our common stock remains limited or declines.
U.S. federal income tax reform could adversely affect
us.
On December 22, 2017, the “Tax
Cuts and Jobs Act” (TCJA) was signed into law that significantly reforms the Internal Revenue Code of 1986, as amended.
The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility
of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide”
system of taxation to a territorial system. The tax reform has not caused a material impact to our projection of minimal cash
taxes or to our net operating losses as of December 31, 2019, the date of these financial statements. Our net deferred tax assets
and liabilities were adjusted, and the impact of $0.5 million was recognized as an income tax benefit during the first quarter
of 2018. The impact of this tax reform on holders of our common stock is uncertain and could be adverse. This Annual Report on
Form 10-K does not discuss any such tax legislation or the manner in which it might affect purchasers of our common stock.
We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences
of investing in our common stock.
Certain provisions in our certificate of incorporation
and by-laws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of
our common stock.
Our certificate of incorporation, by-laws
and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making
such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board
of directors rather than to attempt a hostile takeover. These provisions include, among others:
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the
inability of our stockholders to call a special meeting;
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rules regarding
how stockholders may present proposals or nominate directors for election at stockholder
meetings;
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the
right of our board to issue preferred stock without stockholder approval;
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the
ability of our directors, and not stockholders, to fill vacancies on our board of directors.
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Delaware law also imposes some restrictions
on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. For more
information, see “Description of Our Capital Stock—Anti-takeover Effects of Certain Provisions of Hepion Certificate
of Incorporation, By-laws and the DCGL.”
We believe these provisions will protect
our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board
of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not
intended to make our company immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial
by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests
of our company and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent
directors.
Future sales and issuances of our common stock or rights
to purchase common stock pursuant to our equity incentive plan could result in additional dilution of the percentage ownership
of our stockholders and could cause our share price to fall.
We expect that significant additional capital
will be needed in the future to continue our planned operations, including expanding research and development, funding clinical
trials, purchasing of capital equipment, hiring new personnel, commercializing our products, and continuing activities as an operating
public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial
dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and
in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more
than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution
to our existing stockholders, and new investors could gain rights superior to our existing stockholders.
We are an “emerging growth company” and as
a result of our reduced disclosure requirements applicable to emerging growth companies, our common stock may be less attractive
to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval
of any golden parachute payments not previously approved. We could remain an “emerging growth company” until the earlier
of (1) the last day of the fiscal year (a) following the fifth anniversary of the first public sale of equity securities
in October 2015, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we
are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded
$700.0 million as of the prior December 31st, and (2) the date on which we have issued more than $1.0 billion
in non-convertible debt during the prior three-year period. We cannot predict whether investors will find our common stock less
attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there
may be a less active trading market for our common stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies
can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have
irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will
be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We may be at risk of securities class action litigation.
We may be at risk of securities class action
litigation. This risk is especially relevant for us due to our dependence on positive clinical trial outcomes and regulatory approvals
of CRV431. In the past, biotechnology and pharmaceutical companies have experienced significant stock price volatility, particularly
when associated with binary events such as clinical trials and product approvals. If we face such litigation, it could result
in substantial costs and a diversion of management’s attention and resources, which could harm our business and results
in a decline in the market price of our common stock.
If securities or industry analysts do not publish research
or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading
volume could decline.
The trading market for our common stock
will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not
currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage
of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts
who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our
company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
We presently do not intend to pay cash dividends on our
common stock.
We expect that no cash dividends will be
paid on the common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital
needs of the business, it is anticipated that all earnings, if any, will be retained to finance the future expansion of our business.