RISK FACTORS
You should carefully consider the risks
described below before making an investment decision. The risks described below are not the only ones we face. Additional risks
we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our business
could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may
lose all or part of your investment. In assessing these risks, you should also refer to the other information contained or incorporated
by reference into this prospectus, including our financial statements and related notes. We have attempted to identify below the
major factors that could cause differences between actual and planned or expected results, but we cannot assure you that we have
identified all such factors.
Risks Associated With Our Business
We have operated at a loss and will likely continue
to operate at a loss for the foreseeable future.
We have operated at a loss due to our ongoing
expenditures for research and development of our product candidates and for general and administrative purposes, and lack of significant
recurring revenues. We incurred net losses of $50.8 million and $58.6 million, respectively, for the years ended December 31, 2016
and 2015, and we had an accumulated deficit as of December 31, 2016 of $415.9 million. We are likely to continue to incur losses
unless and until we are able to commercialize aldoxorubicin or one or more of our other existing or possible future product candidates.
These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity and working
capital. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict
when we may become profitable, if at all. If we do not become profitable or are unable to maintain future profitability, the market
value of our common stock will be adversely affected.
Because we have no source of significant recurring
revenue, we must depend on capital raising to sustain our operations, and our ability to raise capital may be severely limited.
Developing products and conducting clinical
trials require substantial amounts of capital. To date, we have relied primarily upon proceeds from sales of our equity securities
under our “shelf” registration statements on Form S-3 filed with the SEC and proceeds from the exercise of options
and warrants to generate funds needed to finance our business and operations. We will need to raise additional capital to, among
other things:
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fund our clinical trials and pursue regulatory approval of aldoxorubicin and fund development of product candidates based on
our LADR™ technology;
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finance our general and administrative expenses;
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acquire or license new technologies;
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prepare, file, prosecute, maintain, enforce and defend our patent and other proprietary rights; and
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develop and implement sales, marketing and distribution capabilities to successfully commercialize any product for which we
obtain marketing approval and choose to market ourselves.
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At December 31, 2016, we had cash and cash
equivalents of approximately $57.0 million, but we are required under the terms of our outstanding indebtedness to maintain cash
on hand of not less than $10 million, which amount is subject to increase to the extent that our projected three months’
cash “burn” exceeds $10 million. Management believes that our current cash and cash equivalents, together with the
net proceeds of this offering, will be sufficient to fund our operations for the foreseeable future. The belief is based, in part,
upon our currently projected expenditures for 2017 of approximately $39.8 million
,
which includes approximately $16.4 million
for our preparation and submission of a Section 502(b)(2) NDA and clinical programs for aldoxorubicin, approximately $3.7 million
for pre-clinical development of high potency cytotoxic albumin-binding cancer drugs, approximately $3.2 million for general operation
of our clinical programs, approximately $8.0 million for other general and administrative expenses, and $8.5 million for interest
and payments on our outstanding indebtedness. These projected expenditures and payments assume that we will not suffer a “material
adverse event” which could trigger the lenders’ acceleration of our outstanding indebtedness, and are based upon numerous
other assumptions and subject to many uncertainties, and our actual expenditures may be significantly different from these projections.
Our operating results may fluctuate from
period to period, and the results of prior periods should not be relied upon as predictive of the results in future periods. Furthermore,
if we obtain marketing approval and successfully commercialize aldoxorubicin, or another product candidate, we anticipate it will
take a minimum of two years, and likely longer, for us to generate significant recurring revenue, and we will be dependent on future
financing until such time, if ever, as we can generate significant recurring revenue. We have no commitments from third parties
to provide us with any additional financing, and we may not be able to obtain future financing on favorable terms, or at all. Failure
to obtain adequate financing would adversely affect our ability to operate as a going concern. If we raise additional funds by
issuing equity securities, dilution to stockholders may result and new investors could have rights superior to holders of the shares
issued in this offering. In addition, debt financing, if available, may include restrictive covenants. If adequate funds are not
available to us, we may have to liquidate some or all of our assets or to delay or reduce the scope of or eliminate some portion
or all of our development programs or clinical trials. We also may have to license to other companies our product candidates or
technologies that we would prefer to develop and commercialize ourselves, or to enter into one or more strategic transactions that
could materially affect our business plan.
If we do not achieve our projected development goals
in the time frames we estimate, the commercialization of our products may be delayed and our business prospects may suffer. Our
financial projections also may prove to be materially inaccurate.
From time to time, we estimate the timing
of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer
to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the
submission of regulatory filings such as the discussions in this Annual Report of the expected timing of the pre-NDA meeting with
the FDA and of certain other milestones relating to our aldoxorubicin clinical development programs.
We also may disclose projected expenditures
or other forecasts for future periods. These and other financial projections are based on management’s current expectations
and do not contain any margin of error or cushion for any specific uncertainties, or for the uncertainties inherent in all financial
forecasting.
The actual timing of milestones and actual
expenditures or other financial results can vary dramatically compared to our estimates, in some cases for reasons beyond our control.
If we do not meet milestones or financial projections as announced from time to time, the development and commercialization of
our products may be delayed and our business prospects may suffer. The assumptions management has used to produce these projections
may significantly change or prove to be inaccurate. Accordingly, you should not unduly rely on any of these financial projections.
The regulatory approval process is lengthy, time
consuming and inherently unpredictable, and if our products are not successfully developed and approved by the FDA or foreign regulatory
authorities, we may be forced to reduce or curtail our operations.
All of our product candidates in development
must be approved by the FDA or corresponding foreign governmental agencies before they can be marketed. The process for obtaining
FDA and foreign government approvals is both time-consuming and costly, with no certainty of a successful outcome. This process
typically includes the conduct of extensive pre-clinical and clinical testing, including post-approval testing, which may take
longer or cost more than we or our licensees, if any, anticipate, and may prove unsuccessful due to 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.
Numerous factors could affect the timing,
cost or outcome of our product development efforts, including the following:
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difficulty in enrolling patients in conformity with required protocols or projected timelines;
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requirements for clinical trial design imposed by the FDA;
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unexpected adverse reactions by patients in trials;
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difficulty in obtaining clinical supplies of the product;
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changes in or our inability to comply with FDA or foreign governmental product testing, manufacturing or marketing requirements;
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regulatory inspections of clinical trials or manufacturing facilities, which may, among other things, require us or our manufacturers
or licensees to undertake corrective action or suspend or terminate the affected clinical trials if investigators find them not
to be in compliance with applicable regulatory requirements;
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inability to generate statistically significant data confirming the safety and efficacy of the product being tested;
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modification of the product during testing; and
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reallocation of our limited financial and other resources to other clinical programs.
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It is possible that none of the product
candidates we develop will obtain the regulatory approvals necessary for us to begin selling them. The time required to obtain
FDA and foreign governmental approvals is unpredictable, but often can take years following the commencement of clinical trials,
depending upon the complexity of the product candidate. Any analysis we perform on data from clinical activities is subject to
confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. In addition,
even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited
indications than we request, may not approve the price we intend to charge for our products, 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 candidates.
Furthermore, even if we obtain regulatory
approvals, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising,
promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with
current good manufacturing practices, or cGMPs, and good clinical practices, or cGCPs, for any clinical trials that we conduct
post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity
or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements,
may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory
product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners,
or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties.
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The FDA’s policies may change and
additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that
we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business. We will also be
subject to periodic inspections and the potential for mandatory post- approval clinical trials required by the FDA and other U.S.
and foreign regulatory authorities. Any delay or failure in obtaining required approvals or to comply with post-approval regulatory
requirements could have a material adverse effect on our ability to generate revenue from the particular product candidate. The
failure to comply with any post-approval regulatory requirements also could result in the rescission of the related regulatory
approvals or the suspension of sales of the offending product.
Clinical drug development involves a lengthy and
expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Our current and planned clinical trials of our lead product candidate may fail to show that it is clinically safe and effective,
or that it is better than alternative treatments.
Clinical testing is expensive and can take
many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.
The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of
later-stage clinical trials. Product candidates in later stages of clinical development may fail to show the desired safety and
efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the
biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or safety profiles,
notwithstanding promising results in earlier trials. For example, aldoxorubicin has shown encouraging preliminary clinical results
in our Phase 2b clinical trial as a treatment for STS; however, these conclusions may not be reproduced in future clinical trial
results; for instance, the Phase 3 pivotal clinical trial testing aldoxorubicin as a treatment for STS narrowly missed statistical
significance although it demonstrated a statistically significant improvement in PFS over investigator's choice in 312 patients
treated in North America plus Australia. Accordingly, we, or any development partners, may ultimately be unable to provide the
FDA with satisfactory data on clinical safety and efficacy sufficient to obtain FDA approval of aldoxorubicin for any indication.
Further, we may experience delays in clinical
trials of our product candidates. We do not know whether ongoing clinical trials will be completed on schedule or at all, or whether
planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all.
Clinical trials can be delayed for a variety of reasons, including delays related to:
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obtaining regulatory approval to commence a trial;
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites,
the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
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obtaining institutional review board approval at each clinical trial site;
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recruiting suitable patients to participate in a trial;
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having patients complete a trial or return for post-treatment follow-up;
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clinical trial sites deviating from trial protocol or dropping out of a trial;
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adding new clinical trial sites;
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being placed on “clinical hold” due to unexpected severe, adverse events; or
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manufacturing sufficient quantities of product candidate for use in clinical trials.
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Patient enrollment, a significant factor
in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials
and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other
available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore, we rely
on third parties, such as CROs and clinical trial sites, to ensure the proper and timely conduct of our clinical trials and while
we have agreements governing their committed activities, we have limited influence over their actual performance.
We could encounter delays if prescribing
physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates
in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be
suspended or terminated by us, our collaborators, the institutional review boards, or IRBs, if the institutions in which such trials
are being conducted, the Data Safety Monitoring Board, or DSMB, for such trial, or by the FDA or other regulatory authorities due
to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical
protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the
imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a
drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
For example, the FDA placed a partial clinical hold on our on-going clinical trials of aldoxorubicin in November 2014 following
the death of an individual who was not enrolled in any of our clinical trials but who received aldoxorubicin pursuant to our compassionate
use policy under a single-patient IND held by one of the clinical sites participating in our Phase 3 trial of aldoxorubicin in
STS. The clinical hold resulted in our inability to enroll new patients in our aldoxorubicin studies until the hold was removed
in February 2015. Although we were able to resume enrollment in our studies, enrollment in our clinical trials and our projected
development timelines may be adversely affected by residual effects of the former clinical hold or possible future clinical holds.
If we experience delays in the completion
of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be
harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays
in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize
our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition
and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion
of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Adverse side effects or other safety risks associated
with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials, limit the commercial
profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product
candidates could result in the delay, suspension or termination of our clinical trials by us, our collaborators, IRBs, the FDA
or other regulatory authorities. If we elect or are required to delay, suspend or terminate any clinical trial of any product candidates
that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues
from any of these product candidates will be delayed or eliminated. Any of these occurrences may harm our business, financial condition
and prospects significantly.
To date, patients treated with aldoxorubicin
have experienced some of the same drug-related side effects associated with doxorubicin, including myelosuppression (decreased
production of blood cells by bone marrow), gastrointestinal disorders (nausea and vomiting), mucositis (inflammation of the mucous
membranes lining the digestive tract, including the mouth), stomatitis (inflammation of the mouth’s soft tissue), fatigue,
fever and other signs of infection associated with neutropenia (an abnormally low count of a type of white blood cells) and alopecia
(hair loss). Results of our trials could reveal an unacceptable incidence of these or other side effects. In such an event, our
trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further
development of or deny approval of our product candidates for any or all targeted indications. In addition, the drug-related side
effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product
liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Furthermore, if we or others later identify
undesirable side effects caused by the product, a number of potentially significant negative consequences could result, including:
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If our product candidates receive marketing approval, the FDA could require us to adopt a Risk Evaluation and Mitigation Strategy
to ensure that the benefits of any approved product candidate outweigh its risks;
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings on the label;
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could prevent us from
achieving or maintaining market acceptance of aldoxorubicin or the particular product candidate at issue, if approved, and could
significantly harm our business, results of operations and prospects.
We rely on third parties to conduct our preclinical
and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines,
we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates and our business
could be substantially harmed.
We have agreements with third-party CROs
to monitor and manage data for our preclinical and clinical programs. We rely heavily on these parties for execution of our preclinical
and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each
of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance
on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with cGCPs, which are regulations
and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory
authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we
or any of these CROs fails to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be
deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials
before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine
that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted with product
produced under cGMP regulations, and will require a large number of test subjects. Our or our CROs’ failure to comply with
these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If any of our relationships with these third-party
CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms.
In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot
control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not
successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the
quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory
requirements or for other reasons, 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 candidates. As a result, our financial results and the commercial
prospects for aldoxorubicin would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Switching or adding additional CROs involves
substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new
CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development
timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar
challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business,
financial condition and prospects.
We rely upon third parties for the manufacture of
our clinical product supplies, and we intend to rely on third parties to produce commercial supplies of any approved product candidate,
and our commercialization of any product candidates, including aldoxorubicin, could be stopped, delayed or made less profitable
if those third parties fail to obtain approval of the FDA, fail to provide us with sufficient quantities of drug product or fail
to do so at acceptable quality levels or prices.
We do not have the facilities or expertise
to manufacture supplies of aldoxorubicin or any of our other product candidates, and we lack the resources and capability to manufacture
any of our product candidates on a clinical or commercial scale. Accordingly, we are dependent upon third-party manufacturers,
or potential future strategic alliance partners, to manufacture these supplies. We have manufacturing supply arrangements in place
with respect to a portion of the clinical supplies needed for the clinical development programs for aldoxorubicin. In September
2015, we entered into an agreement with a supplier to purchase doxorubicin hydrochloride both for clinical and commercial use.
However, we have no other supply arrangements for the commercial manufacture of this product candidate or any manufacturing supply
arrangements for any other potential product candidates, and we may not be able to secure needed supply arrangements on attractive
terms, or at all. Our failure to secure these arrangements as needed could have a materially adverse effect on our ability to complete
the development of our products or to commercialize them.
The facilities used by our contract manufacturers
to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be completed after we submit
our NDA to the FDA. We do not control the manufacturing process of aldoxorubicin and are completely dependent on our contract manufacturing
partners for compliance with the FDA’s requirements for manufacture of aldoxorubicin. If our contract manufacturers cannot
successfully manufacture material that conforms to our specifications and the FDA’s strict regulatory requirements, they
will not be able to secure and/or maintain FDA approval for the manufacturing facilities. In addition, we have no control over
the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the
FDA does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the
future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain
regulatory approval for or market our product candidates.
If aldoxorubicin, our lead product candidate,
or our other product candidates cannot be manufactured in suitable quantities and in accordance with regulatory standards, our
clinical trials, regulatory approvals and marketing efforts for such products may be delayed. Such delays could adversely affect
our competitive position and our chances of generating significant recurring revenues. If any of our products that are approved
for marketing cannot be manufactured at an acceptable cost, the commercial success of such product candidates may be adversely
affected.
We may rely upon third parties in connection with
the commercialization of our products.
The marketing and commercialization of aldoxorubicin
may require us to enter into strategic alliances or other collaborative arrangements with other pharmaceutical companies under
which those companies will be responsible for one or more aspects of the eventual marketing and commercialization of aldoxorubicin,
if it is approved for marketing.
Any future product candidate, if approved
for marketing, may not have sufficient potential commercial value to enable us to secure strategic arrangements with suitable companies
on attractive terms, or at all. If we are unable to enter into such arrangements, we may not have the financial or other resources
to commercialize our products and may have to sell our rights in them to a third party or abandon their commercialization altogether.
To the extent we enter into collaborative
arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual
partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in complying
with applicable FDA and other regulatory requirements, we may not obtain regulatory approvals as planned, if at all, and the timing
of receipt or the amount of revenue from these arrangements may be materially and adversely affected. By entering into these arrangements
rather than completing the development and then marketing these products on our own, the profitability to us of these products
may decline.
We may be unable to protect our intellectual property
rights, which could adversely affect our ability to compete effectively.
We will be able to protect our technologies
from unauthorized use by third parties only to the extent that we have rights to valid and enforceable patents or other proprietary
rights that cover them. Although we have rights to patents and patent applications directed to aldoxorubicin and other product
candidates, these patents and applications may not prevent third parties from developing or commercializing similar or identical
technologies. In addition, our patents may be held to be invalid if challenged by third parties, and our patent applications may
not result in the issuance of patents.
The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles
remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in
the United States and in many foreign countries. The application and enforcement of patent laws and regulations in foreign countries
is even more uncertain. Accordingly, we may not be able to effectively file, protect or defend our proprietary rights on a consistent
basis. Many of the patents and patent applications on which we rely were issued or filed by third parties prior to the time we
acquired rights to them. The validity, enforceability and ownership of our patents and patent applications may be challenged, and
if a court, patent office or other tribunal decides that our patents are not valid, we will not have the right to stop others from
using our inventions. There is also the risk that, even if the validity of our patents is upheld, a court or other tribunal may
refuse to stop others on the ground that their activities do not infringe our patents.
Any litigation brought by us to protect
our intellectual property rights could be costly and have a material adverse effect on our operating results or financial condition,
make it more difficult for us to enter into strategic alliances with third parties to develop our products, or discourage our existing
licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third
parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be materially
and adversely affected.
We also rely on certain proprietary trade
secrets and know-how, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets and
know-how are difficult to protect. Although we have taken measures to protect our unpatented trade secrets and know-how, including
the use of confidentiality and invention assignment agreements with our employees, consultants and some of our contractors, it
is possible that these persons may disclose our trade secrets or know-how or that our competitors may independently develop or
otherwise discover our trade secrets and know-how.
If our product candidates infringe the rights of
others, we could be subject to expensive litigation or be required to obtain licenses from others to develop or market them.
Our competitors or others may have patent
rights that they choose to assert against us or our licensees, suppliers, customers or potential collaborators. Moreover, we may
not know about patents or patent applications that our products would infringe. For example, because patent applications do not
publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown
to us that may later result in issued patents that our product candidates would infringe. In addition, if third parties file patent
applications or obtain patents claiming technology also claimed by us or our licensors in issued patents or pending applications,
we may have to participate in interference or derivation proceedings in the U.S. Patent and Trademark Office to determine priority
of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings
in foreign tribunals to defend the patentability of our foreign patent applications.
If a third-party claims that we are infringing
on its proprietary rights, any of the following may occur:
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we may become involved in time-consuming and expensive litigation, even if the claim is without merit;
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we may become liable for substantial damages for past infringement if a court decides that our technology infringes a competitor’s
patent;
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a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available
on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our
patents; and
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we may have to redesign our product candidates or technology so that it does not infringe patent rights of others, which may
not be possible or commercially feasible.
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If any of these events occurs, our business
and prospects will suffer and the market price of our common stock will likely decline substantially.
Any products we develop may become subject to unfavorable
pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business.
We intend to sell our products that may
be approved for marketing primarily to hospitals, which generally receive reimbursement for the health care services they provide
to their patients from third-party payors, such as Medicare, Medicaid and other domestic and international government programs,
private insurance plans and managed care programs.
We currently expect that any drugs we develop
may need to be administered under the supervision of a physician. Under currently applicable law, drugs that are not usually self-administered
may be eligible for coverage by the Medicare program if:
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they are “incidental” to a physician’s services;
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they are “reasonable and necessary” for the diagnosis or treatment of the illness or injury for which they are
administered according to accepted standard of medical practice;
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they are not excluded as immunizations; and
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they have been approved by the FDA.
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There is significant uncertainty related
to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private
and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which
new drugs and biologics will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older, disabled
or suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers certain individuals and
families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private payors
and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. It is difficult to predict
at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Most third-party payors may deny coverage
or reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as
determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to cover and
reimburse for experimental procedures and devices. Furthermore, because our programs are in the early stages of development, we
are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. Increasingly, third-party
payors are requiring that drug companies provide them with predetermined discounts from list prices, and are challenging the prices
charged for medical products. If the price we are able to charge for any products we develop is inadequate in light of our development
and other costs, our profitability could be adversely affected.
Healthcare legislative reform measures could hinder
or prevent the commercial success of our products and product candidates.
In the United States, there have been, and
we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect
our future revenues and profitability. Federal and state lawmakers regularly propose and, at times, enact legislation that results
in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products
and services. For example, in March 2010, President Obama signed one of the most significant healthcare reform measures in decades,
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively,
the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs,
reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result
in the development of new programs. The Affordable Care Act, among other things, (i) increases the minimum Medicaid rebates owed
by manufacturers under the Medicaid Drug Rebate Program, extends the rebate program to individuals enrolled in Medicaid managed
care organizations, and addresses new methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program
are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line extension products;
(ii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and (iii) enacts a new Medicare
Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices
of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D.
In addition, other legislative changes have
been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control
Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction,
tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to
reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes
aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013. On January
2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments
to several providers, including hospitals, imaging centers and cancer treatment centers. We expect that additional state and federal
healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional
pricing pressures.
We may also be subject to healthcare laws, regulation
and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.
If we obtain FDA approval for any of our
product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly
through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback
Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things,
our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the
federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, 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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the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing
to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may
apply to entities that provide coding and billing advice to customers;
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters;
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the federal physician sunshine requirements under the Affordable Care Act, which requires manufacturers of drugs, devices,
biologics, and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments
and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests
held by physicians and other healthcare providers and their immediate family members;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for
Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security
and privacy of protected health information; 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 payor, including commercial insurers; state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated
by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral
sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures; 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 may not have the same effect, thus complicating
compliance efforts.
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Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could
be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these
laws. For example, the recently enacted Affordable Care Act, among other things, amends the intent requirement of the Federal Anti-Kickback
Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific
intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items
or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the False Claims Act.
Achieving and sustaining compliance with
these laws may prove costly. In addition, 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 our management’s attention from the operation of our business.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from participation
in federal and state healthcare programs, imprisonment, or the curtailment or restructuring of our operations, any of which could
adversely affect our ability to operate our business and our financial results.
We are subject to intense competition, and we may
not compete successfully.
Aldoxorubicin is a conjugate of doxorubicin,
a widely used anti-cancer drug. Doxorubicin is part of the anthracycline class of chemotherapy agents. Anthracyclines, many of
which, including doxorubicin are generic, have been used throughout the world to treat various cancers for several decades. Due
to their track record of broad anti-cancer activity, new types of anthracyclines and modified or reformulated versions continue
to be developed to overcome toxicities which limit the use of these drugs.
Aldoxorubicin is a chemically modified version
of doxorubicin that incorporates an acid sensitive linker technology to improve concentration in the tumor. We believe that the
albumin-binding ability of aldoxorubicin will allow the compound to overcome several of the side effect issues typically associated
with anthracyclines. We also believe that using albumin as a targeted carrier will allow for higher dosing, greater concentration
of the drug in tumors and greater efficacy.
STS patients are typically treated with
surgery followed by radiation therapy. For patients ineligible for surgery, radiation or both, chemotherapy is the only option.
Doxorubicin is the only approved first-line drug for treating STS patients who are ineligible for surgery and is often used in
combination with radiation. The National Comprehensive Cancer Network treatment recommendations for STS also includes the use of
ifosfamide, epirubicin, gemcitabine, gemcitabine with docetaxel, dacarbazine and liposomal doxorubicin marketed in the United States
as Doxil® by Johnson & Johnson. Pazopanib (Votrient®), developed by GlaxoSmithKline and now marketed by Novartis,
was approved in the United States and Europe in 2012 for the treatment of certain types of advanced STS following prior chemotherapy.
In October 2015, the Janssen unit of Johnson & Johnson received approval for trabectedin (Yondelis®) for the treatment
of patients with leiomyosarcoma and liposarcoma,that have previously received an anthracycline-containing regimen. In January 2016,
the FDA approved Eisai’s eribulin (Halaven®) as a treatment for patients with unresectable or metastatic liposarcoma
who have received a prior anthracycline. Eli Lilly is conducting a Phase 3 clinical trial with olaratumab in combination with doxorubicin
in first-line STS. Eli Lilly stated in October 2015 that they plan to submit a rolling new drug application based on the Phase
2 clinical trial results in STS. There are other approaches to treating STS in clinical development, including Morphotek’s
ontuxizumab in combination with chemotherapy, and Tracon Pharmaceuticals’ TRC-105 in combination with pazopanib.
Patients with glioblastoma multiforme, or
GBM, generally undergo invasive brain surgery, although disease progression following surgery is nearly 100%. The front-line therapy
for GBM following surgery is radiation in combination with temozolomide (Temodar®). Bevacizumab (Avastin®) has been approved
for the treatment of GBM in patients progressing after prior therapy. Drugs in development to treat GBM include nivolumab by Bristol-Myers
Squibb, DCVax by Northwest Biotherapeutics, TRC-105 from Tracon Pharmaceuticals, veliparib by AstraZeneca and buparlisib by Novartis.
Treatment for newly diagnosed SCLC typically
consists of cisplatin or carboplatin in combination with etoposide. Radiation may also be given for extensive-stage disease. While
first-line treatment can yield overall response rates of 50-80%, the duration of response is often less than 90 days. For recurrent
SCLC, topotecan (Hycamtin®) is standard therapy. SCLC patients who are sensitive to first-line treatment may receive topotecan
or the generic chemotherapeutic drugs irinotecan, taxanes, gemcitabine or vinorelbine. Drugs in development for second-line SCLC
include Bristol-Myers Squibb’s ipilumimab (Yervoy®) and SC16LD6.5 by Stem CentRx, Inc.
Kaposi’s sarcoma is generally treated
with radiation, surgery and/or liposomal doxorubicin. Liposomal daunorubicin (DaunoXome®, Galen US), with or without paclitaxel,
is also recommended as treatment for advanced disease. Other drugs in development for Kaposi’s sarcoma include selumetinib
by AstraZeneca and pomalidamide by Celgene.
Many companies, including large pharmaceutical
and biotechnology firms with financial resources, research and development staffs, and facilities that may be substantially greater
than those of ours or our strategic partners or licensees, are engaged in the research and development of pharmaceutical products
that could compete with our potential products. To the extent that we seek to acquire, through license or otherwise, existing or
potential new products, we will be competing with numerous other companies, many of which will have substantially greater financial
resources, large acquisition and research and development staffs that may give those companies a competitive advantage over us
in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products
marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized
by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective
than those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive
products for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional
competitive products are under development and may also include products currently under development that we are not aware of or
products that may be developed in the future.
As a result, these competitors may:
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succeed in developing competitive products sooner than us or our strategic partners or licensees;
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obtain FDA or foreign governmental approvals for their products before we can obtain approval of any of our products;
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obtain patents that block or otherwise inhibit the development and commercialization of our product candidate candidates;
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develop products that are safer or more effective than our products;
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devote greater resources than us to marketing or selling products;
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introduce or adapt more quickly than us to new technologies and other scientific advances;
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introduce products that render our products obsolete;
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withstand price competition more successfully than us or our strategic partners or licensees;
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negotiate third-party strategic alliances or licensing arrangements more effectively than us; and
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take better advantage than us of other opportunities.
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We will be required to pay substantial milestone
and other payments relating to the commercialization of our products.
The agreement relating to our worldwide
rights to aldoxorubicin provides for our payment of up to an aggregate of $6 million upon meeting other specified future clinical
and regulatory milestones, including acceptance of an NDA for aldoxorubicin and marketing approval for aldoxorubicin or other product.
We also will be obliged to pay:
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commercially reasonable royalties based on a percentage of net sales (as defined in the agreement);
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a percentage of any non-royalty sub-licensing income (as defined in the agreement); and
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milestones of $1,000,000 for each additional final marketing approval that we might obtain.
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Under the merger agreement by which we acquired
Innovive, we agreed to pay the former Innovive stockholders a total of up to approximately $18.3 million of future earnout merger
consideration, subject to our achievement of specified net sales under the Innovive license agreements. The earnout merger consideration,
if any, will be payable in shares of our common stock, subject to specified conditions, or, at our election, in cash or by a combination
of shares of our common stock and cash. Our common stock will be valued for purposes of any future earnout merger consideration
based upon the trading price of our common stock at the time the earnout merger consideration is paid.
We rely significantly on information technology and any
failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability
to operate our business effectively.
We rely significantly on information technology
and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm
our ability to operate our business effectively. We maintain sensitive data pertaining to our Company on our computer networks,
including information about our development activities, our intellectual property and other proprietary business information. Our
internal computer systems and those of third parties with which we contract may be vulnerable to damage from cyber-attacks, computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures, despite the implementation
of security measures. System failures, accidents or security breaches could cause interruptions to our operations, including material
disruption of our development activities, result in significant data losses or theft of our intellectual property or proprietary
business information, and could require substantial expenditures to remedy. To the extent that any disruption or security breach
were to result in a loss of, or damage to, our data or applications or inappropriate disclosure of confidential or proprietary
information, we could incur liability and our development programs could be delayed, any of which would harm our business and operations.
We are subject to potential liabilities from clinical
testing and future product liability claims.
If any of our products are alleged to be
defective, they may expose us to claims for personal injury by patients in clinical trials of our products or, if we obtain marketing
approval and commercialize our products, by patients using our commercially marketed products. Even if one or more of our products
is approved by the FDA, users may claim that such products caused unintended adverse effects. We maintain clinical trial insurance
for our ongoing clinical trials, and we plan to seek to obtain similar insurance for any other clinical trials that we conduct.
We also would seek to obtain product liability insurance covering the commercial marketing of our product candidates. We may not
be able to obtain additional insurance, however, and any insurance obtained by us may prove inadequate in the event of a claim
against us. Any claims asserted against us also may divert management’s attention from our operations, and we may have to
incur substantial costs to defend such claims even if they are unsuccessful.
We may be unable to successfully acquire additional
technologies or products. If we require additional technologies or products, our product development plans may change and the ownership
interests of our shareholders could be diluted.
We may seek to acquire additional technologies
by licensing or purchasing such technologies, or through a merger or acquisition of one or more companies that own such technologies.
We have no current understanding or agreement to acquire any technologies, however, and we may not be able to identify or successfully
acquire any additional technologies. We also may seek to acquire products from third parties that already are being marketed or
have been approved for marketing, although we have not currently identified any of these products. We do not have any prior experience
in acquiring or marketing products approved for marketing and may need to find third parties to market any products that we might
acquire.
We have focused our product development
efforts on our oncology drug candidates, which we believe have the greatest revenue potential. If we acquire additional technologies
or product candidates, we may determine to make further changes to our product development plans and business strategy to capitalize
on opportunities presented by the new technologies and product candidates.
We may determine to issue shares of our
common stock to acquire additional technologies or products or in connection with a merger or acquisition of another company. To
the extent we do so, the ownership interest of our stockholders will be diluted accordingly.
We are conducting certain of our clinical trials
in foreign countries, which exposes us to additional risks.
We are conducting international clinical
development of aldoxorubicin. The conduct of clinical trials outside the United States could have a significant impact on us. Risks
inherent in conducting international clinical trials include:
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foreign regulatory requirements that could restrict or limit our ability to conduct our clinical trials;
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administrative burdens of conducting clinical trials under multiple foreign regulatory schema;
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foreign exchange fluctuations;
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diminished protection of intellectual property in some countries; and
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possible nationalization and expropriation.
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In addition, there may be changes to our business and political position if there is instability, disruption or destruction
in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and
natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease, which could seriously harm the development
of our current operating strategy.
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In the event of a dispute regarding our international
clinical trials, it may be necessary for us to resolve the dispute in the foreign country of dispute, where we would be faced with
unfamiliar laws and procedures.
The resolution of disputes in foreign countries
can be costly and time consuming, similar to the situation in the United States. However, in a foreign country, we face the additional
burden of understanding unfamiliar laws and procedures. We may not be entitled to a jury trial, as we might be in the United States.
Further, to litigate in any foreign country, we would be faced with the necessity of hiring lawyers and other professionals who
are familiar with the foreign laws. For these reasons, we may incur unforeseen expenses if we are forced to resolve a dispute in
a foreign country.
Drug discovery is a complex, time-consuming and
expensive process, and we may not succeed in creating new product candidates.
Conducting drug discovery and pre-clinical
development of our albumin-binding technology is a complex and expensive process that will take many years. Accordingly, we cannot
be sure whether or when our drug discovery and pre-clinical development activities will succeed in developing any new product candidates.
In addition, any product candidates that we develop in pre-clinical testing may not demonstrate success in clinical trials required
for marketing approval.
Any deficiency in the design, implementation
or oversight of our drug discovery and pre-clinical testing programs could cause us to incur significant additional costs, experience
significant delays, prevent us from obtaining marketing approval for any product candidate that may result from these programs
or abandon development of certain product candidates. If any of these risks materializes, it could harm our business and cause
our stock price to decline.
We have a limited operating history in drug discovery,
which is inherently risky, and we may not succeed in addressing these risks.
We have operated our drug discovery laboratory
and LADR™ development program since October 2014. Accordingly, we have a limited operating history in conducting our own
drug discovery programs. Consequently, there is limited information for investors to use as basis for assessing the viability of
our drug discovery efforts. Investors must consider the risks and difficulties inherent in drug discovery and pre-clinical activities,
including the following:
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difficulties, complications, delays and other unanticipated factors in connection with the development of new drugs;
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competition from companies that have substantially greater assets and financial resources than we have;
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our ability to anticipate and adapt to a competitive market and rapid technological developments;
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our need to rely on multiple levels of complex financing agreements with outside funding due to the length of drug development
cycles and governmental approved protocols associated with the pharmaceutical industry; and
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our dependence upon key scientific personnel, including Felix Kratz, Ph.D., our Vice President of Drug Discovery.
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We cannot be certain that we will successfully
address these risks or that our drug discovery efforts will be successful. In the event that we do not successfully address these
risks, our business, prospects, financial condition and results of operations could be materially and adversely affected. We also
may be required to reduce or discontinue altogether our drug discovery and pre-clinical programs.
Our ability to use our net operating loss carryforwards
and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue
Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use
its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research and development tax credits)
to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative
change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar
rules may apply under state tax laws. As a result of a previous ownership change, our annual utilization of approximately $62.3
million in federal net operating loss carryforwards will be substantially limited. If we experience ownership changes as a result
of future transactions in our stock, we may be further limited in our ability to use our net operating loss carryforwards and other
tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating
loss carryforwards and other tax assets could potentially result in increased future tax liability to us on any net income that
we may earn in the future.
Risks Associated With Our Common Stock
You may experience future dilution as a result of
future equity offerings or other equity issuances.
To raise additional capital, we may in the
future offer additional shares of our common stock, preferred stock or other securities convertible into or exchangeable for our
common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per
share that is equal to or greater than the price per share that you may pay for the shares of our common stock offered hereby.
The price per share at which we sell additional shares of our common stock or other securities convertible into or exchangeable
for our common stock in future transactions may be higher or lower than the price per share that you may pay for the shares of
our common stock.
Our common stock may be delisted from The NASDAQ
Capital Market.
On August 24, 2016, we received notice from
The NASDAQ Capital Market (“Nasdaq”) that the closing bid price for our common stock had been below $1.00 for the previous
30 consecutive business days, and that we are therefore not in compliance with the minimum bid price requirement for continued
inclusion on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notice indicated that we would have 180 calendar
days, or until February 21, 2017, to regain compliance with this requirement. On February 22, 2017, Nasdaq notified us that
we are eligible for an extension to comply with the minimum $1.00 bid price requirement through August 21, 2017, by which date
we must evidence compliance for at least ten consecutive business days. If compliance cannot be demonstrated by August 21, 2017,
Nasdaq will provide written notification that our common stock will be delisted. In the event of such a notification, we may appeal
Nasdaq’s determination, but there can be no assurance Nasdaq would grant any such request for continued listing.
If it appears to Nasdaq that we will not
be able to cure the deficiency, or if we are otherwise not eligible, we expect that Nasdaq will notify us that our common stock
will be subject to delisting. If our common stock is delisted from Nasdaq, the market value of our common stock may decline, and
you may be unable to readily sell shares of our common stock.
Our stock price is volatile.
The closing price of our common stock as
reported on Nasdaq ranged from a low of $0.36 per share to a high of $3.66 per share during the 52-week period ended April 24,
2017, and it may continue to experience significant volatility. Factors that may affect the market price of our common stock include
the following:
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the results of our clinical trials and drug discovery activities;
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regulatory developments affecting our clinical trials;
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litigation involving or affecting us;
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safety concerns regarding our product candidates;
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changes in our relationship with our licensors and other strategic partners;
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our quarterly operating results;
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shortfalls in our actual financial results compared to our guidance or the forecasts of stock market analysts;
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developments in patent or other technology ownership rights; and
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acquisitions or strategic alliances by us or our competitors.
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Our outstanding options and warrants and the availability
for resale of the underlying shares may adversely affect the trading price of our common stock.
As of March 31, 2017, we had outstanding
stock options to purchase 17,479,770 shares of our common stock at a weighted-average exercise price of $2.37 per share and outstanding
warrants to purchase 32,394,217 shares of common stock at a weighted-average exercise price of $0.68 per share. Our outstanding
options and warrants could adversely affect our ability to obtain future financing or engage in certain mergers or other transactions,
since the holders of options and warrants can be expected to exercise them at a time when we may be able to obtain additional capital
through a new offering of securities on terms more favorable to us than the terms of outstanding options and warrants. For the
life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock
without assuming the risk of ownership. The issuance of shares upon the exercise of outstanding options and warrants will also
dilute the ownership interests of our existing stockholders. Many of our outstanding warrants contain anti-dilution provisions
pertaining to dividends with respect to our common stock. In the event that these anti-dilution provisions are triggered by us
in the future, we would likewise be required to reduce the exercise price, and increase the number of shares underlying, those
warrants, which would have a dilutive effect on our stockholders.
All or substantially all of the shares of
our common stock issuable upon exercise of our outstanding options and warrants may be resold publicly by the holders. The availability
of these shares for public resale, as well as actual resales of these shares, could adversely affect the trading price of our common
stock.
We cannot assure investors that our internal controls
will prevent future material weaknesses.
As of December 31, 2015, we identified a
control deficiency in our financial reporting process concerning a non-routine and unusual item that constituted a material weakness
in our internal controls. Since then, we have performed a comprehensive review of significant and unusual transactions, and during
the quarter ended September 30, 2016, we implemented new controls and strengthened existing controls over the identification and
accounting for significant and unusual transactions. As of December 31, 2016, our management concluded that the controls were
operating effectively and that the material weakness as of December 31, 2015 had been fully remediated. There can be no assurance,
however, that the new controls will prevent the weakness from re-occurring in the future.
There also can be no assurance that we will
not suffer from other material weaknesses in the future. If we fail to remediate these material weaknesses or fail to otherwise
maintain effective internal controls over financial reporting in the future, such failure could result in a material misstatement
of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and which could cause
investors and other users to lose confidence in our financial statements, limit our ability to raise capital and have a negative
effect on the trading price of our common stock. Additionally, failure to remediate the material weaknesses or otherwise failing
to maintain effective internal controls over financial reporting may also negatively impact our operating results and financial
condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and
regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial
measures.
We are subject to legal actions that could adversely
affect our financial condition or our reputation.
We announced in December 2015 and January
2016 that we agreed to settle federal securities class actions and stockholder derivative lawsuits filed in 2014 against us and
certain of our officers and directors. In July 2016, securities-related class action lawsuits and derivative litigation have often
been brought against companies, including many biotechnology companies, which experience volatility in the market price of their
securities. This risk is especially relevant for biotechnology and biopharmaceutical companies such as ours, which often experience
significant stock price volatility in connection with their product development programs.
As described in more detail in “Legal
Proceedings” in Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2016 incorporated
herein by reference, our directors and certain of our officers are subject to stockholder derivative claims pending in the Delaware
Court of Chancery and we and certain of our officers are subject to class-action complaints filed in the U.S. District Court for
the Central District of California. Although we carry director’s and officer’s and other liability insurance, we must
pay the first legal fees and other litigation expenses incurred up to the application retention, or deductible, amounts under our
insurance policies, and the insurance may not be sufficient to cover all of the liabilities that we may incur in connection with
the pending or possible future legal actions. As a result, the pending legal proceedings and any future legal actions may adversely
affect out financial condition.
On April 10, 2017, the SEC announced the
entry of administrative orders stemming from its investigation involving us and other companies. The entry of the order makes us
ineligible to rely upon the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1996
or the exemption from the registration requirements under the Securities Act afforded by Regulation D under
the Securities Act, and may harm our business reputation.
Our anti-takeover measures may make it more difficult
to change our management, or may discourage others from acquiring us, and thereby adversely affect stockholder value.
We have a stockholder rights plan and provisions
in our restated by-laws, as amended, that are intended to protect our stockholders’ interests by encouraging anyone seeking
control of our company to negotiate with our board of directors. These provisions may discourage or prevent a person or group from
acquiring us without the approval of our board of directors, even if the acquisition would be beneficial to our stockholders.
We have a classified board of directors,
which means that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control
of our board of directors. This applies to every election of directors, not just an election occurring after a change in control.
The classification of our board increases the amount of time it takes to change majority control of our board of directors and
may cause potential acquirers to lose interest in a potential purchase of us, regardless of whether our purchase would be beneficial
to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes it
more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change the
strategic direction or operational performance of our company.
Our by-laws provide that directors may only
be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital stock
then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without
cause. Our by-laws also provide that a stockholder must give us at least 120 days’ notice of a proposal or director nomination
that such stockholder desires to present at any annual meeting or special meeting of stockholders. Such provision prevents a stockholder
from making a proposal or director nomination at a stockholder meeting without us having advance notice of that proposal or director
nomination. This could make a change in control more difficult by providing our directors with more time to prepare an opposition
to a proposed change in control. By making it more difficult to remove or install new directors, these bylaw provisions may also
make our existing management less responsive to the views of our stockholders with respect to our operations and other issues such
as management selection and management compensation.
We are subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law, which may also prevent or delay a takeover of us that may be beneficial
to our stockholders.
Our restated by-laws, as amended, designate the
Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may
be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers or other employees.
Our by-laws provide that, unless we consent
in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed
by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant
to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim that is governed by the internal
affairs doctrine. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed
to have notice of and to have consented to this provision of our by-laws. This choice-of-forum provision may limit our stockholders’
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees,
which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated by-laws inapplicable
or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated
with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
We may issue preferred stock in the future, and
the terms of the preferred stock may reduce the value of our common stock.
We are authorized to issue shares of preferred
stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further
action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding common
stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge
with or sell our assets to a third party.
We do not expect to pay any cash dividends on our
common stock.
We have not declared or paid any cash dividends
on our common stock. Because we do not anticipate paying cash dividends for the foreseeable future, you will not realize a return
on your investment in our common stock except to the extent of any appreciation in the value of our common stock. Our common stock
may not appreciate in value, or may decline in value.
Risks Associated With This Offering
Our management will have broad discretion as to
the use of the net proceeds of this offering, and you will have no information regarding the actual use of the net proceeds.
We have not designated the amount of net
proceeds from this offering to be used for any particular purpose. Accordingly, our management will have broad discretion as to
the application of the net proceeds and could use them for purposes other than those contemplated at the time of this offering. Our stockholders may not benefit from the manner in which our
management actually allocates and spends the net proceeds of this offering.
You will experience immediate and substantial dilution
in the net tangible book value per share of the stock you purchase.
You will suffer substantial dilution. See
“Dilution” in this prospectus supplement for more information of the dilution you will incur in this offering.