The following
information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking
statements we have made in this report and those we may make from time to time. You should carefully consider the risks described
below, in addition to the other information contained in this report, before making an investment decision. Our business, financial
condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not
the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant
risks to our business at this time also may impair our business operations.
Risks Related to our Potential Merger
with InvaGen Pharmaceuticals
If the proposed merger is not completed,
our business could be materially and adversely affected and our stock price could decline.
On November 12, 2018, the Company entered
into a stock purchase and merger agreement with InvaGen Pharmaceuticals Inc. (“InvaGen”) and Madison Pharmaceuticals,
Inc. (“Merger Sub”), pursuant to which, among other things and subject to the satisfaction or waiver of the conditions
set forth therein, Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity and becoming
a wholly-owned subsidiary of InvaGen. The transaction is valued at $215 million, in addition to certain CVR payments.
Consummation of the Merger Transaction
is conditioned upon U.S. Food and Drug Administration (“FDA”) approval of IV Tramadol, its labeling and usage and the
absence of any REMS restrictions in effect with respect to IV Tramadol. Additionally, the SPMA contains customary representations,
warranties, covenants and termination rights as well as certain customary conditions, including, among others, the expiration of
any waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Therefore,
the Merger Transaction may not be completed or may not be completed as quickly as expected. If the SPMA is terminated, the market
price of our ordinary shares will likely decline, as we believe that our market price reflects an assumption that the merger will
be completed. In addition, our share price may be adversely affected as a result of the fact that we have incurred and will continue
to incur significant expenses related to the Merger Transaction that will not be recovered if the Merger Transaction is not completed.
If the SPMA is terminated under certain circumstances, we may be obligated to pay InvaGen Pharmaceuticals, Inc. a termination fee
of $10.0 million. As a consequence of the failure of the merger to be completed, as well as of some or all of these potential effects
of the termination of the SPMA, our business could be materially and adversely affected.
The fact that there is a merger pending
could have an adverse effect on our business and results of operations.
While the merger is pending, it creates
uncertainty about our future. We are subject to a number of risks that may adversely affect our business and results of operations,
including:
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the diversion of management and employee attention
may detract from our ability to obtain regulatory approval for and, if approved, to successfully commercialize IV Tramadol in
a timely manner;
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continuing to incur significant expenses related to
the merger;
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the merger agreement restricting us from engaging in
business advantageous activities outside of our ordinary course of business without InvaGen’s consent; and
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being unable to respond effectively to competitive
pressures, industry developments and future opportunities.
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If the merger occurs, our shareholders
will not be able to participate in any upside to our business other than through the CVRs; if the required commercialization milestone
under the CVRs is not achieved, shareholders may not realize any value from the CVRs.
Upon consummation of the merger, our shareholders
will receive an estimated per share price of $13.92 in cash at closing and a contractual contingent value right, or a CVR, to receive
additional consideration in cash if certain milestones related to the commercialization of IV Tramadol are achieved, but will not
receive any shares of InvaGen. Even if our business following the merger performs well, our current shareholders will not receive
any additional consideration or be able to share in the increased value of our business by virtue of being equity owners.
Risks Related to Our Business and Industry
We currently have no drug products
for sale, and only one drug product candidate, IV Tramadol. We are dependent on the success of IV Tramadol and cannot guarantee
that we will be able to complete the required studies or that this product candidate will receive regulatory approval or be successfully
commercialized.
Our business success
depends on our ability to obtain regulatory approval for and to successfully commercialize our only product candidate, IV Tramadol,
and any significant delays in obtaining approval for and commercializing IV Tramadol will have a substantial adverse impact on
our business and financial condition.
If approved, our
ability to generate revenues from IV Tramadol will depend on our ability to:
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hire, train,
deploy and support our sales force;
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create market
demand for IV Tramadol through our own marketing and sales activities, and any other
arrangements to promote this product candidate we may later establish;
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obtain sufficient
quantities of IV Tramadol from our third-party manufacturers as required to meet commercial
demand at launch and thereafter;
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establish
and maintain agreements with wholesalers, distributors and group purchasing organizations
on commercially reasonable terms;
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obtain and
maintain government and private payer reimbursement for our product; and
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maintain
patent protection and regulatory exclusivity for IV Tramadol.
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We may not receive regulatory approval
for IV Tramadol or future product candidates, or its or their approvals may be delayed, which would have a material adverse effect
on our business and financial condition.
IV Tramadol and other
future product candidates and the activities associated with their development and commercialization, including their design,
testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution,
are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the European Medicines
Agency, or the EMA, and similar regulatory authorities outside the United States. Failure to obtain marketing approval for our
product candidate IV Tramadol or any future product candidates will prevent us from commercializing the product candidates. We
have not received approval to market IV Tramadol from regulatory authorities in any jurisdiction. We have only limited experience
in conducting preclinical and clinical studies and filing and supporting the applications necessary to gain marketing approvals
and expect to rely on third party contract research organizations as well as consultants and vendors to assist us in this process.
Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing
approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing
facilities by, the regulatory authorities.
Our product candidate
IV Tramadol or any future product candidates may not be effective, may be only moderately effective or may prove to have undesirable
or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent
or limit commercial use.
If our product candidate
or any future product candidate receives marketing approval, the accompanying label may limit the approved use of our drug, which
could limit sales of the product. In addition, our third-party supplier may not pass an inspection by the FDA of its manufacturing
facilities and we may be forced to identify, qualify and implement additional suppliers.
The process of obtaining
marketing approvals, both in the United States and abroad, is expensive, may take many years if approval is granted at all, and
can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved.
Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations,
or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application.
Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide
that our data is insufficient for approval and require additional preclinical studies or clinical trials. In addition, varying
interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of
a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments
that render the approved product not commercially viable.
If we experience
delays in obtaining approval or if we fail to obtain approval of our product candidate or any future product candidates, the commercial
prospects for our product candidates may be harmed and our ability to generate revenue will be materially impaired.
In addition, even
if we were to obtain approval, regulatory authorities may, among other things, approve our product candidate or any future product
candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our product,
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. The regulatory authority may also require the label to contain warnings, contraindications, or precautions that limit
the commercialization of that product. Any of these scenarios could compromise the commercial prospects for our product candidate
or any future product candidates.
If IV Tramadol is approved and our
contract manufacturer fails to produce the product in the volumes that we require on a timely basis, to produce the product according
to the applicable quality standards and requirements, or to comply with stringent regulations applicable to pharmaceutical drug
manufacturers, we may face delays in the commercialization of this product candidate, lose potential revenues or be unable to
meet market demand.
The manufacture of
pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing
techniques and process controls, and the use of specialized processing equipment. We have entered into a development and supply
agreement for the completion of pre-commercialization manufacturing development activities and the manufacture of commercial supplies
of IV Tramadol. Any termination or disruption of this relationship may materially harm our business and financial condition, and
frustrate any commercialization efforts for this product candidate.
In order to meet
anticipated demand for IV Tramadol, if this product candidate is approved, we have one manufacturer to provide us clinical and
commercial supply of IV Tramadol in accordance with the Current Good Manufacturing Practice, or cGMP. We also plan to qualify
a backup manufacturer.
All of our contract
manufacturers must comply with strictly enforced federal, state and foreign regulations, including cGMP requirements enforced
by the FDA through its facilities inspection program, as well as controlled substance handling and security requirements, and
we have little control over their compliance with these regulations. Any failure to comply with applicable regulations 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, and would limit the availability of our product. Any manufacturing defect or error discovered
after products have been produced and distributed could result in even more significant consequences, including costly recall
procedures, re-stocking costs, damage to our reputation and potential for product liability claims.
If the commercial
manufacturers upon whom we rely to manufacture IV Tramadol, and any other product candidates we may in-license, fail to deliver
the required commercial quantities on a timely basis at commercially reasonable prices, we would likely be unable to meet demand
for our products and we would lose potential revenues.
If serious adverse or unacceptable
side effects are identified during the development of IV Tramadol or our future product candidates, we may need to abandon or
limit our development of some of our product candidates.
If our product candidate
or future product candidates are associated with undesirable side effects in clinical trials or have characteristics that are
unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the undesirable
side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our
industry, many compounds that initially showed promise in early stage testing have later been found to cause side effects that
prevented further development of the compound. In the event that our preclinical or clinical trials reveal a high and unacceptable
severity and prevalence of side effects, our trials could be suspended or terminated and the FDA or comparable foreign regulatory
authorities could order us to cease further development or deny approval of our product candidate or future product candidates
for any or all targeted indications. The FDA could also issue a letter requesting additional data or information prior to making
a final decision regarding whether or not to approve a product candidate. The number of requests for additional data or information
issued by the FDA in recent years has increased, and resulted in substantial delays in the approval of several new drugs. Undesirable
side effects caused by our product candidate or future product candidates could also result in the inclusion of serious risk information
in our product labeling, application of burdensome post-market requirements, or denial of regulatory approval by the FDA or other
regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing and generating revenues
from the sale of our product candidate. Drug-related side effects could affect patient recruitment or the ability of enrolled
patients to complete the trial and could result in potential product liability claims.
For example, some
of the adverse events observed in the IV Tramadol clinical trials completed to date include nausea, dizziness, drowsiness, tiredness,
sweating, vomiting, dry mouth, somnolence and hypotension.
Additionally, if
one or more of our current or future product candidates receives marketing approval, and we or others later identify undesirable
side effects caused by this product, a number of potentially significant negative consequences could result, including:
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regulatory
authorities may require the addition of serious risk-related labeling statements, specific
warnings, precautions, or contraindication;
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regulatory
authorities may suspend or withdraw their approval of the product, or require it to be
removed from the market;
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regulatory
authorities may require implementation of burdensome post-market risk mitigation strategies
and practices;
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we may be
required to change the way the product is administered, conduct additional clinical trials
or change the labeling of the product; or
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our reputation
may suffer.
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Any of these events
could prevent us from achieving or maintaining marketing approval and market acceptance of our product candidate or future product
candidates or could substantially increase our commercialization costs and expenses, which in turn could delay or prevent us from
generating significant revenues from its sale.
Even if IV Tramadol receives regulatory
approval, which may not occur, it and any other products we may market will remain subject to substantial regulatory scrutiny.
IV Tramadol and any
other product candidates we may license or acquire will also be subject to ongoing requirements and review of the FDA and other
regulatory authorities. These requirements include, among others, labeling, packaging, storage, advertising, promotion, record-keeping
and submission of safety and other post-market information and reports, registration and listing requirements, ongoing cGMP requirements
relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements
regarding the distribution of samples to physicians and recordkeeping of the drug.
The FDA may also
impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of
the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for
the approved indications and in accordance with the approved labeling. The FDA imposes stringent restrictions on manufacturers’
communications regarding off-label use and off-label information and if we do not market our products for only their approved
indications and on-label information, we may be subject to enforcement action for off-label marketing as well as false claims
liability. Violations of the FDCA relating to the promotion of prescription drugs may lead to investigations alleging violations
of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later
discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes,
or failure to comply with regulatory requirements, may yield various results, including:
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restrictions
on such products, operations, manufacturers or manufacturing processes;
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restrictions
on the labeling or marketing of a product;
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restrictions
on product distribution or use;
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requirements
to conduct post-marketing studies or clinical trials;
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withdrawal
of the products from the market;
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refusal
to approve pending applications or supplements to approved applications that we submit;
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fines, restitution
or disgorgement of profits;
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suspension
or withdrawal of marketing or regulatory approvals;
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suspension
of any ongoing clinical trials;
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refusal
to permit the import or export of our products;
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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. 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.
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 candidate cannot be marketed in the United States or many other countries until we have completed a rigorous and extensive
regulatory review processes, including obtaining the approval of a brand name. Any brand names we intend to use for our product
candidates 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 USPTO. 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 it 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 candidates. 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 candidates.
Our current and future relationships
with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable
anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws
and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative
burdens and diminished prof its and future earnings.
Healthcare providers,
physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription
of any product candidates for which we obtain marketing approval. Our future arrangements with third party payors, distributors,
retailers, marketers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations,
including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and similar state or foreign laws
which may constrain the business or financial arrangements and relationships through which we sell, market and distribute any
product candidates for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy
regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business.
The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but
are not necessarily limited to:
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the federal
Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly,
in cash or in kind, to induce or reward, or in return for, either the referral of an
individual for, or the purchase, order or recommendation of, any good or service, for
which payment may be made under federal and state healthcare programs, such as Medicare
and Medicaid;
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the federal
False Claims Act, which impose criminal and civil penalties, including civil whistleblower
or qui tam actions, against individuals or entities for knowingly presenting, or causing
to be presented, to the federal government, including the Medicare and Medicaid programs,
claims for payment that are false or fraudulent, making a false statement to avoid, decrease
or conceal an obligation to pay money to the federal government, or the knowing retention
of an overpayment from government health care programs; the federal Health Insurance
Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil
liability for executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters;
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HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act of
2009, or HITECH, and their respective implementing regulations, which impose obligations
on covered healthcare providers, health plans, and healthcare clearinghouses, as well
as their business associates that create, receive, maintain or transmit individually
identifiable health information for or on behalf of a covered entity, with respect to
safeguarding the privacy, security and transmission of individually identifiable health
information;
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the federal
Open Payments program, which requires manufacturers of certain drugs, devices, biologics
and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program, with specific exceptions, to report annually to the Centers
for Medicare & Medicaid Services, or CMS, information related to “payments
or other transfers of value” made to physicians, which is defined to include doctors,
dentists, optometrists, podiatrists and chiropractors, and certain teaching hospitals
and applicable manufacturers to report annually to CMS ownership and investment interests
held by the physicians and their immediate family members. Data collection began on August
1, 2013 with requirements for manufacturers to submit reports to CMS by March 31, 2014
and 90 days after the end of each subsequent calendar year. Disclosure of such information
was made by CMS on a publicly available website beginning in September 2014; and
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims
laws, which may apply to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non-governmental third party payors, including private
insurers; state and foreign laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government or otherwise restrict payments
that may be made to healthcare providers; state and foreign 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 and foreign 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 HIPAA,
thus complicating compliance efforts.
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Efforts to ensure
that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future
statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations
are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject
to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion
from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our
operations, which could have a material adverse effect on our business. If any of the physicians or other healthcare providers
or entities with whom we expect to do business, including our collaborators, is found not to be in compliance with applicable
laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government
healthcare programs, which could also materially affect our business.
Regulatory approval for any approved
product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated.
Any regulatory approval
is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. In addition
to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we
are not able to obtain FDA approval for any desired future indications for our products, our ability to effectively market and
sell our products may be reduced and our business may be adversely affected.
While physicians
may choose to prescribe drugs for uses that are not described in the product’s approved labeling and for uses that differ
from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited
to those indications that are specifically approved by the FDA. These “off-label” uses are common across medical specialties
and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States
generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict
communications by pharmaceutical companies on the subject of off-label use or off-label information. If our promotional activities
fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities.
In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to suspend
or withdraw an approved product from the market, require a recall or corrective advertising, institute fines, or could result
in disgorgement of money, operating restrictions, injunctions or civil or criminal prosecution by the government, any of which
could harm our reputation and business.
Current and future legislation may
increase the difficulty and cost for us to obtain marketing approval of, and to commercialize, our product candidates and may
affect the prices we are able to obtain.
In the United States
and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding
the healthcare system that could prevent or delay marketing approval of our product candidate, restrict or regulate post-approval
activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
In the United States,
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays
for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and certain disabled
people and introduced a reimbursement methodology based on average sales prices for physician-administered drugs. In addition,
this law provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives
and other provisions of this law and future laws could decrease the coverage and price that we will receive for any approved products.
While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and
payment limitations in setting their own payment rates. Therefore, any limitations in reimbursement that results from the MMA
may result in reductions in payments from private payors.
In March 2010, the
Patient Protection and Affordable Care Act, or the ACA, became law. The ACA is a sweeping law intended to broaden access to health
insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency
requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional
health policy reforms.
Among the provisions
of the ACA of importance to our potential product candidate are the following:
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an annual,
nondeductible fee on any entity that manufactures or imports specified branded prescription
drugs and biologic products;
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an increase
in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program;
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expansion
of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback
Statute, new government investigative powers, and enhanced penalties for noncompliance;
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new Medicare
Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts off negotiated prices;
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extension
of manufacturers’ Medicaid rebate liability;
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expansion
of eligibility criteria for Medicaid programs;
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expansion
of the entities eligible for discounts under the Public Health Service Act’s pharmaceutical
pricing program;
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new requirements
to report financial arrangements with physicians and teaching hospitals;
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a new requirement
to annually report drug samples that manufacturers and distributors provide to physicians;
and
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a new Patient-Centered
Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research.
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The Supreme Court
upheld the ACA in the main challenge to the constitutionality of the law in 2012. Specifically, the Supreme Court held that the
individual mandate and corresponding penalty was constitutional because it would be considered a tax by the federal government.
The Supreme Court also upheld federal subsidies for purchasers of insurance through federally facilitated exchanges in a decision
released in June 2015.
President Trump ran
for office on a platform that supported the repeal of the ACA, and one of his first actions after his inauguration was to sign
an Executive Order instructing federal agencies to waive or delay requirements of the ACA that impose economic or regulatory burdens
on states, families, the health-care industry and others. Modifications to or repeal of all or certain provisions of the ACA have
been attempted in Congress as a result of the outcome of the recent presidential and congressional elections, consistent with
statements made by the incoming administration and members of Congress during the presidential and congressional campaigns and
following the election. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget
Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution is
not a law. However, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects
of the ACA. In March 2017, following the passage of the budget resolution for fiscal year 2017, the U.S. House of Representatives
passed legislation known as the American Health Care Act of 2017, which, if enacted, would amend or repeal significant portions
of the ACA. Attempts in the Senate to pass ACA repeal legislation, including the Better Care Reconciliation Act of 2017, so far
have been unsuccessful. At the end of 2017, Congress passed the Tax Cuts and Jobs Act, which repealed the penalty for individuals
who fail to maintain minimum essential health coverage as required by the ACA. Following this legislation, Texas and 19 other
states filed a lawsuit alleging that the ACA is unconstitutional as the individual mandate was repealed, undermining the legal
basis for the Supreme Court’s prior decision. This lawsuit is ongoing and the outcome may have a significant impact on our
business.
Most recently, the
Bipartisan Budget Act of 2018, the “BBA,” which set government spending levels for Fiscal Years 2018 and 2019, revised
certain provisions of the ACA. Specifically, beginning in 2019, the BBA increased manufacturer point-of-sale discounts off negotiated
prices of applicable brand drugs in the Medicare Part D coverage gap from 50% to 70%, ultimately increasing the liability for
brand drug manufacturers. Further, this mandatory manufacturer discount applies to biosimilars beginning in 2019.
The Trump Administration
has also taken several regulatory steps to redirect ACA implementation. The Department of Health and Human Services, the “HHS”,finalized
a hospital payment reduction for drugs acquired through the 340B Drug Pricing Program and has proposed to expand this payment
reduction to other hospital settings. HHS also has taken steps to increase the availability of cheaper health insurance options,
typically with fewer benefits. The Administration has also signaled its intention to address drug prices and to increase competition,
including by increasing the availability of biosimilars and generic drugs. As these are regulatory actions, a new administration
could undo or modify these efforts.
There have been,
and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the
availability of healthcare and containing or lowering the cost of healthcare products and services. We cannot predict the initiatives
that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and
other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:
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the demand
for any products for which we may obtain regulatory approval;
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our ability
to set a price that we believe is fair for our products;
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our ability
to generate revenues and achieve or maintain profitability;
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the level
of taxes that we are required to pay; and
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the availability
of capital.
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In addition, governments
may impose price controls, which may adversely affect our future profitability.
We expect that the
ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria
and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare
or other government healthcare programs may result in a similar reduction in payments from private payors. The implementation
of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability,
or commercialize our drugs.
Legislative and regulatory
proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the marketing approvals, if any, of our product candidates, may be. In
addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing
approval, as well as subject us to more stringent product labeling and post-marketing conditions and other requirements.
Public concern regarding the safety
of opioid drug products such as IV Tramadol could delay or limit our ability to obtain regulatory approval, result in the inclusion
of serious risk information in our labeling, negatively impact market performance, or require us to undertake other activities
that may entail additional costs.
In light of widely
publicized events concerning the safety risk of certain drug products, the FDA, members of Congress, the Government Accountability
Office, medical professionals and the general public have raised concerns about potential controlled substance drug safety issues.
These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products
and the establishment of risk management programs. The Food and Drug Administration Amendments Act of 2007, or FDAAA, grants significant
expanded authority to the FDA much of which is aimed at improving the safety of drug products before and after approval. In particular,
the new law authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug
labeling to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs, including
certain currently approved drugs. It also significantly expands the federal government’s clinical trial registry and results
databank, which we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies
that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory,
civil and criminal penalties. The increased attention to drug safety issues may result in a more cautious approach by the FDA
in its review of data from our clinical trials. Data from clinical trials may receive greater scrutiny, particularly with respect
to safety, which may make the FDA or other regulatory authorities more likely to require additional preclinical studies or clinical
trials. If the FDA requires us to conduct additional preclinical studies or clinical trials prior to approving IV Tramadol, our
ability to obtain approval of this product candidate will be delayed. If the FDA requires us to provide additional clinical or
preclinical data following the approval of IV Tramadol, the indications for which this product candidate is approved may be limited
or there may be specific warnings or limitations on production dosing, and our efforts to commercialize IV Tramadol may be otherwise
adversely impacted.
Rising public, medical,
Congressional, and agency concern around the prescription of controlled substance drug products to patients and a growing movement
to reduce the use of opioid drug products, to develop abuse-deterrent products, and to prevent dependence also could negatively
impact our ability to commercialize and generate revenue from IV Tramadol if it is approved for marketing in the United States.
If the DEA decides to reschedule
IV Tramadol from a Schedule IV controlled substance to a more restrictive Schedule, IV Tramadol could lose its competitive advantage,
and our related clinical development and regulatory approval could be delayed or prevented.
In July 2014, the
U.S. Drug Enforcement Administration, or DEA, classified IV Tramadol as a Schedule IV controlled substance. In comparison, other
opioids, which have a high potential for abuse, are mostly classified as Schedule I and II controlled substances. If approved,
IV Tramadol will be the only Schedule IV intravenous opioid on the market. However, in the current environment where the opioid
epidemic is a recognized problem in the United States, there is a possibility that the DEA might reschedule IV Tramadol as a Schedule
I, II or III controlled substance. Such a rescheduling would severely impair IV Tramadol’s current competitive advantage
over traditional opioids and may affect our ability to market IV Tramadol as a safe alternative pain management product.
If we experience delays or difficulties
in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able
to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of
eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States.
Some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates,
and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’
product candidates. Available therapies for the indications we are pursuing can also affect enrollment in our clinical trials.
Patient enrollment is affected by other factors including, but not necessarily limited to:
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the severity
of the disease under investigation;
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the eligibility
criteria for the study in question;
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the perceived
risks and benefits of the product candidate under study;
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the efforts
to facilitate timely enrollment in clinical trials;
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the patient
referral practices of physicians;
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the ability
to monitor patients adequately during and after treatment; and
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the proximity
and availability of clinical trial sites for prospective patients.
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Our inability to
enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon
one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for
our product candidate or future product candidates, which would cause the value of our company to decline and limit our ability
to obtain additional financing.
We expect intense competition for
IV Tramadol, and new products may emerge that provide different or better therapeutic alternatives for our targeted indications.
The biotechnology
and pharmaceutical industries are subject to rapid and intense technological change. We face, and will continue to face, competition
in the development and marketing of IV Tramadol from academic institutions, government agencies, research institutions and biotechnology
and pharmaceutical companies. There can be no assurance that developments by others will not render IV Tramadol obsolete or noncompetitive.
Furthermore, new developments, including the development of other drug technologies and methods of preventing the incidence of
disease, occur in the pharmaceutical industry at a rapid pace. These developments may render IV Tramadol obsolete or noncompetitive.
IV Tramadol will
compete with well-established products with similar indications. Competing products available for the management of pain include
Ofirmev (IV acetaminophen) and IV formulations of NSAIDs such as Dyloject (diclofenac), Toradol (ketorolac), and Caldolor (ibuprofen).
In addition, we also expect to compete with agents such as Exparel, a liposome injection of bupivacaine indicated for administration
into the surgical site to produce postsurgical analgesia. In addition to approved products, there are a number of product candidates
in development for the management of acute pain. The late-stage pain development pipeline is replete with reformulations and fixed-dose
combination products of already available therapies. Among specific drug classes, opioid analgesics and NSAIDs represent the greatest
number of agents in development. Most investigational opioids that have reached the later stages of clinical development are new
formulations of already marketed opioids. Likewise, investigational NSAIDs — mostly lower dose injectable reformulations
of already approved compounds — are another significant area of late-stage drug development in the postoperative pain space.
There are also several agents with novel mechanisms in clinical development, such as CR845 (Cara Therapeutics, Inc.) and TRV130
(Trevena, Inc.).
Competitors may seek
to develop alternative formulations of IV centrally acting synthetic opioid analgesics for our targeted indications that do not
directly infringe on our in-licensed patent rights. The commercial opportunity for IV Tramadol could be significantly harmed if
competitors are able to develop alternative formulations outside the scope of our in-licensed patents. Compared to us, many of
our potential competitors have substantially greater:
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development resources, including personnel and technology;
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clinical trial experience;
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expertise in prosecution of intellectual property rights; and
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manufacturing, distribution and sales and marketing experience.
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As a result of these
factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent
protection or other intellectual property rights that limit our ability to develop or commercialize IV Tramadol. Our competitors
may also develop drugs that are more effective, safe, useful and less costly than ours and may be more successful than us in manufacturing
and marketing their products.
If IV Tramadol does not achieve
broad market acceptance, the revenues that we generate from its sales will be limited.
The commercial success
of IV Tramadol, if approved, will depend upon its acceptance by the medical community, our ability to ensure that the drug is
included in hospital formularies, and coverage and reimbursement for IV Tramadol by third party payors, including government payors.
The degree of market acceptance of IV Tramadol or any other product candidate we may license or acquire would depend on a number
of factors, including, but not necessarily limited to:
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the efficacy
and safety as demonstrated in clinical trials;
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the timing of market introduction of such product candidate as well as competitive products;
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the clinical indications for which the drug is approved;
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acceptance by physicians, major operators of cancer clinics and patients of the drug as a
safe and effective treatment;
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the safety of such product candidate seen in a broader patient group (i.e., real world use);
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the availability, cost and potential advantages of alternative treatments, including less
expensive generic drugs;
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the availability of adequate reimbursement and pricing by third party payors and government
authorities;
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the relative convenience and ease of administration of the product candidate for clinical
practices;
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the product labeling or product insert required by the FDA or regulatory authority in other
countries, including any contradictions, warnings, drug interactions, or other precautions;
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the approval, availability, market acceptance and reimbursement for a companion diagnostic,
if any;
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the prevalence and severity of adverse side effects;
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the effectiveness of our sales and marketing efforts;
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changes in the standard of care for the targeted indications for our product candidate or
future product candidates, which could reduce the marketing impact of any superiority claims that we could make following
FDA approval; and
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potential advantages over, and availability of, alternative treatments.
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If any product candidate
that we develop does not provide a treatment regimen that is as beneficial as, or is not perceived as being as beneficial as,
the current standard of care or otherwise does not provide patient benefit, that product candidate, 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 IV Tramadol and any other product candidates we may license or acquire in the hospital marketplace will also depend on
pricing and cost effectiveness, including our ability to produce a product at a competitive price and achieve acceptance of the
product onto hospital formularies, as well as our ability to obtain sufficient third-party coverage or reimbursement. Since many
hospitals are members of group purchasing organizations, which leverage the purchasing power of a group of entities to obtain
discounts based on the collective buying power of the group, our ability to attract customers in the hospital marketplace will
also depend on our ability to effectively promote our product candidates to group purchasing organizations. We will also need
to demonstrate acceptable evidence of safety and efficacy, as well as relative convenience and ease of administration. Market
acceptance could be further limited depending on the prevalence and severity of any expected or unexpected adverse side effects
associated with our product candidates. If our product candidates are approved but do not achieve an adequate level of acceptance
by physicians, health care payors and patients, we may not generate sufficient revenue from these products, and we may not become
or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our
product candidates may require significant resources and may never be successful.
If the government or third-party
payors fail to provide adequate coverage and payment rates for IV Tramadol or any future products we may license or acquire in
the future, if any, or if hospitals choose to use therapies that are less expensive, our revenue and prospects for profitability
will be limited.
In both domestic
and foreign markets, our sales of any future products will depend in part upon the availability of coverage and reimbursement
from third party payors. Such third-party payors include government health programs such as Medicare, managed care providers,
private health insurers and other organizations. In particular, many U.S. hospitals receive a fixed reimbursement amount per procedure
for certain surgeries and other treatment therapies they perform. Because this amount may not be based on the actual expenses
the hospital incurs, hospitals may choose to use therapies which are less expensive when compared to our product candidate or
future product candidates. Accordingly, IV Tramadol or any other product candidates that we may in-license or acquire, if approved,
will face competition from other therapies and drugs for these limited hospital financial resources. We may need to conduct post-marketing
studies in order to demonstrate the cost-effectiveness of any future products to the satisfaction of hospitals, other target customers
and their third-party payors. Such studies might require us to commit a significant amount of management time and financial and
other resources. Our future products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement
might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product
development.
If we are unable to establish sales,
marketing and distribution capabilities or to enter into agreements with third parties to market and sell our product candidates,
we may not be successful in commercializing our product candidates if and when they are approved.
We currently do not
have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize
any product candidate that receives marketing approval, we would need to build marketing, sales, distribution, managerial and
other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful
in doing so. In the event of successful development and regulatory approval of IV Tramadol or another product candidate, we expect
to build a targeted specialist sales force to market or co-promote the product. There are risks involved with establishing our
own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming
and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish
marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these
commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and
marketing personnel.
Factors that may
inhibit our efforts to commercialize our future products, if any, on our own include, but are not necessarily limited to:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing
personnel;
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the inability of sales personnel to obtain access to physicians or persuade adequate numbers
of physicians to prescribe any future products;
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the lack of complementary or other products to be offered by sales personnel, which may put
us at a competitive disadvantage from the perspective of sales efficiency relative to companies with more extensive product
lines; and
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unforeseen costs and expenses associated with creating an independent sales and marketing
organization.
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As an alternative
to establishing our own sales force, we may choose to partner with third parties that have well-established direct sales forces
to sell, market and distribute our products. There are risks involved with partnering with third party sales forces, including
ensuring adequate training on the product, regulatory, and compliance requirements associated with promotion of the product.
We rely, and expect to continue
to rely, on third parties to conduct our preclinical studies and clinical trials, and those third parties may not perform satisfactorily,
including failing to meet deadlines for the completion of such trials or complying with applicable regulatory requirements.
We rely on third
party contract research organizations and clinical research organizations to conduct some of our preclinical studies and all of
our clinical trials for IV Tramadol and for any future product candidates. We expect to continue to rely on third parties, such
as contract research organizations, clinical research organizations, clinical data management organizations, medical institutions
and clinical investigators, to conduct some of our preclinical studies and all of our clinical trials. The agreements with these
third parties might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter
into alternative arrangements, that could delay our product development activities.
Our reliance on these
third parties for research and development activities will reduce our control over these activities but will not relieve us of
our legal and regulatory product development responsibilities. For example, we will remain responsible for ensuring that each
of our preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols
for the trial and for ensuring that our preclinical studies are conducted in accordance with good laboratory practice, or GLP,
as appropriate. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCPs,
for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and
accurate and that the rights, integrity and confidentiality of trial participants are protected. Regulatory authorities enforce
these requirements through periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of our
clinical research organizations fail to comply with applicable GCPs, 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 by a given regulatory authority, such regulatory
authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must
be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat
clinical trials, which would delay the regulatory approval process. We also are required to register ongoing clinical trials and
post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes.
Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
The third parties
with whom we have contracted to help perform our preclinical studies or clinical trials may also have relationships with other
entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties,
meet expected deadlines or conduct our preclinical studies or clinical trials in accordance with regulatory requirements or our
stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates
and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
If any of our relationships
with these third-party contract research organizations or clinical research organizations terminates, we may not be able to enter
into arrangements with alternative contract research organizations or clinical research organizations or to do so on commercially
reasonable terms. Switching or adding additional contract research organizations or clinical research organizations involves additional
cost and requires extensive training and management time and focus. In addition, there is a natural transition period when a new
contract research organization or clinical research organization commences work. As a result, delays could occur, which could
compromise our ability to meet our desired development timelines. Though we carefully manage our relationships with our contract
research organizations or clinical research organizations, there can be no assurance that we will not encounter challenges or
delays in the future.
We contract with third parties for
the manufacture of our product candidates for preclinical and clinical testing and expect to continue to do so for commercialization.
This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products
or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not have any
manufacturing facilities or personnel. We rely, and expect to continue to rely, on third parties for the manufacture of our product
candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates receive
marketing approval. This reliance on third parties increases the risk that we will not have sufficient quantities of our product
candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development
or commercialization efforts.
We also expect to
rely on third party manufacturers or third-party collaborators for the manufacture of commercial supply of any product candidates
for which our collaborators or we obtain marketing approval. We may be unable to establish any agreements with third party manufacturers
or to do so on acceptable terms. Even if we are able to establish agreements with third party manufacturers, reliance on third
party manufacturers entails additional risks, including, but not necessarily limited to:
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reliance on the third party for regulatory compliance and quality assurance;
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raw material or active ingredient shortages from suppliers the third party has qualified for
our product;
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the possible breach of the manufacturing agreement by the third party;
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manufacturing delays if our third-party manufacturers give greater priority to the supply
of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement
between us;
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the possible misappropriation of our proprietary information, including our trade secrets
and know-how; and
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the possible termination or nonrenewal of the agreement by the third party at a time that
is costly or inconvenient for us.
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The facilities used
by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will
be conducted after we submit an NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on,
our contract manufacturers for compliance with cGMP regulations for manufacture of our product candidates. Third party manufacturers
may not be able to comply with the cGMP regulations or similar regulatory requirements outside the United States. Our failure,
or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed
on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect supplies of our products.
IV Tramadol and any
products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There
are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any
performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.
We do not currently have arrangements in place for redundant supply or a second source for bulk drug substance. If our current
contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers. We may incur added costs and
delays in identifying and qualifying any replacement manufacturers.
The U.S. Drug Enforcement
Administration, or the DEA, restricts the importation of a controlled substance finished drug product when the same substance
is commercially available in the United States, which could reduce the number of potential alternative manufacturers for IV Tramadol.
Our current and anticipated
future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit
margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
We also expect to
rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part
of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our
products, producing additional losses and depriving us of potential product revenue.
We rely on clinical data and results
obtained by third parties that could ultimately prove to be inaccurate or unreliable.
As part of our strategy
to mitigate development risk, we seek to develop product candidates with validated mechanisms of action and we utilize biomarkers
to assess potential clinical efficacy early in the development process. This strategy necessarily relies upon clinical data and
other results obtained by third parties that may ultimately prove to be inaccurate or unreliable. Further, such clinical data
and results may be based on products or product candidates that are significantly different from our product candidate or future
product candidates. If the third-party data and results we rely upon prove to be inaccurate, unreliable or not applicable to our
product candidate or future product candidate, we could make inaccurate assumptions and conclusions about our product candidates
and our research and development efforts could be compromised and called into question during the review or any marketing applications
we submit.
If we breach the agreement under
which we license rights to IV Tramadol, we could lose the ability to continue to develop and commercialize this product candidate.
In February 2015,
Fortress obtained an exclusive license to IV Tramadol for the U.S. market from Revogenex Ireland Ltd., or Revogenex, pursuant
to the License Agreement; Fortress subsequently transferred the License Agreement to us. Because we have in-licensed the rights
to this product candidate from a third party, if there is any dispute between us and our licensor regarding our rights under the
License Agreement, our ability to develop and commercialize this product candidate may be adversely affected. Any uncured, material
breach under the License Agreement could result in our loss of exclusive rights to our product candidate and may lead to a complete
termination of our related product development efforts.
We may not be able to manage our
business effectively if we are unable to attract and retain key personnel.
We may not be able
to attract or retain qualified management and commercial, scientific and clinical personnel in the future due to the intense competition
for qualified personnel among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary
personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement
of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.
Our employees, consultants, or third-party
partners may engage in misconduct or other improper activities, including those that result in noncompliance with certain regulatory
standards and requirements, which could have a material adverse effect on our business.
We are exposed to
the risk of employee fraud or other misconduct. Misconduct by employees, consultants, or third-party partners could include intentional
failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we have
established, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data
accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare
industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee, consultant, or third-party misconduct could also involve
the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious
harm to our reputation, as well as civil and criminal liability. The precautions we take to detect and prevent this activity may
not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted
against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact
on our business and results of operations, including the imposition of significant fines or other civil and/or criminal sanctions.
We face potential product liability
exposure, and if successful claims are brought against us, we may incur substantial liability for IV Tramadol or other product
candidates we may license or acquire and may have to limit their commercialization.
The use of IV Tramadol
and any other product candidates we may license or acquire in clinical trials and the sale of any products for which we obtain
marketing approval expose us to the risk of product liability claims. For example, we may be sued if any product we develop allegedly
causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent
in the product, negligence, strict liability or a breach of warranties. Product liability claims might be brought against us by
consumers, health care providers or others using, administering or selling our products. If we cannot successfully defend ourselves
against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result
in:
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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decreased demand for any product candidates or products that we may develop;
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initiation of investigations by regulators;
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impairment of our business reputation;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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reduced resources of our management to pursue our business strategy; and
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the inability to commercialize our product candidate or future product candidates.
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We have limited product
liability insurance coverage for our clinical trials. However, our insurance coverage may not reimburse us or may not be sufficient
to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and,
in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. When needed, we intend to expand our insurance coverage to include the sale of commercial products if
we obtain marketing approval for our product candidate in development, but we may be unable to obtain commercially reasonable
product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action
lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought
against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely
affect our business.
Our future growth depends on our
ability to identify and acquire or in-license products and if we do not successfully identify and acquire or in-license related
product candidates or integrate them into our operations, we may have limited growth opportunities.
An important part
of our business strategy is to continue to develop a pipeline of product candidates by acquiring or in-licensing products, businesses
or technologies that we believe are a strategic fit with our focus on the hospital marketplace. Future in-licenses or acquisitions,
however, may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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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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difficulty or inability to secure financing to fund development activities for such acquired
or in-licensed technologies in the current economic environment;
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incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
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higher than expected acquisition and integration costs;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses with
our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses due
to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
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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. In particular, we may compete with larger pharmaceutical companies and other competitors in our
efforts to establish new collaborations and in-licensing opportunities. These competitors likely will have access to greater financial
resources than us and may have greater expertise in identifying and evaluating new opportunities. 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 expend our limited resources
to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be
more profitable or for which there is a greater likelihood of success.
Because we have limited
financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications.
As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later
prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending on current and future research and development programs and product
candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial
potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through
collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain
sole development and commercialization rights to such product candidate.
If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to
numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling,
use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable
materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract
with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from
these materials. Although we believe that the safety procedures for handling and disposing of these materials comply with the
standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these
materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for
any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil
or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain
workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting
from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not
maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage
or disposal of biological, hazardous or radioactive materials.
In addition, we may
incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These
current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with
these laws and regulations also may result in substantial fines, penalties or other sanctions.
Our business and operations would
suffer in the event of system failures.
Despite the implementation
of security measures, our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural
disasters, terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breach that
causes interruptions in our operations could result in a material disruption of our drug development programs. For example, the
loss of clinical trial data from completed clinical trials for IV Tramadol could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results
in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may
incur liability and the further development of our product candidate may be delayed.
Risks Related to Intellectual Property
If we are unable to obtain and maintain
patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad,
our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully
commercialize our technology and products may be impaired.
Our commercial success
will depend in part on obtaining and maintaining patent protection and trade secret protection in the United States with respect
to IV Tramadol or any other product candidates that we may license or acquire and the methods we use to manufacture them, as well
as successfully defending these patents and trade secrets against third party challenges. We seek to protect our proprietary position
by filing patent applications in the United States and abroad related to our product candidates. We will only be able to protect
our technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover
them.
The patent prosecution
process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications
at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research
and development output before it is too late to obtain patent protection. If our licensors or we fail to obtain or maintain patent
protection or trade secret protection for IV Tramadol or any other product candidate we may license or acquire, third parties
could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability
to generate revenues and achieve profitability. Moreover, should we enter into other collaborations we may be required to consult
with or cede control to collaborators regarding the prosecution, maintenance and enforcement of our patents. Therefore, these
patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.
The patent position
of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and
has in recent years been the subject of much litigation. In addition, no consistent policy regarding the breadth of claims allowed
in pharmaceutical or biotechnology patents has emerged to date in the United States. The patent situation outside the United States
is even more uncertain. The laws of foreign countries may not protect our rights to the same extent as the laws of the United
States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United
States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent
applications in the United States and other jurisdictions are typically not published until 18 months after a first filing, or
in some cases at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions
claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection
of such inventions. In the event that a third party has also filed a U.S. patent application relating to our product candidates
or a similar invention, we may have to participate in interference proceedings declared by the USPTO to determine priority of
invention in the United States. The costs of these proceedings could be substantial and it is possible that our efforts would
be unsuccessful, resulting in a material adverse effect on our U.S. patent position. As a result, the issuance, scope, validity,
enforceability and commercial value of our or any of our licensors’ patent rights are highly uncertain. Our pending and
future patent applications may not result in patents being issued which protect our technology or products, in whole or in part,
or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws
or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow
the scope of our patent protection. For example, the federal courts of the United States have taken an increasingly dim view of
the patent eligibility of certain subject matter, such as naturally occurring nucleic acid sequences, amino acid sequences and
certain methods of utilizing same, which include their detection in a biological sample and diagnostic conclusions arising from
their detection. Such subject matter, which had long been a staple of the biotechnology and biopharmaceutical industry to protect
their discoveries, is now considered, with few exceptions, ineligible in the first place for protection under the patent laws
of the United States. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents (if
any) or in those licensed from third parties.
Recent patent reform
legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and affect the validity,
enforceability, scope or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith
Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include
provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO recently developed
new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent
law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013.
Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the
Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial
condition.
Moreover, we may
be subject to a third party preissuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination,
inter parties review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others.
An adverse determination in any such submission, patent office trial, proceeding or litigation could reduce the scope of, render
unenforceable, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly
with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third party
patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened,
it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even if our patent
applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors
from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned
or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a
patent does not foreclose challenges to its inventorship, scope, validity or enforceability. Therefore, our owned and licensed
patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss
of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part,
which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit
the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing
and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after
such product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient
rights to exclude others from commercializing products similar or identical to ours.
The patent rights that we have in-licensed
covering the infusion time and pharmacokinetics, or PK, profile for IV Tramadol are limited to a specific IV formulation of centrally
acting synthetic opioid analgesic, and our market opportunity for this product candidate may be limited by the lack of patent
protection for the active ingredient itself and other formulations that may be developed by competitors.
The active ingredients
in IV Tramadol have been generic in the United States for a number of years. While we believe that the patent estate covering
IV Tramadol (including but not limited to U.S. Patent Nos. 8,895,622; 9,561,195, 9,566,253 and 9,693,949) provides strong protection,
our market opportunity would be limited if a generic manufacturer could obtain regulatory approval for another IV formulation
of tramadol and commercialize it without infringing on our patent.
Because it is difficult and costly
to protect our proprietary rights, we may not be able to ensure their protection.
The degree of future
protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately
protect our rights or permit us to gain or keep our competitive advantage. For example:
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our licensors
might not have been the first to make the inventions covered by each of our pending patent
applications and issued patents;
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our licensors might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate our product
candidate or any future product candidates technologies;
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it is possible that none of the pending patent applications licensed to us will result in
issued patents;
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the issued patents covering our product candidate or any future product candidates may not
provide a basis for market exclusivity for active products, may not provide us with any competitive advantages, or may be
challenged by third parties;
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we may not develop additional proprietary technologies that are patentable; or
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patents of others may have an adverse effect on our business.
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We may become involved in lawsuits
to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe
our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement
claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties
to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding,
a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims
narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the
technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated,
rendered unenforceable, or interpreted narrowly.
If we are sued for infringing intellectual
property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in any litigation would harm
our business.
Our ability to develop,
manufacture, market and sell IV Tramadol or any other product candidates that we may license or acquire depends upon our ability
to avoid infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications,
which are owned by third parties, exist in the general fields of pain treatment and cover the use of numerous compounds and formulations
in our targeted markets. Because of the uncertainty inherent in any patent or other litigation involving proprietary rights, we
and our licensors may not be successful in defending intellectual property claims by third parties, which could have a material
adverse effect on our results of operations. Regardless of the outcome of any litigation, defending the litigation may be expensive,
time-consuming and distracting to management. In addition, because patent applications can take many years to issue, there may
be currently pending applications, unknown to us, which may later result in issued patents that IV Tramadol may infringe. There
could also be existing patents of which we are not aware that IV Tramadol may inadvertently infringe.
There is a substantial
amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries
generally. If a third-party claims that we infringe on their patents or misappropriated their technology, we could face a number
of issues, including:
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infringement and other intellectual property claims which, with or without merit, can be expensive
and time consuming to litigate and can divert management’s attention from our core business;
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substantial damages for past infringement which we may have to pay if a court decides that
our product infringes on a competitor’s patent;
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a court prohibiting us from selling or licensing our product unless the patent holder licenses
the patent to us, which it would not be required to do;
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if a license is available from a patent holder, we may have to pay substantial royalties or
grant cross licenses to our patents; and
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redesigning our processes so they do not infringe, which may not be possible or could require
substantial funds and time.
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Intellectual property litigation
could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved
in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant
expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts
or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development
activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources
to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation
or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation
and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
We may need to license certain intellectual
property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third party may
hold intellectual property, including patent rights that are important or necessary to the development and commercialization of
our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products,
in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business
could be harmed, possibly materially.
If we fail to comply with our obligations
in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to
our business.
We are currently
party to a license agreement for IV Tramadol. In the future, we may become party to licenses that are important for product development
and commercialization. If we fail to comply with our obligations under current or future license and funding agreements, our counterparties
may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product
or utilize any technology that is covered by these agreements or may face other penalties under the agreements. Such an occurrence
could materially and adversely affect the value of a product candidate being developed under any such agreement or could restrict
our drug discovery activities. Termination of these agreements or reduction or elimination of our rights under these agreements
may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under
these agreements, including our rights to important intellectual property or technology.
We may be subject to claims that
our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the
biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be
subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary
information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in
defending against these claims, litigation could result in substantial costs and be a distraction to management.
If we are unable to protect the
confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking
patent protection for our product candidate or future product candidates, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position, particularly where we do not believe
patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We limit disclosure of such trade
secrets where possible but we also seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality
agreements with parties who do have access to them, such as our employees, our licensors, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention
or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the
agreements and may unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may
not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated
a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and
outside the United States are less willing or unwilling to protect trade secrets. Moreover, if any of our trade secrets were to
be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they
communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed
to or independently developed by a competitor, our competitive position would be harmed.
Risks Related to Our Finances and Capital
Requirements
We have incurred significant losses
since our inception. We expect to incur losses for the foreseeable future, and may never achieve or maintain profitability.
We are an emerging
growth company with a limited operating history. We have focused primarily on in-licensing and developing IV Tramadol, with the
goal of supporting regulatory approval for this product candidate. We have incurred losses since our inception in February 2015.
These losses, among
other things, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect
to continue to incur significant operating losses for the foreseeable future. We also do not anticipate that we will achieve profitability
for a period of time after generating material revenues, if ever. If we are unable to generate revenues, we will not become profitable
and may be unable to continue operations without continued funding. Because of the numerous risks and uncertainties associated
with developing pharmaceutical products, we are unable to predict the timing or amount of increased expenses or when or if, we
will be able to achieve profitability. Our net losses may fluctuate significantly from quarter to quarter and year to year. We
anticipate that our expenses will increase substantially if:
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IV Tramadol
or other future product candidates are approved for commercial sale, due to the necessity
in establishing adequate commercial infrastructure to launch such candidate or candidates
without substantial delays, including hiring, sales and marketing personnel, and contracting
with third parties for warehousing, distribution, cash collection and related commercial
activities;
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we are required by the FDA, or foreign regulatory authorities, to perform studies in addition
to those currently expected;
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there are any delays in completing our clinical trials or the development of any of our product
candidates;
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we execute other collaborative, licensing or similar arrangements and the timing of payments
we may make or receive under these arrangements;
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there are variations in the level of expenses related to our future development programs;
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there are any product liability or intellectual property infringement lawsuits in which we
may become involved; and
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there are any regulatory developments affecting IV Tramadol or the product candidates of our
competitors.
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Our ability to become
profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our development stage
product, and we do not know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of
factors, including, but not limited to, our ability to:
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obtain regulatory approval for IV Tramadol, or any other product candidates that we may license
or acquire;
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manufacture commercial quantities of IV Tramadol or other product candidates, if approved,
at acceptable cost levels; and
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develop a commercial organization and the supporting infrastructure required to successfully
market and sell IV Tramadol or other product candidates, if approved.
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Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and
remain profitable would depress our value and could impair our ability to raise capital, expand our business, maintain our research
and development efforts, diversify our product offerings or even continue our operations. A decline in our value could also cause
you to lose all or part of your investment.
Our short operating history makes
it difficult to evaluate our business and prospects.
We were incorporated
on February 9, 2015, and have only been conducting operations with respect to IV Tramadol since February 17, 2015. We have not
yet demonstrated an ability to successfully complete clinical trials, obtain regulatory approvals, manufacture a commercial scale
product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful
product commercialization. Consequently, any predictions about our future performance may not be as accurate as they could be
if we had a history of successfully developing and commercializing pharmaceutical products.
In addition, as a
young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
We will need to expand our capabilities to support commercial activities. We may not be successful in adding such capabilities.
We expect our financial
condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety
of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any past quarterly period
as an indication of future operating performance.
We do not have any products that
are approved for commercial sale and therefore do not expect to generate any revenues from product sales in the foreseeable future,
if ever.
We have not generated
any product related revenues to date, and do not expect to generate any such revenues for at least the next several years, if
at all. To obtain revenues from sales of our product candidates, we must succeed, either alone or with third parties, in developing,
obtaining regulatory approval for, manufacturing and marketing products with commercial potential. We may never succeed in these
activities, and we may not generate sufficient revenues to continue our business operations or achieve profitability.
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 raise capital when needed, which would force us to delay, reduce or eliminate our product development programs
or commercialization efforts.
Our operations have
consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the clinical
development of IV Tramadol and launch and commercialize any additional product candidates 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 candidates, as well as to fund our other operating expenses and capital expenditures,
and cannot provide any assurance that we will be able to raise funds to complete the development of our product.
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 one or more of our product candidates. We may also seek collaborators for 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 funding
requirements will depend on many factors, including, but not limited to:
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the timing, design and conduct of, and results from, preclinical and clinical trials for our
product candidates;
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the potential for delays in our efforts to seek regulatory approval for our product candidates,
and any costs associated with such delays;
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the costs of establishing a commercial organization to sell, market and distribute our product
candidates;
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the rate of progress and costs of our efforts to prepare for the submission of an NDA for
any product candidates that we may in-license or acquire in the future, and the potential that we may need to conduct additional
clinical trials to support applications for regulatory approval;
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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights associated with our product candidates, including any such costs we may be required to expend if our licensors
are unwilling or unable to do so;
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the cost and timing of securing sufficient supplies of our product candidates from our contract
manufacturers for clinical trials and in preparation for commercialization;
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the effect of competing technological and market developments;
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the terms and timing of any collaborative, licensing, co-promotion or other arrangements that
we may establish;
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if one or more of our product candidates are approved, the potential that we may be required
to file a lawsuit to defend our patent rights or regulatory exclusivities from challenges by companies seeking to market generic
versions of one or more of our product candidates; and
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the success of the commercialization of one or more of our product candidates.
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Future capital requirements
will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies.
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 candidates 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 value
to decline or require that we wind down our operations altogether.
Raising additional capital may cause
dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time,
if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings,
debt financings, grants and license and development agreements in connection with any collaborations. To the extent that we raise
additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the
terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt
financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional
funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we
may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or
grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings
when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts
or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We will continue to incur significant
increased costs as a result of operating as a public company, and our management will be required to devote substantial time to
new compliance initiatives.
We are a listed and
traded public company. As a public company, we incur significant legal, accounting and other expenses under the Sarbanes-Oxley
Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the rules of any
stock exchange on which we may become listed. These rules impose various requirements on public companies, including requiring
establishment and maintenance of effective disclosure and financial controls and appropriate corporate governance practices. Our
management and other personnel have devoted and will continue to devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming
and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve
on our Board of Directors, our Board committees or as executive officers.
The Sarbanes-Oxley
Act of 2002 requires, among other things, that we maintain effective internal controls for financial reporting and disclosure
controls and procedures. As a result, we are required to periodically perform an evaluation of our internal controls over financial
reporting to allow management to report on the effectiveness of those controls, as required by Section 404 of the Sarbanes-Oxley
Act. Additionally, our independent auditors are required to perform a similar evaluation and report on the effectiveness of our
internal controls over financial reporting. These efforts to comply with Section 404 and related regulations have required, and
continue to require, the commitment of significant financial and managerial resources. While we anticipate maintaining the integrity
of our internal controls over financial reporting and all other aspects of Section 404, we cannot be certain that a material weakness
will not be identified when we test the effectiveness of our control systems in the future. If a material weakness is identified,
we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional
financial and management resources, costly litigation or a loss of public confidence in our internal controls, which could have
an adverse effect on the market price of our stock.
We are an “emerging growth
company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make
our securities less attractive to investors.
We are an “emerging
growth company,” as defined in the JOBS Act. We will remain an “emerging growth company” and may take advantage
of these provisions until the earlier of (i) December 31, 2022; (ii) the last day of the fiscal year in which we have total annual
gross revenue of at least $1.07 billion; (iii) the date on which we are deemed to be a large accelerated filer, which means the
market value of our equity securities that is held by non-affiliates is $700 million or more as of the last business day of our
most recently completed second fiscal quarter, and (iv) the date on which we have issued more than $1.0 billion of non-convertible
debt in any three-year period. These exemptions include 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 being exempt from the requirements of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, we
have elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private
companies until those standards apply to private companies. As such, our financial statements may not be comparable to companies
that comply with public company effective dates. We cannot predict if investors will find our shares less attractive because we
may rely on these provisions. If some investors find our shares less attractive as a result, there may be a less active trading
market for our shares and our share price may be more volatile.
Our results of operations and liquidity
needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations
could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world.
Continuing concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage
market and residential real estate market in the United States have contributed to increased volatility and diminished expectations
for the economy and the markets going forward. These factors, combined with volatile oil prices, declining business and consumer
confidence and increased unemployment, have precipitated an economic recession and fears of a possible depression. Domestic and
international equity markets continue to experience heightened volatility and turmoil. These events and the continuing market
upheavals may have an adverse effect on us. In the event of a continuing market downturn, our results of operations could be adversely
affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price
may further decline.
Risks Relating to Securities Markets
and Investment in Our Stock
Our stock may be subject to substantial
price and volume fluctuations due to a number of factors, many of which are beyond our control and may prevent our stockholders
from reselling our common stock at a profit.
The market prices
for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.
The market price
of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:
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announcements
concerning the progress of our efforts to obtain regulatory approval for and commercialize
IV Tramadol or future product candidates, including any requests we receive from the
FDA for additional studies or data that result in delays in obtaining regulatory approval
or launching this product candidate, if approved;
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market conditions in the pharmaceutical and biotechnology sectors or the economy as a whole;
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price and volume fluctuations in the overall stock market;
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the failure of IV Tramadol or future product candidates, if approved, to achieve commercial
success;
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announcements of the introduction of new products by us or our competitors;
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developments concerning product development results or intellectual property rights of others;
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litigation or public concern about the safety of our potential products;
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actual fluctuations in our quarterly operating results, and concerns by investors that such
fluctuations may occur in the future;
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deviations in our operating results from the estimates of securities analysts or other analyst
comments;
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additions or departures of key personnel;
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health care reform legislation, including measures directed at controlling the pricing of
pharmaceutical products, and third party coverage and reimbursement policies;
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developments concerning current or future strategic collaborations; and
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discussion of us or our stock price by the financial and scientific press and in online investor
communities.
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Fortress controls a voting majority
of our common stock.
Pursuant to the terms
of the Class A Preferred Stock held by Fortress, Fortress will be entitled to cast, for each share of Class A Preferred Stock
held by Fortress, the number of votes that is equal to 1.1 times a fraction, the numerator of which is the sum of (A) the aggregate
number of shares of outstanding common stock and (B) the whole shares of common stock into which the shares of outstanding the
Class A Preferred Stock are convertible and the denominator of which is the aggregate number of shares of outstanding Class A
Preferred Stock, or the Class A Preferred Stock Ratio. Thus, Fortress will at all times have voting control of us. Further, for
a period of ten years from the date of the first issuance of shares of Class A Preferred Stock, the holders of record of the shares
of Class A Preferred Stock (or other capital stock or securities issued upon conversion of or in exchange for the Class A Preferred
Stock), exclusively and as a separate class, shall be entitled to appoint or elect the majority of our directors. This concentration
of voting power may delay, prevent or deter a change in control, even when such a change may be in the best interests of all stockholders,
could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of us or our assets,
and might affect the prevailing market price of our common stock.
Fortress has the right to receive
a significant grant of shares of our common stock annually, which will result in the dilution of your holdings of common stock
upon each grant, which could reduce their value.
Under the terms of
the Amended and Restated Founders Agreement, which became effective September 13, 2016, Fortress will receive a grant of shares
of our common stock equal to 2.5% of the gross amount of any equity or debt financing. Additionally, the holders of Class A Preferred
Stock, as a class, will receive an annual dividend, payable in shares of common stock in an amount equal to 2.5% of our fully-diluted
outstanding capital stock as of the business day immediately prior to the date such dividend is payable. Fortress currently owns
all outstanding shares of Class A Preferred Stock. At our Annual Meeting of the Stockholder’s held on June 13, 2018, the
Company’s shareholders approved an amendment to the Company’s Third Amended and Restated Certificate of Incorporation,
amending the Class A Preferred dividend payment date from February 17 to January 1 of each year. These share issuances to Fortress
and any other holder of Class A Preferred Stock will dilute your holdings in our common stock and, if our value has not grown
proportionately over the prior year, would result in a reduction in the value of your shares. The Amended and Restated Founders
Agreement has a term of 15 years and renews automatically for subsequent one-year periods unless terminated by Fortress or upon
a Change in Control (as defined in the Amended and Restated Founders Agreement).
We are a “controlled company”
within the meaning of NASDAQ listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance
requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
We are a “controlled
company” within the meaning of NASDAQ listing standards. Under these rules, a company of which more than 50% of the voting
power is held by an individual, a group or another company is a “controlled company” and may elect not to comply with
certain corporate governance requirements of NASDAQ, including (i) the requirement that a majority of the Board of Directors consist
of independent directors, (ii) the requirement that we have a nominating and corporate governance committee that is composed entirely
of independent directors with a written charter addressing the committee’s purpose and responsibilities and (iii) the requirement
that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the
committee’s purpose and responsibilities. We intend to rely on some or all of these exemptions.
Accordingly, you
will not have the same protections afforded to stockholders of companies subject to all of the corporate governance requirements
of NASDAQ.
We might have received better terms
from unaffiliated third parties than the terms we receive in our agreements with Fortress.
The agreements we
entered into with Fortress in connection with the separation include the Management Services Agreement, or the MSA, and the Founders
Agreement. While we believe the terms of these agreements are reasonable, they might not reflect terms that would have resulted
from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements relate to, among other things,
payment of a royalty on product sales and the provision of employment and transition services. We might have received better terms
from third parties because, among other things, third parties might have competed with each other to win our business.
The ownership by our executive officers
and some of our directors of equity securities of Fortress and/or rights to acquire equity securities of Fortress might create,
or appear to create, conflicts of interest.
Because of their
current or former positions with Fortress, some of our executive officers and directors own shares of Fortress common stock and/or
options to purchase shares of Fortress common stock. Their individual holdings of common stock and/or options to purchase common
stock of Fortress may be significant compared to their total assets. Ownership by our directors and officers, after our separation,
of common stock and/or options to purchase common stock of Fortress create might appear to create conflicts of interest when these
directors and officers are faced with decisions that could have different implications for Fortress than for us. For instance,
and by way of example, if there were to be a dispute between Fortress and us regarding the calculation of the royalty fee due
to Fortress under the terms of the Founders Agreement, then certain of our senior employees may have and will appear to have a
conflict of interest with regard to the outcome of such dispute.
Certain of our officers and directors
serve in similar roles with our parent company, affiliates, related parties and other parties with whom we transact business;
ongoing and future relationships and transactions between these parties could result in conflicts of interest.
We share directors
and/or officers with certain of our parent company, affiliates, related parties or other companies with which we transact business,
and such arrangements could create conflicts of interest in the future, including with respect to the allocation of corporate
opportunities. While we believe that we have put in place policies and procedures to identify such conflicts and that any existing
agreements that may give rise to such conflicts and any such policies or procedures were negotiated at arm’s length in conformity
with fiduciary duties, such conflicts of interest may nonetheless arise. The existence and consequences of such potential conflicts
could expose us to lost profits, claims by our investors and creditors, and harm to our results of operations.
We may become involved in securities
class action litigation that could divert management’s attention and harm our business.
The stock markets
have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common
stock of biotechnology and pharmaceutical companies. These broad market fluctuations may cause the market price of our stock to
decline. In the past, securities class action litigation has often been brought against a company following a decline in the market
price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced
significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation
often is expensive and diverts management’s attention and resources, which could adversely affect our business.