RISK
FACTORS
Investing
in our common stock includes a high degree of risk. Prior to making a decision about investing in our common stock, you should
consider carefully the specific factors discussed below, together with all of the other information contained in and incorporated
by reference into this prospectus. If any of the following risks actually occurs, our business, financial condition, results of
operations and future prospects would likely be materially and adversely affected. This could cause the market price of our common
stock to decline and could cause you to lose all or part of your investment.
Risks
related to our Business and our Industry
We
have a history of net losses and expect to incur losses for the foreseeable future. We may never generate revenues or, if we are
able to generate revenues, achieve profitability.
We
were formed in 2007 and since our inception have incurred a net loss in each of our previous operating years. Our ability to become
profitable depends upon our ability to obtain marketing approval for and generate revenues from sales of our product candidates.
We have been focused on product development, have not received approval for any of our product candidates, and have not generated
any revenues to date. We have incurred losses in each period of our operations, and we expect to continue to incur losses for
the foreseeable future. These losses are likely to continue to adversely affect our working capital, total assets and shareholders’
equity. The process of developing our product candidates requires significant clinical, development and laboratory testing and
clinical trials. In addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals
and establish sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships
with others. We expect to incur substantial losses for the foreseeable future as a result of anticipated increases in our research
and development costs, including costs associated with conducting preclinical testing and clinical trials, and regulatory compliance
activities. We incurred net losses of $15,562,144, $12,536,638 and $10,384,953 for the years ended September 30, 2019, 2018 and
2017, respectively, and $4,322,370 for the three months ended December 31, 2019. At December 31, 2019, we had stockholders’
equity of $20,376,792 and an accumulated deficit of $60,142,352. Our net cash used in operating activities was $12,437,751, $11,318,138
and $7,971,205 for the years ended September 30, 2019, 2018 and 2017, respectively, and $5,114,260 for the three months ended
December 31, 2019.
Our
ability to generate revenues and achieve profitability will depend on numerous factors, including success in:
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developing
and testing product candidates;
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receiving
regulatory approvals for our product candidates;
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commercializing
our product candidates;
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manufacturing
commercial quantities of our product candidates at acceptable cost levels;
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obtaining
medical insurance coverage for any approved product candidate; and
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establishing
a favorable competitive position for our product candidates.
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Many
of these factors will depend on circumstances beyond our control. We cannot assure you that any of our product candidates will
be approved by the FDA or any foreign regulatory body or obtain medical insurance coverage, that we will successfully bring any
approved product to market or, if so, that we will ever become profitable.
There
is substantial doubt about our ability to continue as a going concern.
At
December 31, 2019, after taking into account the proceeds from warrant exercises in January 2020, but not taking into account
warrant exercises for February 2020, we expect that we have sufficient capital to continue our operations through March 2020.
You should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy
claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation.
Our
audited consolidated financial statements included in this report have been prepared assuming that we will continue as a going
concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. We have concluded
that substantial doubt about our ability to continue as a going concern exists and our auditors have made reference to this in
their audit report on our audited consolidated financial statements for the year ended September 30, 2019.
We
need to secure additional financing in the near future to complete the development of our current product candidates and support
our operations.
We
anticipate that we will incur operating losses for the foreseeable future. We have received gross proceeds of approximately $47.9
million from our public and private placement offerings through December 31, 2019. Additionally, in connection with the acquisition
of LMB our Executive Chairman, Leonard Mazur, made an equity investment of $3.0 million in March 2016. Mr. Mazur has also loaned
us $4,710,000 pursuant to convertible promissory notes. On August 8, 2017, these notes and accrued interest of $76,240 were converted
into 1,547,067 shares of common stock at a price of $3.09 per share as part of an underwritten public offering which closed on
the same date.
The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
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the
rate of progress and cost of our trials and other product development programs for our
current product candidates;
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the
costs and timing of obtaining licenses for additional product candidates or acquiring
other complementary technologies;
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the
timing of any regulatory approvals of any of our product candidates;
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the
costs of establishing or contracting for sales, marketing and distribution capabilities
for our product candidates; and
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the
status, terms and timing of any collaborative, licensing, co-promotion or other arrangements.
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We
will need to access the capital markets in the future for additional capital for research and development and for operations.
Traditionally, pharmaceutical companies have funded their research and development expenditures through raising capital in the
equity markets. Declines and uncertainties in these markets over the past several years have severely restricted raising new capital
and have affected companies’ ability to continue to expand or fund existing research and development efforts. If these economic
conditions continue or become worse, our future cost of equity or debt capital and access to the capital markets could be adversely
affected. If we are not successful in securing additional financing, we may be required to significantly delay, reduce the scope
of or eliminate one or more of our research or development programs, downsize our general and administrative infrastructure, or
seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that may require us
to relinquish rights to certain of our technologies or product candidates.
We
are a late-stage development company with an unproven business strategy and may never achieve commercialization of our therapeutic
product candidates or profitability.
We
have no approved products. All of our current product candidates are in the pre-clinical or clinical stage. We rely on third parties
to conduct the research and development activities for our product candidates. Further, we have no sales or marketing capability
at this time. Even if we decide to use collaborative partners to assist us in the commercialization of our product candidates,
our product commercialization capabilities are unproven. Our success will depend upon our ability to develop such capabilities
on our own or to enter into collaboration agreements on favorable terms and to select an appropriate commercialization strategy
for each product candidate that we choose to pursue, whether on our own or in collaboration. If we are not successful in implementing
our strategy to commercialize our product candidates, we may never achieve, maintain or increase profitability. Our ability to
successfully commercialize any of our product candidates will depend, among other things, on our ability to:
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successfully
complete pre-clinical and clinical trials for our product candidates;
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receive
marketing approvals from the FDA and similar foreign regulatory authorities for our product
candidates;
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establish
commercial manufacturing arrangements with third-party manufacturers for our product
candidates;
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produce,
through a validated process, sufficiently large quantities of our drug compound(s) to
permit successful commercialization of our product candidates;
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build
and maintain strong sales, distribution and marketing capabilities sufficient to launch
commercial sales of any approved products or establish collaborations with third parties
for such commercialization;
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secure
acceptance of any approved products from physicians, health care payers, patients and
the medical community; and
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manage
our spending as costs and expenses increase due to clinical trials, regulatory applications
and development and commercialization activities.
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There
are no guarantees that we will be successful in completing these tasks. If we are unable to successfully complete these tasks,
we may not be able to commercialize any of our product candidates in a timely manner, or at all, in which case we may be unable
to generate sufficient revenues to sustain and grow our business. If we experience unanticipated delays or problems, our development
costs could substantially increase and our business, financial condition and results of operations will be adversely affected.
We
have a limited operating history upon which to evaluate our ability to successfully commercialize our product candidates.
We
are a clinical stage company and our success is dependent upon our ability to obtain regulatory approval for and commercialize
our products and we have not demonstrated an ability to perform the functions necessary for the approval or successful commercialization
of any product candidates. While various members of our executive management and key employees have significant prior experience
in pharmaceutical development, as a company we have to date not successfully completed any late stage clinical trials nor undertaken
any commercialization activities. Our operations have been limited primarily to businesses planning, acquiring our proprietary
technology, research and development, recruiting management and technical staff, and raising capital. These operations provide
a limited basis for you to assess our ability to successfully commercialize our product candidates and the advisability of investing
in our securities.
We
may choose not to continue developing any of our product candidates at any time during development, which would reduce or eliminate
our potential return on investment for those product candidates.
At
any time, we may decide to discontinue the development of any of our product candidates for a variety of reasons, including inadequate
financial resources, the appearance of new technologies that render our product candidates obsolete, competition from a competing
product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have
invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to allocate
those resources to potentially more productive uses.
As
an example, on July 1, 2016, we announced that we were discontinuing the development of Suprenza, which was our first commercial
product candidate, for strategic reasons and not due to safety or regulatory concerns, in order to focus our management and cash
resources on the Phase 3 development of Mino-Lok and the Phase 2b development of Halo-Lido. The resources expended on Suprenza
therefore did not provide us any benefit.
We
face significant risks in our product candidate development efforts.
Our
business depends on the successful development and commercialization of our product candidates. We are not permitted to market
any of our product candidates in the United States until we receive approval from the FDA, or in any foreign jurisdiction until
we receive the requisite approvals from such jurisdiction. The process of developing new drugs and/or therapeutic products is
inherently complex, unpredictable, time-consuming, expensive and uncertain. We must make long-term investments and commit significant
resources before knowing whether our development programs will result in products that will receive regulatory approval and achieve
market acceptance. Product candidates that appear to be promising at all stages of development may not reach the market for a
number of reasons that may not be predictable based on results and data of the clinical program. Product candidates may be found
ineffective or may cause harmful side effects during clinical trials, may take longer to progress through clinical trials than
had been anticipated, may not be able to achieve the pre-defined clinical endpoints due to statistical anomalies even though clinical
benefit may have been achieved, may fail to receive necessary regulatory approvals, may prove impracticable to manufacture in
commercial quantities at reasonable cost and with acceptable quality, or may fail to achieve market acceptance.
We
cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates that are under development
and we cannot, therefore, predict the timing of any future revenues from these product candidates, if any. The FDA has substantial
discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many
reasons. For example, the FDA:
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could
determine that we cannot rely on Section 505(b)(2) for Mino-Lok or Halo-Lido or any future
product candidates;
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could
determine that the information provided by us was inadequate, contained clinical deficiencies
or otherwise failed to demonstrate the safety and effectiveness of any of our product
candidates for any indication;
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may
not find the data from clinical trials sufficient to support the submission of an NDA
or to obtain marketing approval in the United States, including any findings that the
clinical and other benefits of our product candidates outweigh their safety risks;
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may
disagree with our trial design or our interpretation of data from preclinical studies
or clinical trials, or may change the requirements for approval even after it has reviewed
and commented on the design for our trials;
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may
determine that we have identified the wrong reference listed drug or drugs or that approval
of a Section 505(b)(2) application for any of our product candidates is blocked by patent
or non-patent exclusivity of the reference listed drug or drugs;
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may
identify deficiencies in the manufacturing processes or facilities of third-party manufacturers
with which we enter into agreements for the manufacture of our product candidates;
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may
approve our product candidates for fewer or more limited indications than we request,
or may grant approval contingent on the performance of costly post-approval clinical
trials;
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may
change its approval policies or adopt new regulations that could adversely impact our
product candidate development programs; or
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may
not approve the labeling claims that we believe are necessary or desirable for the successful
commercialization of our product candidates, or may require labeling claims that impair
the potential market acceptance of our product candidates.
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These
same risks are generally applicable to the regulatory process in foreign countries. Any failure to obtain regulatory approval
of our product candidates would significantly limit our ability to generate revenues, and any failure to obtain such approval
for all of the indications and labeling claims we deem desirable could reduce our potential revenues.
While
our business strategy generally is to focus on the development of late stage product candidates to lessen the development risk,
there is still significant risk to successfully developing a product candidate.
Our
goal in pursuing late stage therapeutic product candidates with what we believe is a promising pre-clinical and early clinical
stage track record is to avoid the risk of failure at the pre-clinical and early clinical stages. However, there is still significant
risk to obtaining regulatory approval and successfully commercializing any late stage product candidate that we pursue. All of
the risks inherent in drug development of initial stage product candidates also apply to late stage candidates. We cannot assure
you that our business strategy will be successful.
The
results of pre-clinical studies and completed clinical trials are not necessarily predictive of future results, and our current
product candidates may not have favorable results in later studies or trials.
Pre-clinical
studies and Phase 1 and Phase 2 clinical trials are not primarily designed to test the efficacy of a product candidate in the
general population, but rather to test initial safety, to study pharmacokinetics and pharmacodynamics, to study limited efficacy
in a small number of study patients in a selected disease population, and to identify and attempt to understand the product candidate’s
side effects at various doses and dosing schedules. Success in pre-clinical studies or completed clinical trials does not ensure
that later studies or trials, including continuing pre-clinical studies and large-scale clinical trials, will be successful nor
does it predict future results. Favorable results in early studies or trials may not be repeated in later studies or trials, and
product candidates in later stage trials may fail to show acceptable safety and efficacy despite having progressed through earlier
trials. In addition, the placebo rate in larger studies may be higher than expected.
We
may be required to demonstrate through large, long-term outcome trials that our product candidates are safe and effective for
use in a broad population prior to obtaining regulatory approval.
There
is typically a high rate of attrition from the failure of product candidates proceeding through clinical trials. In addition,
certain subjects in our clinical trials may respond positively to placebo treatment - these subjects are commonly known as “placebo
responders” - making it more difficult to demonstrate efficacy of the trial drug compared to placebo. This effect is likely
to be observed in the treatment of hemorrhoids, which could negatively impact the development program for Halo-Lido.
If
any of our product candidates fail to demonstrate sufficient safety and efficacy in any clinical trial, we will experience potentially
significant delays and cost increases in, or may decide to abandon development of that product candidate. If we abandon or are
delayed, or experience increased costs, in our development efforts related to any of our product candidates, we may not have sufficient
resources to continue or complete development of that product candidate or any other product candidates. We may not be able to
generate any revenues, continue our operations and clinical studies, or become profitable. Our reputation in the industry and
in the investment community would likely be significantly damaged. Further, it might not be possible for us to raise funds in
the public or private markets, and our stock price would likely decrease significantly.
If
we are unable to file for approval of Mino-Lok or Halo-Lido under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act,
or if we are required to generate additional data related to safety and efficacy in order to obtain approval of Mino-Lok or Halo-Lido
under Section 505(b)(2), we may be unable to meet our anticipated development and commercialization timelines.
Our
current plans for filing NDAs for our product candidates include efforts to minimize the data we will be required to generate
in order to obtain marketing approval for certain of our product candidates and therefore possibly reduce the time and cost of
development of a product candidate and obtain a shortened review period for the application. The timeline for filing and review
of our planned NDA for each of Mino-Lok and Halo-Lido is based upon our plan to submit each such NDA under Section 505(b)(2) of
the Federal Food, Drug and Cosmetic Act, wherein we will rely in part on data generated by third parties and that is in the public
domain or elsewhere. Depending on the data that may be required by the FDA for approval, some of the data may be related to products
already approved by the FDA. If the data relied upon is related to products already approved by the FDA and covered by third-party
patents we would be required to certify that we do not infringe the listed patents or that such patents are invalid or unenforceable.
As a result of the certification, the third party would have 45 days from notification of our certification to initiate an action
against us. In the event that an action is brought in response to such a certification, the approval of our NDA could be subject
to a stay of up to 30 months or more while we defend against such a suit. Approval of any product candidate under Section 505(b)(2)
may therefore be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents
applicable to our product candidates. Alternatively, we may elect to generate sufficient additional clinical data so that we no
longer rely on data which triggers a potential stay of the approval of any product candidate. Even if no exclusivity periods apply
to an application under Section 505(b)(2), the FDA has broad discretion to require us to generate additional data on the safety
and efficacy of our product candidates to supplement third-party data on which we may be permitted to rely. In either event, we
could be required, before obtaining marketing approval for such product candidate, to conduct substantial new research and development
activities beyond those in which we currently plan to engage in order to obtain approval of that product candidate. Such additional
new research and development activities would be costly and time consuming.
We
may not be able to obtain shortened review of our applications where available, and in any event the FDA may not agree that any
of our product candidates qualify for marketing approval. If we are required to generate additional data to support approval,
we may be unable to meet our anticipated development and commercialization timelines, may be unable to generate the additional
data at a reasonable cost, or at all, and may be unable to obtain marketing approval of that product candidate. In addition, notwithstanding
the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies
and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section
505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA
from approving any Section 505(b)(2) application that we submit.
Two
of our product candidates, Mino-Lok and Halo-Lido, are combination products consisting of components that have each been separately
approved by the FDA for other indications and which are commercially available and marketed by other companies. Our approval under
Section 505(b)(2), if received, would not preclude physicians, pharmacists and patients from obtaining individual drug products
and titrating the dosage of these drug products as close to our approved dose as possible.
Our
Mino-Lok solution contains minocycline, disodium ethylenediaminetetraacetic acid (edetate), and ethyl alcohol, all of which have
been separately approved by the FDA for other indications, or are used as excipients in other parenteral products. Assuming FDA
approval and as a branded pharmaceutical product, we would need to obtain hospital formulary acceptance to generate sales of Mino-Lok.
Additionally, we may encounter reluctance by the infectious disease physician community to vary from the existing standard of
care to remove and replace an infected catheter. Currently, hospitals are reimbursed for the treatment of CRBSIs by the Center
for Medicare and Medicare Services, (“CMS”) through a Diagnosis Related Group (“DRG”) classification or
code. Commercial insurance plans reimburse for CRBSIs in a similar manner. With Mino-Lok being priced as a branded FDA-approved
pharmaceutical product, this could result in the participating hospital retaining a lower share of CMS or commercial reimbursement
which may impact the acceptance and use of Mino-Lok by these institutions.
Our
Halo-Lido product candidate for the treatment of hemorrhoids is a combination product consisting of two drugs, halobetasol propionate,
a corticosteriod, and lidocaine, that have each been separately approved by the FDA for other indications and which are commercially
available and marketed by other companies. Halobetasol propionate cream is available in a 0.05% strength, and lidocaine creams
are also available in strengths up to 5%. From our market analysis and discussions with a limited number of physicians, we know
that patients sometimes obtain two separate cream products and co-administer them as prescribed, giving them a combination treatment
which could be very similar to what we intend to study and seek approval for. As a branded, FDA-approved product with safety and
efficacy data, we intend to price our product substantially higher than the generically available individual creams. We will then
have to convince third-party payers and pharmacy benefit managers of the advantages of our product and justify our premium pricing.
We may encounter resistance from these entities and will then be dependent on patients’ willingness to pay the premium and
not seek alternatives. In addition, pharmacists often suggest lower cost prescription treatment alternatives to both physicians
and patients. If approved, our Section 505(b)(2) approval and the market exclusivity we may receive will not guarantee that such
alternatives will not exist, that substitution will not occur, or that there will be immediate acceptance to our pricing by payer
formularies.
Any
fast track designation or grant of priority review status by the FDA may not actually lead to a faster development or regulatory
review or approval process, nor will it assure FDA approval of our product candidates. Additionally, our product candidates may
treat indications that do not qualify for priority review vouchers.
We
have received fast track designation for Mino-Lok to treat and salvage infected central venous catheters in patients with CRBSIs.
We may seek fast track designation for some of our other product candidates or priority review of applications for approval of
our product candidates for certain indications. If a drug is intended for the treatment of a serious or life-threatening condition
and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA
fast track designation. If a product candidate offers major advances in treatment, the FDA may designate it eligible for priority
review. The FDA has broad discretion whether or not to grant these designations, so even if we believe a particular product candidate
is eligible for these designations, we cannot assure you that the FDA would decide to grant them. Even with the fast track designation
for Mino-Lok and if we do receive fast track designation or priority review for any other product candidate, we may not experience
a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation
from Mino-Lok or any other product candidate to be so designated if it believes that the designation is no longer supported by
data from our clinical development program.
Even
if we receive regulatory approval to commercialize a product candidate, our ability to generate revenues from any resulting product
will be subject to a variety of risks, many of which are out of our control.
Even
if one of our product candidates obtains regulatory approval, that product may not gain market acceptance among physicians, patients,
healthcare payers or the medical community. The indication may be limited to a subset of the population or we may implement a
distribution system and patient access program that is limited. Coverage and reimbursement of our product candidates by third-party
payers, including government payers, generally is also necessary for commercial success. We believe that the degree of market
acceptance and our ability to generate revenues from any approved product candidate or acquired approved product will depend on
a number of factors, including:
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prevalence
and severity of any side effects;
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results
of any post-approval studies of the product;
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potential
or perceived advantages or disadvantages over alternative treatments;
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availability
of coverage and reimbursement from government and other third-party payers;
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the
willingness of patients to pay out of pocket in the absence of government or third-party coverage;
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the
relative convenience and ease of administration and dosing schedule;
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product
labeling or product insert requirements of the FDA or other regulatory authorities;
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strength
of sales, marketing and distribution support;
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price
of any future products, if approved, both in absolute terms and relative to alternative treatments;
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the
effectiveness of our or any future collaborators’ sales and marketing strategies;
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the
effect of current and future healthcare laws on our product candidates;
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patient
access programs that require patients to provide certain information prior to receiving
new and refill prescriptions; and
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requirements
for prescribing physicians to complete certain educational programs for prescribing drugs.
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If
approved, any product candidate may fail to achieve market acceptance or generate significant revenue to achieve or sustain profitability.
In addition, our efforts to educate the medical community and third-party payers on the benefits of any product candidate may
require significant resources and may never be successful.
Even
if approved for marketing by applicable regulatory bodies, we will not be able to create a market for any of our product candidates
if we fail to establish marketing, sales and distribution capabilities, either on our own or through arrangements with third parties.
Our
strategy with our product candidates is to outsource to third parties, all or most aspects of the product development process,
and possibly marketing, sales and distribution activities. Currently, we do not have any sales, marketing or distribution capabilities.
In order to generate sales of any product candidates that receive regulatory approval, we must either acquire or develop an internal
marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third
parties to perform these services for us. The acquisition or development of a sales and distribution infrastructure would require
substantial resources, which may divert the attention of our management and key personnel and defer our product development efforts.
To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts
of others. These efforts may not be successful. If we fail to develop sales, marketing and distribution channels, or enter into
arrangements with third parties, we will experience delays in product sales and incur increased costs.
The
markets in which we operate are highly competitive and we may be unable to compete successfully against new entrants or established
companies.
Competition
in the pharmaceutical and medical products industries is intense and is characterized by costly and extensive research efforts
and rapid technological progress. We are aware of several pharmaceutical companies also actively engaged in the development of
therapies or products for at least some of the same conditions we are targeting. Many of these companies have substantially greater
research and development capabilities as well as substantially greater marketing, financial and human resources than we do. In
addition, many of these companies have significantly greater experience than us in undertaking pre-clinical testing, clinical
trials and other regulatory approval procedures. Our competitors may develop technologies and products that are more effective
than those we are currently marketing or researching and developing. Such developments could render our product candidates, if
approved, less competitive or possibly obsolete. We are also competing with respect to marketing capabilities and manufacturing
efficiency, areas in which we have no current capabilities and in which we have no experience as a company, although our executive
officers do have commercialization experience. However, that experience might not translate into the successful development and
launch of any of our product candidates. Mergers, acquisitions, joint ventures and similar events may also significantly increase
the competition we face. In addition, new developments, including the development of other drug technologies and methods of preventing
the incidence of disease, occur in the pharmaceutical and medical technology industries at a rapid pace. These developments may
render our product candidates obsolete or noncompetitive. Compared to us, many of our potential competitors have substantially
greater:
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research
and development resources, including personnel and technology;
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regulatory
resources, experience and expertise;
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product
candidate development and clinical trial resources and experience;
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product
sourcing, sales and marketing resources and experience;
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experience
and expertise in exploitation of intellectual property rights; and
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access
to strategic partners and capital resources.
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As
a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we can or may obtain
patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates.
Our competitors may also develop products that are more effective, more useful and less costly than ours and may also be more
successful in manufacturing and marketing their products. In addition, our competitors may be more effective than us in commercializing
their products and as a result, our business and prospects might be materially harmed.
Physicians
and patients might not accept and use any of our product candidates for which regulatory approval is obtained.
Even
if the FDA approves one of our product candidates, physicians and patients might not accept and use it. Acceptance and use of
our approved product candidates will depend upon a number of factors, including:
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perceptions
by members of the health care community, including physicians, about the safety and effectiveness of any of our product candidates;
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cost-effectiveness
of our product candidates relative to competing products or therapies;
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availability
of reimbursement for our product candidates from government or other healthcare payers; and
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effective
marketing and distribution efforts by us and/or our licensees and distributors, if any.
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If
any of our current product candidates are approved, we expect their sales to generate substantially all of our revenues for the
foreseeable future, and as a result, the failure of any of these product candidates to find market acceptance would harm our business
and would require us to seek additional financing.
Our
ability to generate product revenues will be diminished if any of our product candidates that may be approved sell for inadequate
prices or patients are unable to obtain adequate levels of reimbursement.
Our
ability to commercialize our product candidates, alone or with collaborators, will depend in part on the extent to which reimbursement
will be available from:
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government
and health administration authorities;
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private
health maintenance organizations and health insurers; and
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other
healthcare payers.
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Significant
uncertainty exists as to the reimbursement status of newly approved healthcare products. Healthcare payers, including Medicare,
are challenging the prices charged for medical products and services. Government and other healthcare payers increasingly attempt
to contain healthcare costs by limiting both coverage and the level of reimbursement for drugs. Even if our product candidates
are approved by the FDA, insurance coverage might not be available, and reimbursement levels might be inadequate, to cover our
products. If government and other healthcare payers do not provide adequate coverage and reimbursement levels for our products,
once approved, market acceptance of such products could be reduced. Proposals to modify the current health care system in the
U.S. to improve access to health care and control its costs are continually being considered by the federal and state governments.
In March 2010, the U.S. Congress passed landmark healthcare legislation. Portions of this legislation have been repealed in recent
years and members of the U.S. Congress and some state legislatures continue to seek to overturn at least some remaining portions
of the legislation and we expect they will continue to review and assess this legislation and possibly alternative health care
reform proposals. We cannot predict what impact on federal reimbursement policies this legislation will have in general or on
our business specifically. We cannot predict whether new proposals will be made or adopted, when they may be adopted or what impact
they may have on us if they are adopted.
Health
administration authorities in countries other than the U.S. may not provide reimbursement for our products at rates sufficient
for us to achieve profitability, or at all. Like the U.S., these countries have considered health care reform proposals and could
materially alter their government-sponsored health care programs by reducing reimbursement rates. Any reduction in reimbursement
rates under Medicare or foreign health care programs could negatively affect the pricing of our product candidates. If we are
not able to charge a sufficient amount for our product candidates, then our margins and our profitability will be adversely affected.
We
are and will be dependent on third-party contract research organizations to conduct all of our clinical trials.
We
are and will be dependent on third-party research organizations to conduct all of our clinical trials with respect to our product
candidates, including any candidates that we may develop in the future. If we are unable to obtain any necessary testing services
on acceptable terms, we may not complete our product development efforts in a timely manner or at all. If we rely on third parties
for human trials, we may lose some control over these activities and become too dependent upon these parties. These third parties
may not complete testing activities on schedule or when we so request. We may not be able to secure and maintain suitable research
organizations to conduct our human trials. We are responsible for confirming that each of our clinical trials is conducted in
accordance with the trial’s general plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply
with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results
of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately
protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties
do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties
need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical
protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended,
delayed, suspended or terminated, and we may not be able to obtain regulatory approval for any of our product candidates.
We
rely exclusively on third parties to formulate and manufacture our product candidates.
We
do not have and do not intend to establish our own manufacturing facilities. Consequently, we lack the physical plant to formulate
and manufacture our product candidates, which are currently being manufactured entirely by commercial third party manufacturers.
If any product candidate we might develop or acquire in the future receives FDA approval, we will rely on one or more third-party
contractors to manufacture our products. If, for any reason, we become unable to rely on our current source or any future source
or sources to manufacture our product candidates, either for pre-clinical or clinical trials or for commercial quantities, then
we would need to identify and contract with additional or replacement third-party manufacturers to manufacture compounds for preclinical,
clinical and commercial purposes. We might not be successful in identifying additional or replacement third-party manufacturers,
or in negotiating acceptable terms with any that we do identify. If we are unable to secure and maintain third-party manufacturing
capacity, the development and sales of our product candidates and our financial performance might be materially affected.
In
addition, before any of our collaborators can begin to commercially manufacture our product candidates, each must obtain regulatory
approval of the manufacturing facility and process. Manufacturing of drugs for clinical and commercial purposes must comply with
the FDA’s Current Good Manufacturing Practices, or cGMP, and applicable non-U.S. regulatory requirements. The cGMP requirements
govern quality control and documentation policies and procedures. Complying with cGMP and non-U.S. regulatory requirements will
require that we expend time, money, and effort in production, recordkeeping, and quality control to assure that the product meets
applicable specifications and other requirements. Our contracted manufacturing facilities must also pass a pre-approval inspection
prior to FDA approval. Failure to pass a pre-approval inspection might significantly delay FDA approval of our product candidates.
If any of our collaborators fails to comply with these requirements, we would be subject to possible regulatory action which could
limit the jurisdictions in which we are permitted to sell our product candidates. As a result, our business, financial condition,
and results of operations might be materially harmed.
Our
reliance on a limited number of third-party manufacturers exposes us to the following risks:
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We
might be unable to identify manufacturers for commercial supply on acceptable terms or at all because the number of potential
manufacturers is limited and the FDA must approve any replacement contractor. This approval would generally require compliance
inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for,
production of our product candidates after receipt of FDA approval, if any;
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Our
third-party manufacturers might be unable to formulate and manufacture our product candidates in the volume and of the quality
required to meet our clinical and commercial needs, if any;
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Our
contract manufacturers might not perform as agreed or might not remain in the contract manufacturing business for the time required
to supply our clinical trials or to successfully produce, store and distribute our product candidates for commercialization;
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Currently,
our contract manufacturer for our clinical supplies is foreign, which increases the risk of shipping delays and adds the risk
of import restrictions;
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Drug
manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict
compliance with cGMP and other government regulations and corresponding foreign standards. We do not have complete control over
third-party manufacturers’ compliance with these regulations and standards;
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If
any third-party manufacturer makes improvements in the manufacturing process for our product candidates, we might not own, or
might have to share, the intellectual property rights to the innovation with our licensors;
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Operations
of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including
a bankruptcy of the manufacturer or supplier or a natural disaster; and
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We
might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays
if the manufacturers give other clients higher priority than us.
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Each
of these risks could delay our clinical trials or the approval, if any, of our product candidates by the FDA or any foreign regulatory
agency or the commercialization of our product candidates and could result in higher costs or deprive us of potential product
revenues. As a result, our business, financial condition, and results of operations might be materially harmed.
If
we materially breach or default under any of our license agreements, the licensor party to such agreement will have the right
to terminate the license agreement, which termination may materially harm our business.
Our
commercial success will depend in part on the maintenance of our license agreements. Currently, we are a party to two in-license
agreements with MDACC, one for Mino-Lok (sub-licensed from the entity holding the license from MDACC) and one for Mino-Wrap. Additionally,
we expect to enter into additional license agreements in the future. Our license agreements impose, and we expect that future
license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. For example, under
our current license agreements, we are required to use commercially reasonable diligence to develop and commercialize a product
and to satisfy specified payment obligations. If we fail to comply with our obligations under our agreements or any future license
agreements with any party, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which
event we would not be able to market products covered by the license. Each of our license agreements provides the licensor with
a right to terminate the license agreement for our material breach or default under the agreement, including the failure to make
any required milestone or other payments. Should the licensor under any of our license agreements exercise such a termination
right, we would lose our right to the intellectual property under the respective license agreement, which loss may materially
harm our business.
Any
termination, or breach by, or conflict with our strategic partners or licensees could harm our business.
If
we or any of our current or future collaborators or licensees fail to renew or terminate any of our collaborations or if either
party fails to satisfy its obligations under any of our collaboration or license agreements or complete them in a timely manner,
we could have difficulty completing the development of any of our product candidates and potentially lose significant sources
of revenue, which could result in volatility in our future revenue. In addition, our agreements with our collaborators and licensees
may have provisions that give rise to disputes regarding the rights and obligations of the parties. These and other possible disagreements
could lead to termination of the agreement or delays in collaborative research, development, supply or commercialization of our
product candidates, or could require or result in litigation or arbitration. Any such conflicts with our collaborators could reduce
our ability to obtain future collaboration agreements and could have a negative impact on our relationship with existing collaborators,
adversely affecting our business and revenues. Finally, any of our collaborations or license agreements may prove to be unsuccessful.
We
plan to grow and develop our business through acquisitions of or investment in new or complementary businesses, products or technologies,
and the failure to manage these acquisitions or investments, or the failure to integrate them with our existing business, could
have a material adverse effect on us.
Our
business strategy is based on the acquisition of additional product candidates. We might consider opportunities to acquire or
invest in other technologies, products and businesses that might enhance our capabilities or complement our current product candidates.
Potential and completed acquisitions and strategic investments involve numerous risks, including potential problems or issues
associated with the following:
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assimilating
the purchased technologies, products or business operations;
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maintaining
uniform standards, procedures, controls and policies;
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unanticipated
costs associated with the acquisition or investment;
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diversion
of our management’s attention from our preexisting business;
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maintaining
or obtaining the necessary regulatory approvals or complying with regulatory standards; and
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adverse
effects on existing business operations.
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We
have no current commitments with respect to any acquisition or investment in other technologies or businesses. We do not know
if we will identify suitable acquisitions, whether we will be able to successfully complete any acquisitions, or whether we will
be able to successfully integrate any acquired product, technology or business into our business operations or retain key personnel,
suppliers or collaborators.
Our
ability to successfully develop our business through acquisitions would depend on our ability to identify, negotiate, complete
and integrate suitable target businesses or technologies and obtain any necessary financing. These efforts could be expensive
and time consuming and might disrupt our ongoing operations. If we are unable to efficiently integrate any acquired business,
technology or product into our business operations, our business and financial condition might be adversely affected.
We
rely on the significant experience and specialized expertise of our executive management and other key personnel and the loss
of any of our executive management or key personnel or our inability to successfully hire their successors could harm our business.
Our
performance is substantially dependent on the continued services and on the performance of our executive management and other
key personnel, who have extensive experience and specialized expertise in our business. Our President and Chief Executive Officer,
Myron Holubiak, and our Executive Chairman, Leonard Mazur, in particular have significant experience in the running of pharmaceutical
companies as well as drug development itself. This depth of experience is of significant benefit to us, especially given the small
size of our management team and company. The loss of the services of either Mr. Holubiak or Mr. Mazur, as well as any other member
of our executive management or any key employees could harm our ability to attract capital and develop and commercialize our product
candidates. We have no key man life insurance policies.
If
we are unable to retain or hire additional qualified personnel, our ability to grow our business might be harmed.
We
utilize the services of a clinical management team on a part-time basis to assist us in managing our ongoing Phase 2 and Phase
3 trials and intend to do so for future trials. While we believe this will provide us with sufficient staffing for our current
and future development efforts, we will need to hire or contract with additional qualified personnel with expertise in preclinical
testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing in connection
with the continued development, regulatory approval and commercialization of our product candidates. We compete for qualified
individuals with numerous pharmaceutical and biopharmaceutical companies, universities and other research institutions. Competition
for these individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and
retaining qualified personnel will be critical to our success. In addition, we may be unable to attract and retain those qualified
officers, directors and members of board committees required to provide for effective management. If we are unable to attract
and retain qualified employees, officers and directors, the management and operation of our business could be adversely affected.
We
expect to need to increase the size of our organization to further develop our product candidates, and we may experience difficulties
in managing growth.
We
will need to manage our anticipated growth and increased operational activity. Our personnel, systems and facilities currently
in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy will require that
we:
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manage
our research and development activities and our regulatory trials effectively;
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attract
and motivate sufficient numbers of talented employees or consultants;
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manage
our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors,
collaborators and other third parties;
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develop
internal sales and marketing capabilities or establish collaborations with third parties with such capabilities;
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commercialize
our product candidates; and
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improve
our operational, financial and management controls, reporting systems and procedures.
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This
planned future growth could place a strain on our administrative and operational infrastructure and may require our management
to divert a disproportionate amount of its attention away from our day-to-day activities. We may not be able to effectively manage
the expansion of our operations or recruit and train additional qualified personnel, which may result in weaknesses in our infrastructure,
and give rise to operational mistakes, loss of business opportunities, loss of employees and consultants and reduced productivity
among remaining employees and consultants. We may not be able to make improvements to our management information and control systems
in an efficient or timely manner and may discover deficiencies in existing systems and controls. If our management is unable to
effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our
revenues could be reduced and we may not be able to implement our business strategy. Our future financial performance and our
ability to compete effectively will depend, in part, on our ability to effectively manage any future growth.
Risks
Related to Our Regulatory and Legal Environment
We
are subject to extensive and costly government regulation.
Our
product candidates are and any approved products will be subject to extensive and rigorous domestic government regulation including
regulation by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human
Services, the U.S. Department of Justice, state and local governments, and their respective foreign equivalents. The FDA regulates
the research, development, preclinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling,
storage, approval, advertising, promotion, sale, distribution, import, and export of pharmaceutical products. If our product candidates
are to be marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have
obtained FDA approval. Such foreign regulation might be equally or more demanding than corresponding U.S. regulation. Government
regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling our product candidates.
The regulatory review and approval process, which includes preclinical testing and clinical trials of each product candidate,
is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct clinical
trials and approval for each product candidate we intend to market, and the manufacturing facilities used for the product candidates
must be inspected and meet legal requirements. Securing regulatory approval requires submitting extensive preclinical and clinical
data and other supporting information for each proposed product candidate in order to establish the product’s safety and
efficacy for each intended use. The development and approval process might take many years, requires substantial resources, and
might never lead to the approval of a product. Further, the FDA or any foreign regulatory authority could change its established
regulations that govern the drug development and approval process, which could negatively impact the regulatory review of our
product candidates, including the anticipated timeline and cost of development and approval. Even if we are able to obtain regulatory
approval for a particular product candidate, the approval might limit the indicated medical uses for the product, limit our ability
to promote, sell, and distribute the product, require that we conduct costly post-marketing surveillance, and/or require that
we conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes
or revised labeling, might require further regulatory review and approval. Once obtained, any approvals might be withdrawn, including,
for example, if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety
issue.
If
we, our collaborators, or our contract manufacturers fail to comply with applicable regulatory requirements at any stage during
the regulatory process, such noncompliance could result in, among other things: suspension or cessation of clinical trials; delays
in the approval of applications or supplements to approved applications; refusal of a regulatory authority, including the FDA,
to review pending market approval applications or supplements to approved applications; warning letters; fines; import and export
restrictions; product recalls or seizures; injunctions; total or partial suspension of production; civil penalties; withdrawals
of previously approved marketing applications or licenses; recommendations by the FDA or other regulatory authorities against
governmental contracts; and/or criminal prosecutions.
We
might not obtain the necessary U.S. regulatory approvals to commercialize any product candidates.
We
cannot assure you that we will receive the approvals necessary to commercialize for sale any product candidates we are currently
developing or that we may acquire or develop in the future. We will need FDA approval to commercialize our product candidates
in the U.S. In order to obtain FDA approval of any product candidate, we must submit to the FDA an NDA demonstrating that the
product candidate is safe for humans and effective for its intended use. This demonstration requires significant research, pre-clinical
studies, and clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon
the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing.
We cannot predict whether our research and clinical approaches will result in products that the FDA considers safe for humans
and effective for their indicated uses. The FDA has substantial discretion in the product approval process and might require us
to conduct additional pre-clinical and clinical testing, perform post-marketing studies or otherwise limit or impose conditions
on any additional approvals we obtain. The approval process might also be delayed by changes in government regulation, future
legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining
regulatory approvals might:
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delay
commercialization of, and our ability to derive product revenues from, our product candidates;
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impose
costly procedures on us; and
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diminish
any competitive advantages that we might otherwise enjoy.
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Even
if we comply with all FDA requests, the FDA might ultimately reject one or more of our NDAs. We cannot be sure that we will ever
obtain regulatory clearance for our product candidates. Failure to obtain FDA approval of our product candidates will severely
undermine our business by leaving us without saleable products, and therefore without any potential sources of revenues, until
another product candidate could be developed or obtained and successfully developed, approved and commercialized. There is no
guarantee that we will ever be able to successfully develop or acquire any product candidate.
Following
any regulatory approval of any product candidate, we will be subject to ongoing regulatory obligations and restrictions, which
may result in significant expense and limit our ability to commercialize our other product candidates.
If
one of our product candidates is approved by the FDA or by a foreign regulatory authority, we will be required to comply with
extensive regulations for product manufacturing, labeling, packaging, adverse event reporting, storage, distribution, advertising,
promotion and record keeping. Regulatory approvals may also be subject to significant limitations on the indicated uses or marketing
of the products or to whom and how we may distribute an approved product. Even if U.S. regulatory approval is obtained, the FDA
may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for
potentially costly post-approval studies. For example, the label ultimately approved for our product candidates, if any, may include
restrictions on use. If so, we may be subject to ongoing regulatory obligations and restrictions, which may result in significant
expense and limit our ability to commercialize our product candidates. The FDA could also require a registry to track the patients
utilizing the product or implement a Risk Evaluation and Mitigation Strategy, or REMS, that could restrict access to the product,
reduce our revenues and/or increase our costs. Potentially costly post-marketing clinical studies may be required as a condition
of approval to further substantiate safety or efficacy, or to investigate specific issues of interest to the regulatory authority.
Manufacturers
of pharmaceutical products and their facilities are subject to continual review and periodic inspections by the FDA and other
regulatory authorities for compliance with cGMP regulations, which include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation. Further, regulatory agencies must approve these
manufacturing facilities before they can be used to manufacture our future approved products, if any, and these facilities are
subject to ongoing regulatory inspections. In addition, regulatory agencies subject a pharmaceutical product, its manufacturer
and the manufacturer’s facilities to continual review and inspections. The subsequent discovery of previously unknown problems
with a product, including adverse events of unanticipated severity or frequency, or problems with the facility where the product
is manufactured, may result in restrictions on the marketing of that product, up to and including, withdrawal of the product from
the market. If the manufacturing facilities of our suppliers fail to comply with applicable regulatory requirements, it could
result in regulatory action and additional costs to us. Failure to comply with applicable FDA and other regulatory requirements
may, either before or after product approval, if any, subject our company to administrative or judicially imposed sanctions, including:
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issuance
of Form 483 notices, warning letters and adverse publicity by the FDA or other regulatory agencies;
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imposition
of fines and other civil penalties due to product liability or other issues;
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injunctions,
suspensions or revocations of regulatory approvals;
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suspension
of any ongoing pre-clinical and clinical trials;
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total
or partial suspension of manufacturing;
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delays
in commercialization;
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refusal
by the FDA to approve pending applications or supplements to approved applications filed by us or our collaborators;
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refusals
to permit medical products to be imported into or exported from the U.S.;
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restrictions
on operations, including costly new manufacturing requirements;
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product
recalls or seizures; and
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In
addition, the law or regulatory policies governing pharmaceutical products may change. New statutory requirements may be enacted
or additional regulations may be enacted that could prevent or delay regulatory approval of our product candidates. Contract manufacturing
organizations, or CMOs, and their vendors or suppliers may also face changes in regulatory requirements from governmental agencies
in the U.S. and other countries. We cannot predict the likelihood, nature, extent or effects of government regulation that may
arise from future legislation or administrative action, either in the U.S. or elsewhere. If we are not able to maintain regulatory
compliance, we might not be permitted to market any future approved products and our business could suffer.
Even
if we receive regulatory approval to commercialize our product candidates, post-approval marketing and promotion of products is
highly regulated by the FDA, and marketing campaigns which violate FDA standards may result in adverse consequences including
regulatory enforcement action by the FDA as well as follow-on actions filed by consumers and other end-payers, which could result
in substantial fines, sanctions and damage awards against us, any of which could harm our business.
Post-approval
marketing and promotion of products, standards and regulations for direct-to-consumer advertising, dissemination of off-label
product information, industry-sponsored scientific and educational activities and promotional activities via the Internet are
heavily scrutinized and regulated by the FDA. Products may only be marketed for approved indications and in accordance with provisions
of the FDA approved labels. Failure to comply with such requirements may result in adverse publicity, warning letters issued by
the FDA, and civil or criminal penalties.
In
the event the FDA discovers post-approval violations, we could face penalties in the future including the FDA’s issuance
of a cease and desist order, impounding of our products, and civil or criminal penalties. As a follow-on to such governmental
enforcement activities, consumers and other end-payers of the product may initiate action against us claiming, among other things,
fraudulent misrepresentation, unfair competition, violation of various state consumer protection statues and unjust enrichment.
If the plaintiffs in such follow-on actions are successful, we could be subject to various damages, including compensatory damages,
treble damages, punitive damages, restitution, disgorgement, prejudgment and post-judgment interest on any monetary award, and
the reimbursement of the plaintiff’s legal fees and costs, any of which could have an adverse effect on our revenue, business,
financial condition and prospects.
We
could be forced to pay substantial damage awards if product liability claims that may be brought against us are successful.
The
use of any of our product candidates in pre-clinical and clinical trials, and the sale of any approved products, may expose us
to liability claims and financial losses resulting from the use or sale of our product candidates. We have obtained limited product
liability insurance coverage for our pre-clinical and clinical trials of $2.0 million per occurrence and in the aggregate, subject
to a deductible of $50,000 per occurrence. There can be no assurance that our existing insurance coverage will extend to any other
product candidates in the future. Any product liability insurance coverage may not be sufficient to satisfy all liabilities resulting
from product liability claims. A successful claim may prevent us from obtaining adequate product liability insurance in the future
on commercially desirable terms, if at all. Even if a claim is not successful, defending such a claim would be time consuming
and expensive, may damage that product’s and our reputations in the marketplace, and would likely divert management’s
attention, any of which could have a material adverse effect on our company.
Risks
Related to our Intellectual Property
Our
business depends on protecting our intellectual property.
Without
the intellectual property rights we have already obtained, as well as the further rights we are also pursuing, our competitors
would have opportunity to take advantage of our research and development efforts to develop competing products. Our success, competitive
position and future revenues, if any, depend in part on our ability and the abilities of our licensors to obtain and maintain
patent protection for our product candidates, methods, processes and other technologies, to preserve our trade secrets, to prevent
third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties.
We anticipate filing additional patent applications both in the U.S. and in other countries, as appropriate. However, the patent
process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting
our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
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Our
patent rights might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;
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Our
competitors, many of which have substantially greater resources than we do and many of which might make significant investments
in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, or eliminate our
ability to make, use, and sell our product candidates either in the U.S. or in international markets;
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Countries
other than the U.S. might have less restrictive patent laws than those upheld by U.S. courts, allowing foreign competitors the
ability to exploit these laws to create, develop, and market competing products; and
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As
a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and
other international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for product candidates
that prove successful.
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In
addition, the U.S. Patent and Trademark Office and patent offices in other jurisdictions have often required that patent applications
concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific
innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus,
even if we or our licensors are able to obtain patents, the patents might be substantially narrower than anticipated.
Because
the time period from filing a patent application to the issuance, if ever, of the patent is often more than three years and because
any regulatory approval and marketing for a pharmaceutical product often occurs several years after the related patent application
is filed, the resulting market exclusivity afforded by any patent on our drug candidates and technologies will likely be substantially
less than 20 years. For example, the U.S. patent on the original Mino-Lok composition expires in June 2024, and the U.S. patent
on the stabilized Mino-Lok composition expires in November 2036. Since we anticipate significant additional time before FDA approval
could be obtained, the maximum market exclusivity afforded by the statutory term of the currently issued patents would be less
than 17 years. In the United States, the European Union and some other jurisdictions, patent term extensions are available for
certain delays in either patent office proceedings or marketing and regulatory approval processes. However, due to the specific
requirements for obtaining these extensions, there is no assurance that our patents will be granted extensions even if we encounter
significant delays in patent office proceedings or marketing and regulatory approval.
Patent
and other intellectual property protection is crucial to the success of our business and prospects, and there is a substantial
risk that such protections will prove inadequate. Our business and prospects will be harmed if these protections prove insufficient.
We
rely on trade secret protections through confidentiality agreements with our employees and other parties, and the breach of these
agreements could adversely affect our business and prospects.
We
rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees,
collaborators, suppliers, and other parties. There can be no assurance that these agreements will not be breached, that we would
have adequate remedies for any such breach or that our trade secrets will not otherwise become known to or independently developed
by our competitors. We might be involved from time to time in litigation to determine the enforceability, scope and validity of
our proprietary rights. Any such litigation could result in substantial cost and divert management’s attention from our
operations.
If
we infringe the rights of third parties we might have to forego developing and/or selling any approved products, pay damages,
or defend against litigation.
If
our product candidates, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur
substantial costs and we might have to:
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obtain
licenses, which might not be available on commercially reasonable terms, if at all;
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abandon
an infringing product candidate;
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redesign
our product candidates or processes to avoid infringement;
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stop
using the subject matter claimed in the patents held by others;
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defend
litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial
diversion of our financial and management resources.
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Any
of these events could substantially harm our earnings, financial condition and operations.
The
U.S. government could have “march-in rights” to certain of our intellectual property.
If
at any time federal monies are used in support of the research and development activities at MDACC that resulted or in the future
result in certain of our issued pending U.S. patent applications, the federal government retains what are referred to as “march-in
rights” to patents that are granted on these applications. Our license agreements for Mino-Lok and Mino-Wrap each provide
that in the event of such governmental funding, our rights are subject to the government’s prior rights, if any. In addition,
the license agreements provide that we will comply with the requirements of any agreement between MDACC and the governmental funding
entity. If applicable, this could require us to grant the U.S. government either a nonexclusive, partially exclusive or exclusive
license to the patented invention in any field of use, upon terms that are reasonable for a particular situation. Circumstances
that could trigger march-in rights generally would be set out in the agreement between MDACC and the funding governmental entity
and could include, for example, failure to take, within a reasonable time, effective steps to achieve practical application of
the invention in a field of use, failure to satisfy the health and safety needs of the public and failure to meet requirements
of public use specified by federal regulations. A funding governmental entity could elect to exercise these march-in rights on
their own initiative or at the request of a third party; however, the exercise of such march-in rights has been historically rare
when the patent holder (or its licensee) is practicing the patent invention although there can be no assurance that such rights
would not be exercised. This same risk would apply to any other license into which we enter if the licensor receives government
funding for the product candidate that is the subject of the license.
Changes
in patent law or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect
our product candidates.
The
United States has enacted and is expected to continue to implement wide-ranging patent reform legislation. Further, recent United
States Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened
the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain
patents in the future, this combination of events has created uncertainty with respect to the scope and value of patents, once
obtained.
In
September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act, or AIA, was signed into law. The AIA
includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will
be prosecuted and may also affect patent litigation. The USPTO is currently developing regulations and procedures to govern administration
of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact(s)
the AIA will have on the operation of our business. Moreover, the AIA 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 an adverse effect on our business. One important change introduced by the AIA is that, as of March 16, 2013,
the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when
two or more patent applications are filed by different parties claiming the same invention. A third party who files a patent application
with the USPTO after such date but prior to our filing may therefore be awarded a patent covering an invention of ours even if
we were the first to invent. All of our U.S. patent applications were filed after March 16, 2013. This “first-inventor-to-file”
system will require us both to remain cognizant, going forward, of the timing between invention and filing of a patent application.
Among
some of the other changes introduced by the AIA are those that (i) limit where a patentee may file a patent infringement suit
and (ii) provide opportunities for third parties to challenge any issued patent in the USPTO. Such changes apply to all of our
U.S. patents. Because of a lower evidentiary standard in USPTO proceedings, as compared to the evidentiary standard applied in
U.S. federal courts, necessary to invalidate a patent claim, a third party could potentially present evidence in a USPTO proceeding
sufficient for the USPTO to find a claim invalid, notwithstanding that the same evidence would be insufficient to invalidate a
claim first presented in a district court action. Accordingly, a third party may attempt opportunistically to use USPTO procedures
to invalidate our patent claims.
Depending
on decisions by the United States Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions,
the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ abilities
to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.
Risks
Related to Our Securities
If
we fail to meet the continued listing requirements of Nasdaq it could result in a delisting of our common stock and certain warrants.
Our
common stock and certain outstanding warrants are currently listed for trading on The Nasdaq Capital Market, and the continued
listing of our common stock on The Nasdaq Capital Market is subject to our compliance with a number of listing standards. These
listing standards include the requirement for avoiding sustained losses, maintaining a minimum level of stockholders’ equity
and maintaining a minimum stock price. The failure to meet any listing standard would subject us to potential loss of listing.
If
our common stock were no longer listed on The Nasdaq Capital Market, investors might only be able to trade on one of the over-the-counter
markets, including the OTC Bulletin Board ® or in the Pink Sheets ® (a quotation medium operated by Pink Sheets LLC).
This would impair the liquidity of our common stock not only in the number of shares that could be bought and sold at a given
price, which might be depressed by the relative illiquidity, but also through delays in the timing of transactions and reduction
in media coverage. In addition, we could face significant material adverse consequences, including:
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a
limited availability of market quotations for our securities;
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a
limited amount of news and analyst coverage for us; and
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a
decreased ability to issue additional securities or obtain additional financing in the future.
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We
have twice failed to meet the listing standards, most recently between October 2019 and January 2020. In October 2019, we received
a notice from Nasdaq that we failed to comply with the $1.00 minimum bid price requirement. We regained compliance on January
31, 2020. On April 1, 2020, we received written notice from The Nasdaq Stock Market indicating that, because the closing bid price
for the Company’s common stock has fallen below $1.00 per share for 30 consecutive business days, we no longer comply with
the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market under Rule 5550(a)(2) of the Nasdaq
Listing Rules. We intend to consider all available alternatives to regain compliance with Rule 5550(a)(2) to allow for continued
listing of the common stock on The Nasdaq Capital Market.
In
the event of a future delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but
we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the
market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid
price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
If
our common stock were delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to
trade our common stock and an investor may find it more difficult to acquire or dispose of our common stock in the secondary market.
If
our common stock were removed from listing with The Nasdaq Capital Market, it may be subject to the so-called “penny stock”
rules. The SEC has adopted regulations that define a “penny stock” to be any equity security that has a market price
per share of less than $5.00, subject to certain exceptions, such as any securities listed on a national securities exchange,
which is the exception on which we currently rely. For any transaction involving a “penny stock,” unless exempt, the
rules impose additional sales practice requirements on broker-dealers, subject to certain exceptions. If our common stock were
delisted and determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock
and an investor may find it more difficult to acquire or dispose of our common stock on the secondary market.
If
we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or
detect fraud. Consequently, shareholders could lose confidence in our financial reporting and this may decrease the trading price
of our common stock.
We
are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or SOX, and Nasdaq rules and regulations.
SOX requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial
reporting. We perform system and process evaluation and testing of our internal controls over financial reporting to allow management
to report on the effectiveness of our internal controls over financial reporting in our Annual Report on Form 10-K filing for
that year, as required by Section 404 of SOX. We previously had identified material weaknesses in our internal control over financial
reporting related to ineffective separation of duties due to our limited finance staff, our reliance on consultants to assist
with the financial reporting function and a lack of documented policies and procedures, which weaknesses were reported in fiscal
2016 and 2017 (and prior to that by our predecessor company). While we remediated these material weaknesses as of September 30,
2018, such that management determined that our internal controls over financial reporting were effective as of that date, and
as of December 31, 2019, we cannot assure that, in the future, a material weakness or significant deficiency will not exist or
otherwise be discovered. If that were to happen, it could harm our operating results and cause shareholders to lose confidence
in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our securities.
A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be satisfied. Internal control over financial reporting and disclosure controls and procedures
are designed to give a reasonable assurance that they are effective to achieve their objectives. We cannot provide absolute assurance
that all of our possible future control issues will be detected. These inherent limitations include the possibility that judgments
in our decision making can be faulty, and that isolated breakdowns can occur because of simple human error or mistake. The design
of our system of controls is based in part upon assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed absolutely in achieving our stated goals under all potential future or unforeseeable conditions.
Because of the inherent limitations in a cost-effective control system, misstatements due to error could occur and not be detected.
This and any future failures could cause investors to lose confidence in our reported financial information, which could have
a negative impact on our financial condition and stock price.
The
price of our securities may become volatile, which could lead to losses by shareholders and costly securities litigation.
The
trading price of our securities is likely to be highly volatile and could fluctuate in response to factors such as:
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the
completion and/or results of our clinical trials;
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our
common stock being delisted from The Nasdaq Capital Market;
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sales
of our common stock or other securities in the open market or in private placements;
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regulatory
actions regarding our product candidates or any approved products;
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additions
or departures of key personnel;
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announcements
of developments by us or our competitors;
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announcements
by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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actual
or anticipated variations in our operating results;
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adoption
of new accounting standards affecting our industry;
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introduction
of new approved products by us or our competitors; and
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other
events or factors, many of which are beyond our control.
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The
stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market
price of a company’s securities, securities class action litigation has often been initiated against such a company. Any
such litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s
attention and resources, which could harm our business and financial condition.
You
may experience dilution of your ownership interests because of the future issuance of additional shares of our common stock or
securities convertible into common stock.
For
the foreseeable future, to finance our operations, including possible acquisitions or strategic transactions, we expect to issue
equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized
to issue an aggregate of 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of March 31, 2020, there
were 38,078,062 shares of common stock outstanding, 23,501,050 shares underlying warrants with a weighted average exercise price
of $1.675 per share and 2,751,838 shares underlying options with a weighted average exercise price of $2.83 per share. We may
also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock
in connection with hiring or retaining employees, or for other business purposes. The future issuance of any such additional shares
of common stock or common stock equivalents may create downward pressure on the trading price of our common stock.
The
common stock is controlled by insiders.
As
of March 31, 2020, our executive officers and directors beneficially owned approximately 45.9% of our outstanding shares of common
stock. Such concentrated control of our company may adversely affect the price of our common stock. If you acquire common stock,
you may have no effective voice in the management of our company. Sales by our directors and executive officers or their affiliates,
along with any other market transactions, could adversely affect the market price of our common stock.
We
do not intend to pay dividends for the foreseeable future.
We
have paid no dividends on our common stock to date and we do not anticipate that any dividends will be paid to holders of our
common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs
of the business, it is currently anticipated that any future earnings will be retained to finance our future expansion and for
the implementation of our business plan. The lack of a dividend can further affect the market value of our stock, and could significantly
affect the value of any investment in our company.
Our
Certificate of Incorporation allows for our Board of Directors to create new series of preferred stock without further approval
by our stockholders, which could adversely affect the rights of the holders of the common stock.
Our
Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock and to fix and determine the relative
rights and preferences of any such preferred stock without further stockholder approval. As a result, our Board of Directors could
authorize the issuance of one or more series of preferred stock that would grant preferential rights to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption
of the preferred shares, together with a premium, prior to the redemption of the common stock. In addition, our Board of Directors
could authorize the issuance of a series of preferred stock that has greater voting power than the common stock or that is convertible
into our common stock, which could decrease the relative voting power of the common stock or result in dilution to our existing
stockholders.