Item 1. Business.
When used in this report, the terms, “we,”
the “Company,” “our,” and “us” refers to Neurotrope, Inc., a Nevada corporation (“Neurotrope”),
and its subsidiary Neurotrope Bioscience, a Delaware corporation (“Neurotrope BioScience”).
Overview
We are a biopharmaceutical company with
product candidates in pre-clinical and clinical development. Neurotrope BioScience began operations in October 2012. We are principally
focused on developing a product platform based upon a drug candidate called bryostatin for the treatment of Alzheimer’s disease
(“AD”), which is in the clinical testing stage. We are also developing bryostatin for other neurodegenerative or cognitive
diseases and dysfunctions, such as Fragile X and Niemann-Pick Type C, which are in pre-clinical testing. Neurotrope has been
a party to a technology license and services agreement with the original Blanchette Rockefeller Neurosciences Institute (“BRNI”)
(which has been known as Cognitive Research Enterprises, Inc. (“CRE”) since October 2016), and its affiliate NRV II,
LLC, which we collectively refer to herein as “CRE,” pursuant to which we have an exclusive non-transferable license
to certain patents and technologies required to develop our proposed products. Neurotrope BioScience was formed for the primary
purpose of commercializing the technologies initially developed originally by BRNI for therapeutic applications for AD or other
cognitive dysfunctions. These technologies have been under development by BRNI since 1999 and, until March 2013, had been financed
through funding from a variety of non-investor sources (which include not-for-profit foundations, the National Institutes of Health,
which is part of the U.S. Department of Health and Human Services, and individual philanthropists). From March 2013 forward, development
of the licensed technology has been funded principally through Neurotrope BioScience in collaboration with CRE.
According to the Alzheimer’s Association,
an estimated 47 million people worldwide had AD or another form of dementia, in 2017. The prevalence of AD is independent of race,
ethnicity, geography, life style and, to a large extent, genetics. The most common cause of developing AD is old age. In developing
countries, where the median age of death is less than 65 years old, AD is rarely recognized or diagnosed. In the U.S., an estimated
5.5 million people were estimated to have AD in 2017, and over 96% of these people were older than 65 years of age.
Researchers have explored and continue
to explore a wide range of drug mechanisms in hopes of developing drugs to combat AD. We believe that our approach, which involves
the activation of an enzyme called protein kinase C epsilon (“PKCε”), represents a novel mechanism in potential
AD drug therapies. Bryostatin-1, our lead PKC epsilon activator, has in animal studies demonstrated potential for multi-modal efficacies:
prevention of neuronal death, generation of new synaptic networks, anti-amyloid oligomers and plaques, anti-tau and neurofibrillary
tangles, and cognitive enhancement.
CRE conducted an expanded access program,
formerly known as compassionate use, of bryostatin-1 in patients with advanced AD. Five patients were treated, four of which were
treated under an Investigational New Drug Application (“IND”), cleared by the U.S. Food and Drug Administration (the
“FDA”). The IND was initially held by CRE and was transferred to Neurotrope on February 4, 2015. One of these patients,
who had familial AD, died, but the death was not drug-related. Treatment of another one of these patients concluded after almost
one year on the protocol. We have provided limited funding, study drug, and personnel support under the terms of our agreement
with CRE for the expansion of our clinical effort in AD during the 2017 timeframe.
Results of Phase 2 Clinical Trial
On May 1, 2017, we reported certain relevant
top-line results from our Phase 2 exploratory clinical trial based on a preliminary analysis of a limited portion of the complete
data set generated. A total of 147 patients were enrolled into the study; 135 patients in the mITT population and 113 in the Completer
population. This study was the first repeat dose study of bryostatin-1 in patients with late stage AD (defined as a Mini Mental
State Exam 2 (“MMSE-2”) of 4-15), in which two dose levels of bryostatin-1 were compared with placebo to assess safety
and preliminary efficacy (p < 0.1, one-tailed) after 12 weeks of treatment. The pre-specified primary endpoint, the Severe Impairment
Battery (the “SIB”) (used to evaluate cognition in severe dementia), compared each dose of bryostatin-1 with placebo
at Week 13 in two sets of patients: (1) the modified intent-to-treat (the “mITT”) population, consisting of all patients
who received study drug and had at least one efficacy/safety evaluation, and (2) the Completer population, consisting of those
patients within the mITT population who completed the 13-week dosing protocol and cognitive assessments.
These announced top-line results indicated
that the 20 µg dose, administered after two weekly 20 µg doses during the first two weeks and every other week thereafter,
met the pre-specified primary endpoint in the Completer population, but not in the mITT population. Among the patients who completed
the protocol (n = 113), the patients on the 20 µg dose at 13 weeks showed a mean increase on the SIB of 1.5 vs. a decrease
in the placebo group of -1.1 (net improvement of 2.6, p < 0.07), whereas, in the mITT population, the 20 µg group had
a mean increase on the SIB of 1.2 vs. a decrease in the placebo group of -0.8 (net improvement of 2.0, p < 0.134). At the pre-specified
5 week secondary endpoint, the Completer patients in the 20 µg group showed a net improvement of 4.0 SIB (p < 016), and
the mITT population showed a net improvement of 3.0 (p< ,056).Unlike the 20 µg dose, there was no therapeutic signal observed
with the 40 µg dose.
The Alzheimer Disease Cooperative Study
Activities of Daily Living Inventory Severe Impairment version (ADCS-ADL-SIV) was another pre-specified secondary endpoint. The
p values for the comparisons between 20 µg and placebo for the ADCS-ADL endpoint at 13 weeks were 0.082 for the Completers
and 0.104, for the mITT population.
Together, these initial results after preliminary
analysis of this exploratory trial, indicated that bryostatin-1, at the 20 µg dose, caused sustained improvement in important
functions that are impaired in patients with moderate to severe Alzheimer’s disease i.e., cognition and the ability to care
for oneself. Since most of the patients in this study were already taking donepezil and/or memantine, the efficacy of bryostatin-1
was evaluated in the Top Line results over and above the standard of care therapeutics.
The safety profile of bryostatin-1 20 µg
was minimally different from the placebo group except for a higher incidence of diarrhea and infusion reactions (11% versus 2%
for diarrhea and 17% versus 6% for infusion reactions). Fewer adverse events were reported in patients in the 20 µg group,
compared to the 40 µg group. Patients dosed with 20 µg had a dropout rate less than or identical to placebo, while
patients dosed at 40 µg experienced poorer safety and tolerability, and had a higher dropout rate. Treatment emergent adverse
events (TEAEs) were mostly mild or moderate in severity. TEAEs, including serious adverse events, were more common in the 40 µg
group, as compared to the 20 µg and placebo groups. The mean age of patients in the study was 72 years and similar across
all three treatment groups.
Following presentation of the top line
results in July 2017 at the Alzheimer’s Association International Conference in London, a much more extensive analysis
of a more complete set of the Phase 2 trial data was conducted.
On January 5, 2018, we announced that a
post-hoc analysis of a comprehensive data set from our recent Phase 2 trial in patients with advanced Alzheimer’s disease
(AD) found evidence of sustained improvement in cognition in patients receiving the 20 μg bryostatin regimen. In addition, patients
who did not receive memantine, an approved AD treatment, as background therapy showed greater SIB improvement. These findings suggested
that this investigational drug could potentially treat Alzheimer’s disease itself and help reduce and/or reverse the progression
of AD, rather than only alleviate its symptoms.
The comprehensive follow-on analysis found
that patients in the 20 μg treatment arm showed a sustained improvement in cognition over baseline compared to the placebo group
at week 15 (30 days after last dose at week 11). These data were observed in the study population as a whole.
The follow-on analysis of the data evaluated
SIB scores of patients at 15 weeks, 30 days after all dosing had been completed – a pre-specified exploratory endpoint. For
the 20 μg group, patients in the mITT population (n=34) showed an overall improvement compared to controls (n=33) of 3.59 (
p
=0.0503)
and in the Completers population (n=34) showed an overall improvement compared to controls (n=33) of 4.09 (
p
=0.0293). In
summary, patients on the 20 μg dose showed a persistent SIB improvement 30 days after all dosing had been completed. These p-values
and those below are one-tailed.
Additional analyses compared 20 µg
dose patients who were on baseline therapy of Aricept vs. patients off Aricept. No significant differences were observed. Another
analysis compared the 20 µg dose patients who were on or off baseline therapy of memantine. Post-hoc analysis comparing SIB
scores in non-memantine versus memantine patients found the following:
|
·
|
At week 15, non-memantine patients in the mITT Group treated with 20 μg (n=14) showed an SIB improvement of
5.88,
while the placebo patients (n=11) showed a decline in their SIB scores of
-
0.05
for an overall treatment
Δ of 5.93
from baseline (
p
=0.0576).
|
|
·
|
At week 15, non-memantine patients in the Completers Group treated with 20 μg (n=14) showed an SIB improvement of
6.24,
while the placebo patients (n=11) showed a decline in their SIB scores of
-
0.12
for an overall treatment
Δ of 6.36
from baseline
(p=0.0488)
.
|
|
·
|
Patients taking memantine as background therapy in the 20 μg (n=20) and control (n=22) groups showed no improvement
in SIB scores.
|
Memantine, an NMDA receptor
antagonist, is marketed under the brand names Namenda®, Namenda® XR, and Namzaric® (a combination of memantine and
donepezil) for the treatment of dementia in patients with moderate-to-severe AD. It has been shown to delay cognitive decline and
help reduce disease symptoms.
Neurotrope is planning a replication trial
for the safe, effective 20 μg dose protocol for advanced AD patients not taking memantine as background therapy to evaluate
improvements in SIB scores with an increased number of patients. We are in discussions with investigators at leading academic institutions
to collaborate on the design and conduct of the next trial, which is expected to begin in the first half of 2018.
To the extent resources permit, we intend
to pursue development of selected technology platforms with indications – such as Fragile X disease - related to the treatment
of AD and other neurodegenerative disorders based on our current licensed technology and / or technologies available from third
party licensors or collaborators.
Financings to Date
In February 2013, through a private placement,
Neurotrope BioScience issued 9,073,300 shares of its Series A convertible preferred stock (“Neurotrope BioScience Series
A Stock”), at $1.00 per share, resulting in gross proceeds of $9,073,300. In May 2013, Neurotrope BioScience issued an additional
1,313,325 shares of Neurotrope BioScience Series A Stock at $1.00 per share, resulting in gross proceeds of $1,313,325. In August
2013, Neurotrope BioScience issued 11,533,375 of Neurotrope BioScience Series A Stock at $1.00 per share, resulting in gross proceeds
of $11,533,375. All of the outstanding shares of Neurotrope BioScience Series A Stock were converted on a one-for-one basis into
shares of Neurotrope, Inc.’s Series A convertible preferred stock, par value $0.0001 per share (“Series A Stock”),
in connection with the Reverse Merger (as defined below) in August 2013. In October 2013, we issued 1,080,000 additional shares
of our Series A Stock at $1.00 per share, resulting in gross proceeds of $1,080,000, for a total of $23,000,000 of gross proceeds
raised between February and October 2013.
In a November 2015 private placement, we
sold units consisting of our Series B convertible preferred stock, par value $0.0001 per share (the “Series B Stock”),
together with Series A warrants to purchase shares of our common stock (“Series A Warrants”), Series B warrants to
purchase shares of our common stock (“Series B Warrants”), Series C warrants to purchase shares of our common stock
(“Series C Warrants”), Series D warrants to purchase shares of our common stock (“Series D Warrants”) and
Series E warrants to purchase shares of our common stock (“Series E Warrants” and, together with the Series A Warrants,
Series B Warrants, Series C Warrants and Series D Warrants, the “Series A-E Warrants”), and certain placement agent
warrants, resulting in gross proceeds of $15,640,963 (the “November 2015 Private Placement”). The private placement
was completed in two closings, which took place on November 13, 2015 and November 30, 2015. In connection with this private placement,
effective as of November 13, 2015, the holders of all 16,656,894 shares of our Series A Stock converted their shares into 620,781
shares of our common stock, which included 100,253 shares of our common stock issued in accordance with anti-dilution rights of
the Series A Stock.
In a November 2016 private placement, we
sold 3,828,754 shares of common stock and warrants to purchase an equivalent number of shares of our common stock, with an exercise
price of $12.80 per share (subject to adjustment), for a period of five years from the date of issuance (the “Series F Warrants”),
at a purchase price of $6.40 per share of common stock and Series F Warrant, resulting in gross proceeds of approximately $24.5
million (the “November 2016 Private Placement”). The private placement was completed in two closings, which took place
on November 17, 2016 and November 22, 2016.
In connection with the November 2016 Private
Placement, on November 17, 2016, we filed with the Secretary of State of the State of Nevada an Amendment to our Certificate of
Designations, Preferences and Rights of Series B Preferred Stock (the “Series B COD Amendment”), originally filed November
13, 2015 with the Secretary of State of the State of Nevada, as corrected by the Certificate of Correction filed November 19, 2015
with the Secretary of State of the State of Nevada (as so corrected, the “Certificate of Designation”). The Series
B COD Amendment (i) provided that the Company’s entry into a binding securities purchase agreement, by and among the Company
and the investors signatory thereto, in connection with a private placement of the Company’s common stock and warrants, that
results in at least $8,000,000 of aggregate gross proceeds to the Company (a “Private Placement”), shall result in
the automatic conversion of the Company’s Series B Stock into shares of the Company’s common stock at a conversion
price of $18.56 immediately prior to the initial closing of the Private Placement with aggregate gross proceeds to the Company
of at least $8,000,000 and (ii) amended the definition of “Excluded Securities” to include the issuance of the Company’s
common stock and warrants issued in any Private Placement. As a result of the November 2016 Private Placement, all of the issued
and outstanding shares of Series B Stock were converted into an aggregate of 825,962 shares of our common stock on November 17,
2016. The Series B COD Amendment was approved by the “Required Holders” as defined in the Certificate of Designation.
As a result of the mandatory conversion of the Series B Stock, the anti-dilution protection for dilutive issuances in the Series
A Warrants, the Series C Warrants and the Series E Warrants ceased to be effective pursuant to the terms of such warrants.
Pursuant to the purchase agreement entered
into in connection with November 2016 Private Placement, we agreed to reduce the exercise prices of certain of our outstanding
warrants to purchase shares of common stock that were issued in connection with the November 2015 Private Placement. Effective
as of November 18, 2016, the exercise price of each of the Series A Warrants and the Series C Warrants was reduced to $0.32 per
share and the exercise price of the Series E Warrants was reduced to $32.00 per share, in each case subject to adjustment as provided
in such Warrants.
In connection with the November 2016 Private
Placement, pursuant to a Placement Agency Agreement, dated October 13, 2016 (the “Placement Agency Agreement”), among
the Company, Katalyst Securities LLC (“Katalyst”) and GP Nurmenkari Inc. (“GP Nurmenkari,” and, together
with Katalyst, the “Placement Agents”), we agreed to pay the Placement Agents (i) a cash fee at each closing under
the purchase agreement equal to ten percent (10%) of each closing’s gross proceeds and (ii) warrants to purchase shares of
common stock at each closing under the purchase agreement equal to ten percent (10%) of the number of shares of common stock sold
in each closing, with an exercise price of $6.40 per share and a five-year term (the “Broker Warrants”). Such Warrants
became exercisable when our stockholders approved an amendment to our Articles of Incorporation to increase the number of authorized
shares and such amendment was filed in Nevada, which occurred on February 24, 2017.
Under the Placement Agency Agreement, we
agreed to amend certain warrants previously issued to the Placement Agents. Immediately following the receipt of at least $8,000,000
of gross proceeds as part of the November 2016 Private Placement, the exercise price of the 70,119 unexercised placement agent
Series B Warrants and/or broker warrants issued by the Company as placement agent compensation to Katalyst, their registered representatives
and designees, assignees or successors in interest, in connection with the Company’s completed financing in November 2015
(collectively, the “Series B Broker Warrants”), was reduced to $0.32 per share of common stock, provided that the Series
B Broker Warrants that have their exercise price reduced shall not be exercisable for six months from the date of the initial closing
under the purchase agreement. Additionally, immediately following the receipt of at least $10,000,000 of gross proceeds as part
of the November 2016 Private Placement, the exercise price of the 41,416 unexercised placement agent Series A Warrants and/or broker
warrants issued by the Company as placement agent compensation to EDI Financial, Inc., Katalyst, their registered representatives
and designees, assignees or successors in interest, in connection with the Company’s completed financings in 2013 (collectively,
the “Series A Broker Warrants”) shall be reduced to $0.32 per share of common stock, provided that the Series A Broker
Warrants that have their exercise price reduced shall not be exercisable for one year from the date of the initial closing under
the purchase agreement. Accordingly, the exercise price of the Series A Broker Warrants and the Series B Broker Warrants has been
reduced to $0.32 per share of common stock as of November 23, 2016.
Organizational History
We were incorporated as BlueFlash Communications,
Inc. in Florida on January 11, 2011. Prior to the Reverse Merger (as defined below) and Split-Off (as defined below), our business
was to provide software solutions to deliver geo-location targeted coupon advertising to mobile internet devices.
On August 9, 2013, we reincorporated in
the State of Nevada by merging into a newly-formed special-purpose subsidiary, Neurotrope, Inc., which was incorporated on June
13, 2013, and was the surviving corporation in such reincorporation merger, or the Reincorporation Merger. As a result of the Reincorporation
Merger, (i) we changed our name to Neurotrope, Inc. and (ii) we changed our jurisdiction of incorporation from Florida to Nevada.
On August 23, 2013, our wholly-owned subsidiary,
Neurotrope Acquisition, Inc., or Acquisition Sub, a corporation formed in the State of Nevada on August 15, 2013 merged with and
into Neurotrope BioScience, a corporation incorporated in the State of Delaware on October 31, 2012. Neurotrope BioScience was
the surviving corporation in the merger, or the Reverse Merger, and became our wholly-owned subsidiary. All of the outstanding
shares of Neurotrope BioScience common stock, (“Neurotrope BioScience Common Stock”), were converted into shares of
our common stock, par value $0.0001 per share, and all of the outstanding shares of Neurotrope BioScience Series A Stock were converted
into shares of our Series A Stock, in each case on a one-for-one basis.
In connection with the Reverse Merger and
pursuant to a split-off agreement (the “Split-Off”), we transferred our pre-Reverse Merger business to Marissa Watson,
our pre-Reverse Merger majority stockholder, in exchange for the surrender and cancellation of certain shares of our common stock
owned by her.
As a result of the Reverse Merger and Split-Off,
we discontinued our pre-Reverse Merger business and acquired the business of Neurotrope BioScience. Following the Reverse Merger
and Split-Off, we have undertaken the business operations of Neurotrope BioScience as a publicly-traded company under the name
Neurotrope, Inc., through Neurotrope BioScience, which is now our wholly-owned subsidiary.
In accordance with “reverse merger”
accounting treatment, our historical financial statements as of period ends, and for periods ended, prior to the Reverse Merger
were replaced with the historical financial statements of Neurotrope BioScience prior to the Reverse Merger in all applicable filings
with the Securities and Exchange Commission (the “SEC”).
On January 11, 2017, we effected a 1-for-32
reverse stock split of our shares of common stock. As a result of the reverse stock split, every thirty-two (32) shares of our
pre-reverse split common stock was combined and reclassified into one share of common stock. All references to common shares have
been retroactively adjusted to reflect the reverse stock split. In addition, our pre-reverse split 400,000,000 authorized shares
of common stock was proportionately reduced to 12,500,000 authorized shares of common stock as a result of the reverse stock split.
On February 24, 2017, we increased our
authorized common stock to 150,000,000 shares.
AD and the Potential Market for our
Products
The Epidemic of AD
According to the Alzheimer’s Association,
it has been estimated that 47 million people worldwide had AD, or other forms of dementia, in 2017. The prevalence of AD is independent
of race, ethnicity, geography, lifestyle and, to a large extent, genetics. The most common cause of developing AD is living a long
life. In developing countries where the median age of death is less than 65 years old, AD is rarely recognized or diagnosed. In
the United States in 2017, 5.5 million people are estimated to have AD, and approximately 96% of these people are older than 65
years of age.
Researchers continue to explore a wide
range of drug mechanisms in hopes of developing drugs to combat this disease.
Figure 1
illustrates the range of
mechanisms under consideration. Our approach, which involves the activation of the enzyme PKCε, represents a novel mechanism
in the armamentarium of potential AD drug therapies.
Figure 1. Different Pharmacologic Targets
being pursued for the Treatment of AD
1
It has been shown that, during several
years preceding the diagnosis of dementia associated with AD, there can be gradual cognition decline, which at first may have rather
benign characteristics. At this stage, known as mild cognitive impairment (“MCI”), 60% of these patients will convert
to early AD. In MCI, there can already be significant loss of synapses (the junctions between nerve cells) and compromised release
of the chemical messengers onto their post-synaptic targets
1
.
MCI, therefore, can transition into mild, moderate and, finally, severe stages of Alzheimer’s disease that are characterized
by greater systemic loss of neurons and synapses in the brain tissue. Multiple failures in acetylcholine and glutamate neurotransmitter
systems (neurotransmitters) may cause some of the symptoms of early AD, and thus these systems have become targets for pharmacologic
intervention.
In MCI and early AD, the amyloid load in
the brain may or may not increase while the symptoms of early AD begin to occur. Loss of neurons and synaptic networks can be accompanied
by abnormal processing of β amyloid (“Aβ”) peptide, causing elevation of the soluble Aβ oligomers, eventually
leading to the formation of Aβ plaques (protein deposits) in the brain.
The conventional amyloid cascade hypothesis
holds that amyloid pathology leads to hyperphosphorylated tau proteins (a protein found in nerve cells) being deposited within
neurons in the form of insoluble tangles, excitotoxicity (overstimulation of nerve cells by neurotransmitters), inflammation and
finally synaptic depletion and neuronal death. Other hypotheses suggest that AD begins earlier with dysfunctional tau metabolism
– independent of amyloid levels. However, the majority of drug development efforts during the past two decades have focused
on stopping the production of Aβ or its fragments, and the elimination of these peptides from either intracellular or extracellular
locations has represented the preponderance of drug design efforts to halt the progression of AD. However, these efforts have been
largely unsuccessful.
We believe the current failures of therapies
clearing formed amyloid plaques come from an incomplete view of the process. In our view, amyloid plaques and the tau-based neurofibrillary
tangles are pathologic hallmarks of AD, but cognitive deficits and synaptic loss can often occur in AD patients in the absence
of amyloid plaques. We believe the appearance of these plaques and tangles is not necessarily linked to the death of neurons or
synapses, and that the elimination of the plaques does not restore cognitive function as already demonstrated in extensive clinical
testing with pathologic correlates. However, we believe that the soluble amyloid pre-plaque oligomers, through their toxicity to
synapses and neurons, are important in the progression of the disease.
1
Business Insights: Reference Code B100040-005, Publication Date May 2011, “Advances in AD Drug Discovery”
In animal studies, the scientific team
led by our Chief Scientific Officer, Dr. Alkon, at the Blanchette Rockefeller Neurosciences Institute, or BRNI (now known CRE)
found that PKCε activation in neurons targets the loss of synapses in the brains of animals with AD, and can delay or temporarily
arrest other elements of the disease, i.e. the elevation of the toxic Aβ peptide, the loss of neurons, the appearance of plaques
and tangles, and the loss of cognitive function.
Potential Market for Our Products
According to an article titled “Progress
in AD” published in The Journal of Neurology in 2012, there has been a dearth of new product introductions in the last 20
years either for the treatment of AD symptoms or its definitive diagnosis in patients who begin exhibiting the memory and cognitive
disorders associated with the disease. According to the Alzheimer’s Association, all of the products introduced to date for
the treatment of AD have yielded negative or marginal results with no long-term effect on the progression of AD and no improvement
in the memory or cognitive performance of the patients receiving these therapies. With 36 million people worldwide estimated to
have had AD in 2015, there is significant commercial potential for a new therapeutic that is effective in delaying the progression
of the disease.
We believe the markets for drugs or therapies
to treat the underlying pathology of AD exist largely, but not exclusively, in the developed world and principally comprise the
North American, European and Japanese markets. The aggregate AD market is subdivided into four distinct segments, which are shown
in
Figure 2
, as are the compounded annual growth rates (“CAGRs”) for these segments over the 2013-2023
timeframe.
Sales of the major drug therapies available
only by prescription are reported and projected in
Figure 2.
These drugs are approved for the symptomatic
treatment of the cognitive aspects of AD, but have no meaningful effect on disease progression, causing only temporary improvement
in cognitive decline. Despite their limited efficacy, this group of drugs had collective worldwide sales in 2013 in excess of approximately
$5 billion, according to GlobalData, Pharma eTrack.
Figure 2. Global Market for AD Therapeutics
($, billions): 2013-2023
2
Region
|
|
2013
|
|
|
2023
|
|
|
10 Year CAGR%
2013-23
|
|
US
|
|
|
2.4
|
|
|
|
7.6
|
|
|
|
12.2
|
|
European Union (5)
|
|
|
0.6
|
|
|
|
1.1
|
|
|
|
6.3
|
|
Japan
|
|
|
1.2
|
|
|
|
2.1
|
|
|
|
5.7
|
|
China and India
|
|
|
0.9
|
|
|
|
1.3
|
|
|
|
3.7
|
|
Total
|
|
|
5.1
|
|
|
|
12.1
|
|
|
|
9.2
|
|
The “Therapeutics for Treatment of
Symptoms” category cited in
Figure 2
represents drugs from other classes that are being used to temporarily
treat some of the symptoms of AD.
2
Neurotrope’s Proposed Products
Challenges in Treating AD
One of the challenges in treating AD is
that its symptoms become manifest only years after the disease process can be definitely diagnosed. Treatment strategies attempting
to intervene once symptoms become more apparent are focused on stimulating the neurotransmitter activity of still healthy neurons,
or removing the amyloid plaque deposited in the brain. All drug development efforts to date that have targeted the removal of beta-amyloid
or tau protein as their therapeutic mechanism of action have failed, and drugs approved for stimulating neurotransmitter activity
offer short-lived, palliative results for AD patients. As such, these strategies have yielded negative or marginal results with
no effect on the progression of AD and no improvement in the memory or cognitive performance of the patients receiving these therapies.
2
GlobalData, Pharma eTrack [Accessed October 25, 2014].
Dying neurons and synapses have, to date,
not been therapeutic targets for restoration, and many in the AD field currently believe that stemming the progression of the disease
may only be possible with very early stage intervention. The FDA is encouraging the pharmaceutical industry to increase efforts
to investigate such early stage interventional treatments by recommending that modified clinical endpoints, both functional and
cognitive, be established to monitor the efficacy of drug prototypes being tested in early stage AD patients, according to an article
published in The New England Journal of Medicine.
3
In contrast, we believe that our data from
various preclinical animal models and compassionate use trials demonstrates that activation of PKCε in central nervous
system neurons improves neuronal vitality and function in areas of the brain damaged by AD, potentially resulting in the improvement
of memory and cognition.
Synaptogenesis
We believe that deficient activity or low
concentrations of PKCε in aging subjects is one of the main causes of the neurodegeneration seen in AD. The schematic in
Figure
3
illustrates only a portion of the changes mediated by PKCε, and how it may help reverse the neuronal damage
and loss central to the pathogenic process in AD.
Figure 3. PKCε Activation Involves
5 Different Mechanisms to Stop the Progression of AD
3
NEJM.org: The New England Journal of Medicine, March 15, 2013, page 1: Drug Development of Early AD, N. Kozauer, M.D., and Russell
Katz, M.D.
Activation of PKCε has been achieved
with drug prototypes that mimic the activity of diacylglycerol and phosphatidylserine, which are the natural binding targets for
this enzyme. In addition, a variety of in vitro and in vivo animal models have demonstrated that these drug prototypes are effective
in restoring the structure and function of neuronal synapses. Our first clinical application of the PKCε activators is
focused on the treatment of AD, but a number of other neurodegenerative diseases may be amenable to similar treatment. A list of
these potential future drug targets is shown in
Figure 4
.
Figure 4. Therapeutic targets for neuroregeneration
through PKCε activation
Treatment of AD by Stimulating Synaptic
Regeneration and Prevention of Neuronal Death
Dr. Alkon’s team at BRNI (now known
as CRE) conducted research in synaptic regeneration and the prevention of neuronal death, outside the conventional wisdom that
has dominated research efforts in the industry. The pathology of AD likely has multiple layers in its development, in addition
to the presence of tau phosphorylated tangles and Aβ oligomers. However, once this process presents clinical manifestations
of AD, restoring synaptic function thus far has not been effectively achieved by removing Aβ plaques with experimental drug
interventions. Once neurons undergo toxic changes with soluble Aβ oligomers, the loss of function to the patient has been
irreversible.
CRE’s and Neurotrope’s approach
has been to restore general viability and hence synaptic function in still-functioning neurons by stimulating the regeneration
and growth of the dendritic branches, spines, and pre-synaptic terminals on these neurons. (Dendrites are the branched projections
of a neuron that act to propagate the electrochemical stimulation received from other neural cells.) This process can be visualized
with serial sections visualized by the electron microscope in the brains of rats whose neurons and synapses have been damaged by
ischemic shock (depriving oxygen) or traumatic injury to the brain. The morphology of the damaged neurons in these animal models
looks strikingly different after they are treated with experimental drugs that activate PKCε. The new growth of dendritic
trees on the damaged neurons creates a multiplicity of new synaptic connections, basically re-wiring the damaged neurons and restoring
their function. Earlier therapeutic intervention with a PKCε activator produces markedly improved outcomes in tests measuring
restored animal cognitive function.
PKCε Activation Stimulates
the Formation of New Synaptic Connections
The new synaptic connections formed from
the damaged neurons revitalized by PKCε in rats can be demonstrated in various behavioral models for the animals that are
used to measure memory functions. Treatment with bryostatin, for 12 weeks in genetically modified rodents pre-disposed to develop
an AD-type of pathology showed that bryostatin promoted the growth of new synapses and preserved the existing synapses. In addition,
this drug also reversed the decrease of PKCε and the reciprocal increase of soluble amyloid.
4
In cell tissue cultures, there is a difference
in morphology between neurons damaged by the application of ASPD (soluble oligomers of Aβ) as compared to synapses rejuvenated
by the application of bryostatin. Treatment with bryostatin, through PKCε activation, stimulates the revitalization of
neurons and the formation of new synaptic connections.
The Central Role of PKCε in Maintaining Neuron
Structure and Function
Upon activation, PKCε migrates
from the intraneuronal cytoplasm to the cell membrane, where it activates signal-regulating enzymes (specifically the m-RNA stabilizing
protein, HUD, and downstream growth factors such as BDNF, NGF, IGF, etc.; MAP kinases Erk1/2; the BCl-2 apoptosis cascade; and
NF-κβ), causing a series of changes leading to increased DNA transcription, synaptic maturation, a consequent increase
in levels of growth factor proteins (such as nerve growth factor and brain-derived neurotrophic factor), an inhibition of programmed
cell-death and a reduction of β amyloid, and hyperphosphorylated tau.
This myriad of events is orchestrated by
PKCε, and prompts a number of secondary events occurring in both the pre- and post-synaptic portions of the neuron. Cellular
visualization of this effect shows an increase in the number of pre-synaptic vesicles in the neurons, an increase in pre-synaptic
levels of PKCε and an increase in the number of mushroom spines associated with individual synaptic boutons (knoblike enlargements
at the end of a nerve fiber, where it forms a synapse). Their genesis in these neurons is responsible for the formation of new
synapses during associative learning and memory, and for regeneration of synaptic networks in pre-clinical models of Alzheimer’s
disease, stroke, traumatic brain injury, and Fragile X mental retardation.
The central role of PKCε activation
in these dynamic events expands the amyloid and tau hypotheses for AD by including pathways to restore the synaptic networks lost
during neurodegeneration and to prevent further loss. This mechanistic framework offers new targets for therapeutic intervention
which not only prevent the formation of tangles and plaque, but also prevents neuronal death, and promotes the induction of new,
mature synaptic networks.
Decreased amyloid formation from PKCε
activation results from an increase in the rate of Aβ degradation by ECE (endothelin converting enzyme) and induction of α-secretase
cleavage of amyloid precursor protein (the precursor molecule to Aβ) through phosphorylation of an enzyme known as Erk. In
rodent models genetically predisposed to forming large amounts of amyloid deposits in their brains, PKCε activation was
found to interrupt the ongoing formation of amyloid, suggesting that this approach may delay the progression of AD.
The key to CRE’s innovation in this
area has been in identifying highly potent drug prototypes that at low concentrations cause the specific and transient activation
of PKCε, without interacting with the other isozyme variants of PKC whose inactivation would negate the synaptogenic properties
of the e isoform.
Testing PKCε Activation in
Humans
The basic drug mechanism invoking PKCε
activation for neuronal rejuvenation and synaptic regeneration has never been evaluated in humans for any drug class or therapeutic
application. We believe that the pre-clinical and clinical research in this field as described above is an ideal platform for testing
this approach in human subjects.
4
Journal of Neuroscience 2011, 31 (2), 630, D. Alkon et al.
We have licensed a body of biomedical research
from CRE, formerly known as the Blanchette Rockefeller Neurosciences Institute, or BRNI, that is comprised of new methods and drug
prototypes designed to stimulate neuronal regeneration. For additional information, see “Business – Intellectual Property
–
Technology License and Services Agreement.” We believe the commercial application of this technology
has potential to impact AD as well as traumatic brain injury, ischemic stroke, post-traumatic stress syndrome and learning disorders.
Drug Prototypes That Treat AD through
Regeneration
CRE has developed a new chemical family
of polyunsaturated fatty acid (“PUFA”) analogs, which appear to be effective in the activation of PKCε. Representative
structures of bryostatin and a lead PUFA analog are shown in
Figure 5
.
Figure 5. Structures of Bryostatin 1
and a PUFA Analog Effective in the Activation of PKCε
5
Ki values = effective concentration of the
drug in achieving 50% activation of PKCε
These molecules activate PKCε by
binding to two different and distinct active sites on the enzyme. The natural ligands that bind to these sites are diacylglycerol
and phosphatidylserine. Bryostatin acts as a mimetic (mimic) for diacylglycerol by binding to the diacylglycerol site and, similarly,
the PUFA analogs act as mimetics for phosphatidylserine by binding to the phosphatidylserine site.
Part of the hierarchal array of in vitro
and in vivo tests useful in optimizing the potency of our potential drug prototypes is displayed in
Figure 6
.
5
Trends in Biochemical Sciences V. 34, #3, p.136. T.J. Nelson et al, “Neuroprotective versus Tumorigenic protein kinase C
activators.”
Figure 6. Optimization of PKCε
Activation Effects in Lead Drug Candidates: Array of in vitro and in vivo Test Models
Bryostatin
Our lead product candidate is bryostatin.
Bryostatin is a natural product isolated from a marine invertebrate organism, a bryozoan called
Bugula neritina
. Several
total syntheses of this complex molecule have been achieved in recent years in various academic chemistry laboratories, and these
approaches represent a possible alternative source of this drug. Importantly, we have now obtained an exclusive license for neurologic
disorders to a new, accelerated synthesis of bryostatin-1 recently developed at Stanford University by Dr. Paul Wender and his
team. Bryostatin is a PKCα and
e
activator that was originally developed
as a potential anticancer drug. According to Clinical Cancer Research, this drug candidate was previously evaluated in 63 clinical
studies involving more than 1,400 patients at the National Cancer Institute (“NCI”) for the treatment of various forms
of cancer. While having failed these studies as an experimental anti-cancer therapy, much useful information on the safety, pharmacodynamics
and toxicity of the drug was obtained from these in-human trials. In general, bryostatin-1 was considered to be “well-tolerated”
in these anti-cancer trials.
It was discovered that at doses at the
lower levels than those used in these anticancer trials, bryostatin is a potent activator of PKCε and may have efficacy
in treating AD. As described above, activation of PKCε has now been shown to partially restore synaptic function in neurons
damaged by AD in in vitro and in vivo animal models.
The NCI has entered into a material transfer
agreement with CRE to provide the bryostatin required for pre-clinical research as well as the Phase 2 clinical trials planned
by the Company. The clinical material transfer agreement specifies that CRE retains all of the bryostatin intellectual property.
Our license agreement with CRE (see “Business – Intellectual Property –
Technology License and Services
Agreement”) permits our access to new bryostatin clinical trial data and information held by the NCI, as well as past clinical,
safety and toxicity data compiled by the NCI during the time this drug was being evaluated for its anticancer properties.
See
Item 1A, “Risk Factors—We are partly dependent upon the NCI to supply bryostatin for our clinical trials.”
CRE previously conducted an exploratory
evaluation of bryostatin on a compassionate use basis in AD patients who have an inherited form of AD, frequently called familial
AD, under an FDA-approved study protocol. Familial AD results from one of four major mutations in the genome, and this mutation
is passed on from generation to generation within a family that carries the defective gene. The tragic consequence of familial
AD is that it strikes its victims at an early age, often while they are in their twenties. The aggressive progression of familial
AD can render these patients in the terminal stages of AD in their late 30s and early 40s.
Bryologs
On May 12, 2014, we entered into a license
agreement (the “Stanford License”) with The Board of Trustees of the Leland Stanford Junior University (“Stanford”)
pursuant to which Stanford has granted to us a revenue-bearing, world-wide right and exclusive license, with the right to grant
sublicenses (on certain conditions), under three issued U.S. patents and one pending U.S. patent and related technology for the
use of bryostatin structural derivatives, known as “bryologs,” for use in the treatment of central nervous system disorders,
lysosomal storage diseases, stroke, cardioprotection and traumatic brain injury, collectively referred to as the Licensed Field
of Use, for the life of the licensed patents. As mentioned above, in January 2017, we entered into an additional license agreement
with Stanford relating to an accelerated synthesis of bryostatin-1.
Also as mentioned above, our initial drug
candidate, bryostatin, is a natural product isolated from a marine invertebrate organism, a bryozoan called
Bugula neritina
.
However, it takes large quantities of biomass harvested from the oceans to produce even small quantities of bryostatin, and supply
is limited.
Stanford researchers have synthesized a
large family of bryologs over a number of years as part of a research program to define the essential molecular features critical
to bryostatin’s biological activity. The bryologs are easier to produce than bryostatin due to their less complex chemical
structures. They represent a collection of potential drug candidates, some of which we expect to advance to clinical trials for
the treatment of several neurodegenerative diseases such as ischemic stroke, Fragile X Syndrome, traumatic brain injury and AD,
although there can be no assurance that we will be successful in doing so.
We are required by the Stanford License
to use commercially reasonable efforts to develop, manufacture, and sell products (“Licensed Products”) in the Licensed
Field of Use (as defined in the Stanford License). In addition, we must meet specific diligence milestones, and upon meeting such
milestones, make specified milestone payments to Stanford. We will also pay Stanford royalties on net sales, if any, of Licensed
Products (as defined in the Stanford License).
Stanford retains the right, on behalf of
itself and all other non-profit research institutions, to practice the licensed patents and use the licensed technology for any
non-profit purpose, including sponsored research and collaborations. The license is also subject to Title 35, Sections 200-204,
of the United States Code, which governs patent rights in inventions made with U.S. government assistance. Among other things,
these provisions provide the United States government with nonexclusive rights in the licensed patents. They also impose the obligation
that products based on the licensed patents sold or produced in the United States be “manufactured substantially in the United
States.”
PUFA Analogs
Several other drug prototypes termed the
PUFA analogs have been synthesized at CRE and evaluated for their PKCε activating properties in models of AD. The PUFA
analogs are not structurally related to bryostatin and activate PKCε at a different site. We believe the PUFA analogs represent
a potential source for follow-on drug candidates. PKCε activators from the PUFA family of drug prototypes have demonstrated
neuroregeneration efficacy roughly equivalent to and, in some cases, potentially superior to that of bryostatin. If the PUFA analogs
show adequate potency in preclinical models of AD, we would plan to advance a drug prototype from this chemical family.
Other Potential Products
We may acquire, by license or otherwise,
other development stage products that are consistent with our product portfolio objectives and commercialization strategy.
Discontinued Research
We had planned to develop two other lines
of research related to learning and memory disorders: (i) drug prototypes that activate or inhibit the enzyme carbonic anhydrase
to modulate the attention status of animals, which may have had applications for attention deficit disorder and post-traumatic
stress disorder, and (ii) generalizing the application of a blood-brain-barrier delivery system to a variety of drugs through a
contract research service to be offered to other pharmaceutical companies seeking to improve the penetration of their drug prototypes
into the brain.
We have decided, however, to focus our
efforts on neurodegenerative diseases, which are the most advanced programs in our portfolio, and therefore will not be pursuing
either the drug candidate for activating carbonic anhydrase or the blood-brain-barrier delivery system.
We also relinquished rights to the AD diagnostic
system under the terms of the February 2015 SOW (see below).
February 2015 SOW and November 2015
SOW
Effective November 13, 2013, we agreed
to a statement of work with CRE pursuant to which we contracted for the further development of our potential therapeutic product.
Pursuant to this statement of work, we paid CRE $251,939 for related personnel and research services. CRE completed the services
pursuant to this statement of work in 2014. As of March 12, 2014, we entered into a statement of work with CRE to continue pre-clinical
activities relating to the commercialization of our therapeutic product. We paid CRE the entire total pursuant to this statement
of work of approximately $465,000 during the year ended December 31, 2014. CRE completed the services pursuant to this statement
of work in 2014.
On February 4, 2015, we entered into a
Statement of Work and Account Satisfaction Agreement with CRE (the “February 2015 SOW”), which was effective as of
October 1, 2014 and continued until September 30, 2015.
Pursuant to the February 2015 SOW, we agreed,
among other things, to pay CRE $20,000 in quarterly payments during the twelve months from the date of the February 2015 SOW in
exchange for advising and consulting services by CRE’s Scientific Director (our Chief Scientific Officer Dr. Dan Alkon),
regarding our contract with Icahn School of Medicine at Mt. Sinai Hospital for the use of bryostatin in the treatment of Niemann-Pick
Type C disease.
Under the February 2015 SOW, Neurotrope
BioScience also agreed to pay CRE $2,400,000 in service fees and other amounts payable at a rate of $200,000 per month for each
month from October 1, 2014 through September 30, 2015. The parties agreed that the first $600,000 of payments satisfy certain outstanding
amounts owed to CRE. In consideration for the February 2015 SOW, in addition to the terms described above, CRE also agreed to (a)
use commercially reasonable efforts to enroll, at no cost to Neurotrope BioScience, at least four additional compassionate use
or expanded access patients, in trials of CRE’s Alzheimer’s therapeutic drug platform during the term of the February
2015 SOW, (b) perform certain services requested by Neurotrope BioScience for the further development of CRE’s Alzheimer’s
therapeutic drug platform, (c) perform certain services for the further development of CRE’s Alzheimer’s diagnostic
test, (d) to the extent permitted by applicable law, transfer all of its rights and regulatory obligations, except for those relating
to the compassionate use expanded access trials, associated with CRE’s IND 71,276 to Neurotrope BioScience, (e) conduct initial
research on the application of its PKCε platform to treat Fragile X disease, along with various other terms and conditions,
(f) conduct initial research on PUFA derivatives for the purpose of developing a commercially usable PKCε activator and
(g) provide assistance, advice and other similar services to us regarding our analysis of bryologs pursuant to our agreement with
Stanford University, for the purpose of developing a commercially usable PKCε activator. Furthermore, CRE agreed to transfer
a certain amount of bryostatin drug substance and bryostatin kits containing drug substance for non-human use to a third-party
for storage. In order for CRE to perform certain of the services described in (c) above, Neurotrope BioScience reimbursed a third
party for services CRE received from such third party in the amount of $150,000 in connection with CRE’s former diagnostic
trial program with such third party.
Neurotrope Bioscience entered into a new
Statement of Work Agreement on November 12, 2015 (the “November 2015 SOW Agreement”). The November 2015 SOW Agreement
replaced the February 2015 SOW Agreement, which was effective as of October 1, 2014 and expired on September 30, 2015. Pursuant
to the November 2015 SOW Agreement, Neurotrope Bioscience agreed to pay CRE $1,166,666 in service fees payable in the amount of
$83,333 per month for each month from November 1, 2015 through December 31, 2016. The payments under the November 2015 SOW Agreement
satisfied Neurotrope Bioscience’s obligations to reimburse CRE pursuant to Section 5.6 of the CRE License for any and all
attorneys’ fees, translation costs, filing fees, maintenance fees, and other costs and expenses related to applying for,
filing, prosecuting, and maintaining patents and applications for the licensed intellectual property incurred by CRE during the
term of the November 2015 SOW Agreement (but, for the avoidance of doubt, such payments shall not satisfy any attorneys’
fees, translation costs, filing fees, maintenance fees, or other costs or expenses related to applying for, filing, prosecuting,
and maintaining patents and applications for the licensed intellectual property incurred by CRE after the expiration or termination
of the November 2015 SOW Agreement term), as well as any litigation costs which CRE may incur related to any of the licensed intellectual
property during the November 2015 SOW Agreement term. CRE shall not commence any litigation to enforce the licensed intellectual
property without the consent of Neurotrope (which consent shall not be unreasonably withheld, delayed, or denied).
In consideration for the payments made
pursuant to the November 2015 SOW Agreement, CRE agreed to perform the services requested by Neurotrope Bioscience for the further
development of Neurotrope’s bryostatin drug platform. Thus far, four patients have been treated, three of which were treated
under an IND cleared by the FDA. The payments set forth above satisfied any and all of Neurotrope Bioscience’s obligation
whatsoever to CRE or to any other third party for costs incurred or to be incurred by CRE relating to such trials. Neurotrope Bioscience
and CRE shall jointly review protocols which shall be established to the parties’ mutual satisfaction and contain appropriate
safety measures to be employed by the treating physician. No additional compassionate use or expanded access patients will be enrolled
by CRE without the consent of Neurotrope Bioscience.
Services Agreement
On October 9, 2015, Neurotrope BioScience,
our wholly-owned subsidiary, executed a Services Agreement with Worldwide Clinical Trials, Inc. (“WCT”), effective
as of August 31, 2015. The Services Agreement relates to services for Neurotrope BioScience’s Phase 2 clinical study assessing
the safety, tolerability and efficacy of bryostatin in the treatment of moderately severe to severe AD (the “Study”).
Pursuant to the terms of the Services Agreement, WCT agreed to provide services to enroll approximately 150 study subjects at approximately
30 sites across the United States. We began enrollment at the initial sites at the end of 2015, completed enrollment in November
2016 and announced top-line results in May 2017 as described in this report.
On July 27, 2016, we received approval
of the institutional review board (“IRB”) for our amended protocol submitted on July 21, 2016 to the FDA relating to
the Phase 2 clinical trial of our lead drug candidate, bryostatin-1, for the treatment of advanced AD, which amended protocol eliminates
the second, exploratory, study period following the first 12 weeks of treatment. The primary objective is the assessment of safety
and tolerability of bryostatin to occur at 13 weeks, which has not been changed with this amendment. The secondary objective is
to assess efficacy, also at week 13. Such amendment, to cut the exploratory part of the study, was made for business reasons in
order to provide earlier completion of the study and for the planning of future studies. The changes to the study design were not
due to any safety concerns. In the study, two doses of bryostatin, 20 μg or 40 μg, were compared to placebo. Study subjects
receive a total of 7 doses of the study drug over 12 weeks of treatment, followed by safety and efficacy assessments at week 13
and a final study visit at week 16. There will be no second randomization for additional treatment. Subjects who have already entered
into the second study period will be discontinued and evaluated 30 days following last treatment for their final study visit.
Results of Phase 2 Clinical Trial
On May 1, 2017, we reported certain relevant
top-line results from our Phase 2 exploratory clinical trial based on a preliminary analysis of a limited portion of the complete
data set generated. A total of 147 patients were enrolled into the study; 135 patients in the mITT population and 113 in the Completer
population. This study was the first repeat dose study of bryostatin-1 in patients with late stage AD (defined as a Mini Mental
State Exam 2 (“MMSE-2”) of 4-15), in which two dose levels of bryostatin-1 were compared with placebo to assess safety
and preliminary efficacy (p < 0.1, one-tailed) after 12 weeks of treatment. The pre-specified primary endpoint, the Severe Impairment
Battery (the “SIB”) (used to evaluate cognition in severe dementia), compared each dose of bryostatin-1 with placebo
at Week 13 in two sets of patients: (1) the modified intent-to-treat (the “mITT”) population, consisting of all patients
who received study drug and had at least one efficacy/safety evaluation, and (2) the Completer population, consisting of those
patients within the mITT population who completed the 13-week dosing protocol and cognitive assessments.
These announced top-line results indicated
that the 20 µg dose, administered after two weekly 24 µg doses during the first two weeks and every other week thereafter,
met the pre-specified primary endpoint in the Completer population, but not in the mITT population. Among the patients who completed
the protocol (n = 113), the patients on the 20 µg dose at 13 weeks showed a mean increase on the SIB of 1.5 vs. a decrease
in the placebo group of -1.1 (net improvement of 2.6, p < 0.07), whereas, in the mITT population, the 20 µg group had
a mean increase on the SIB of 1.2 vs. a decrease in the placebo group of -0.8 (net improvement of 2.0, p < 0.134). At the pre-specified
5 week secondary endpoint, the Completer patients in the 20 µg group showed a net improvement of 4.0 SIB (p < 016), and
the mITT population showed a net improvement of 3.0 (p< ,056).Unlike the 20 µg dose, there was no therapeutic signal observed
with the 40 µg dose.
The Alzheimer Disease Cooperative Study
Activities of Daily Living Inventory Severe Impairment version (ADCS-ADL-SIV) was another pre-specified secondary endpoint. The
p values for the comparisons between 20 µg and placebo for the ADCS-ADL endpoint at 13 weeks were 0.082 for the Completers
and 0.104, for the mITT population.
Together, these initial results after preliminary
analysis of this exploratory trial, indicated that bryostatin-1, at the 20 µg dose, caused sustained improvement in important
functions that are impaired in patients with moderate to severe Alzheimer’s disease i.e., cognition and the ability to care
for oneself. Since most of the patients in this study were already taking donepezil and/or memantine, the efficacy of bryostatin-1
was evaluated in the Top Line results over and above the standard of care therapeutics.
The safety profile of bryostatin-1 20 µg
was minimally different from the placebo group except for a higher incidence of diarrhea and infusion reactions (11% versus 2%
for diarrhea and 17% versus 6% for infusion reactions). Fewer adverse events were reported in patients in the 20 µg group,
compared to the 40 µg group. Patients dosed with 20 µg had a dropout rate less than or identical to placebo, while
patients dosed at 40 µg experienced poorer safety and tolerability, and had a higher dropout rate. Treatment emergent adverse
events (TEAEs) were mostly mild or moderate in severity. TEAEs, including serious adverse events, were more common in the 40 µg
group, as compared to the 20 µg and placebo groups. The mean age of patients in the study was 72 years and similar across
all three treatment groups.
Following presentation of the top line
results in July 2017 at the Alzheimer’s Association International Conference in London, a much more extensive analysis
of a more complete set of the Phase 2 trial data was conducted.
On January 5, 2018, we announced that a
post-hoc analysis of a comprehensive data set from our recent Phase 2 trial in patients with advanced Alzheimer’s disease
(AD) found evidence of sustained improvement in cognition in patients receiving the 20 μg bryostatin regimen. In addition, patients
who did not receive memantine, an approved AD treatment, as background therapy showed greater SIB improvement. These findings suggested
that this investigational drug could potentially treat Alzheimer’s disease itself and help reduce and/or reverse the progression
of AD, rather than only alleviate its symptoms.
The comprehensive follow-on analysis found
that patients in the 20 μg treatment arm showed a sustained improvement in cognition over baseline compared to the placebo group
at week 15 (30 days after last dose at week 11). These data were observed in the study population as a whole.
The follow-on analysis of the data evaluated
SIB scores of patients at 15 weeks, 30 days after all dosing had been completed – a pre-specified exploratory endpoint. For
the 20 μg group, patients in the mITT population (n=34) showed an overall improvement compared to controls (n=33) of 3.59 (
p
=0.0503)
and in the Completers population (n=34) showed an overall improvement compared to controls (n=33) of 4.09 (
p
=0.0293). In
summary, patients on the 20 μg dose showed a persistent SIB improvement 30 days after all dosing had been completed. These p-values
and those below are one-tailed.
Additional analyses compared 20 µg
dose patients who were on baseline therapy of Aricept vs. patients off Aricept. No significant differences were observed. Another
analysis compared the 20 µg dose patients who were on or off baseline therapy of memantine. Post-hoc analysis comparing SIB
scores in non-memantine versus memantine patients found the following:
|
·
|
At week 15, non-memantine patients in the mITT Group treated with 20 μg (n=14) showed an SIB improvement of
5.88,
while the placebo patients (n=11) showed a decline in their SIB scores of
-
0.05
for an overall treatment
Δ of 5.93
from baseline (
p
=0.0576).
|
|
·
|
At week 15, non-memantine patients in the Completers Group treated with 20 μg (n=14) showed an SIB improvement of
6.24,
while the placebo patients (n=11) showed a decline in their SIB scores of
-
0.12
for an overall treatment
Δ of 6.36
from baseline
(p=0.0488)
.
|
|
·
|
Patients taking memantine as background therapy in the 20 μg (n=20) and control (n=22) groups showed no improvement
in SIB scores.
|
Memantine, an NMDA receptor
antagonist, is marketed under the brand names Namenda®, Namenda® XR, and Namzaric® (a combination of memantine and
donepezil) for the treatment of dementia in patients with moderate-to-severe AD. It has been shown to delay cognitive decline and
help reduce disease symptoms.
Neurotrope is planning a replication trial
for the safe, effective 20 μg dose protocol for advanced AD patients not taking memantine as background therapy to evaluate
improvements in SIB scores with an increased number of patients. We are in discussions with investigators at leading academic institutions
to collaborate on the design and conduct of the next trial, which is expected to begin in the first half of 2018.
To the extent resources permit, we intend
to pursue development of selected technology platforms with indications – such as Fragile X disease - related to the treatment
of AD and other neurodegenerative disorders based on our current licensed technology and / or technologies available from third
party licensors or collaborators.
Intellectual Property
Technology License and Services Agreement
On February 4, 2015, Neurotrope BioScience,
CRE and NRV II, LLC entered into an Amended and Restated Technology License and Services Agreement (the “CRE License”),
which further amended and restated the Technology License and Services Agreement dated as of October 31, 2012, as amended by Amendment
No. 1 dated as of August 21, 2013.
Pursuant to the CRE License, Neurotrope
BioScience maintained its exclusive (except as described below), non-transferable (except pursuant to the CRE License’s assignment
provision), world-wide, royalty-bearing right, with a right to sublicense (in accordance with the terms and conditions described
below), under CRE’s and NRV II’s respective right, title and interest in and to certain patents and technology owned
by CRE or licensed to NRV II, LLC by CRE as of or subsequent to October 31, 2012 to develop, use, manufacture, market, offer for
sale, sell, distribute, import and export certain products or services for therapeutic applications for AD and other cognitive
dysfunctions in humans or animals (the “Field of Use”). Additionally, the CRE License specifies that all patents that
issue from a certain patent application, shall constitute licensed patents and all trade secrets, know-how and other confidential
information claimed by such patents constitute licensed technology under the CRE License. Furthermore, on July 10, 2015, under
the terms of the Statement of Work and Account Satisfaction Agreement dated February 4, 2015, Neurotrope BioScience’s rights
relating to an in vitro diagnostic test system reverted back to CRE and, accordingly, Neurotrope BioScience no longer has any rights
under the CRE License for diagnostic applications using the CRE patent portfolio or technology.
Notwithstanding the above license terms,
CRE and its affiliates retain rights to use the licensed intellectual property in the Field of Use to engage in research and development
and other non-commercial activities and to provide services to Neurotrope BioScience or to perform other activities in connection
with the CRE License.
Under the CRE License, CRE and Neurotrope
BioScience may not enter into sublicense agreements with third parties except with CRE’s prior written consent, which consent
shall not be commercially unreasonably withheld. Furthermore, the CRE License dated February 4, 2015 revises the agreement that
was entered into as of October 31, 2012 and amended on August 21, 2013, in that it provides that any intellectual property developed,
conceived or created in connection with a sublicense agreement that Neurotrope BioScience entered into with a third party pursuant
to the terms of the CRE License will be licensed to CRE and its affiliates for any and all non-commercial purposes, on a worldwide,
perpetual, non-exclusive, irrevocable, non-terminable, fully paid-up, royalty-free, transferable basis, with the right to freely
sublicense such intellectual property. Previously, the agreement had provided that such intellectual property would be assigned
to CRE.
Pursuant to the terms of the November 12,
2015 amendment to the CRE License, we paid an aggregate of approximately $348,000 to CRE following the closings of the Series B
private placement, which constituted an advance royalty payment to CRE and will be offset (with no interest) against the amount
of future royalty obligations payable until such time that the amount of such future royalty obligations equals in full the amount
of the advance royalty payments made. Neurotrope Bioscience shall be subtracted from the gross proceeds to determine the “Post-PA
Fee Proceeds.”
Under the CRE License, CRE and Neurotrope
BioScience will jointly own data, reports and information that is generated on or after February 28, 2013, pursuant to the license
agreement dated October 31, 2012 and amended on August 21, 2013, by Neurotrope BioScience, on behalf of Neurotrope BioScience by
a third party or by CRE pursuant to a statement of work that the parties enter into pursuant to the CRE License, in each case to
the extent not constituting or containing any data, reports or information generated prior to such date or by CRE not pursuant
to a statement of work (the “Jointly Owned Data”). CRE has agreed not to use the Jointly Owned Data inside or outside
the Field of Use for any commercial purpose during the term of the CRE License or following any expiration of the CRE License other
than an expiration that is the result of a breach by Neurotrope BioScience of the CRE License that caused any licensed patent to
expire, become abandoned or be declared unenforceable or invalid or caused any licensed technology to enter the public domain (a
“Natural Expiration”) provided, however, CRE may use the Jointly Owned Data inside or outside the Field of Use for
any commercial purpose following any termination of the CRE License. Also, CRE granted Neurotrope BioScience a license during the
term and following any Natural Expiration, to use certain CRE data in the Field of Use for any commercial purposes falling within
the scope of the license granted to Neurotrope BioScience under the CRE License.
The CRE License further requires us to
pay CRE (i) a fixed research fee equal to a pro rata amount of $1 million in the year during which we close on a Series B Preferred
Stock financing resulting in proceeds of at least $25 million, (ii) a fixed research fee of $1 million per year for each of the
five calendar years following the completion of such financing and (iii) an annual fixed research fee in an amount to be negotiated
and agreed upon no later than 90 days prior to the end of the fifth calendar year following the completion of such financing to
be paid with respect to each remaining calendar year during the term of the CRE License. This fixed research fee is not yet due.
Our Licensed Intellectual Property
We have licensed from CRE an extensive
intellectual property portfolio that includes issued patents, pending patent applications and provisional patent applications,
in the U.S. and elsewhere, which, we believe, together cover these key pharmaceutical markets. A method of use patent has been
issued to CRE that covers the use of the PUFA family of molecules for the same therapeutic applications.
We believe the CRE License provides us
rights to the patents and technologies required to develop our proposed products. The patents and technologies licensed to us pursuant
to the CRE License include, without limitation, the following:
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therapies based on bryostatin and PUFA chemical families; and
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methods for treating AD.
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A number of CRE’s patent applications
for treatment of neurological disorders have been under active prosecution for many years and have been the subject of multiple
rejections for anticipation and/or obviousness based on prior art. There are no guarantees that CRE’s pending patent applications
will issue into commercially meaningful patents. If these patent applications are not approved or successfully prosecuted, then
we will attempt to seek other means of protecting its proprietary position including, but not limited to, trade secrets, proprietary
formulations and methods, etc.
A substantial amount of in-human data exists
that was generated by the NCI that involves the earlier evaluation of bryostatin as an anticancer agent. The NCI also holds the
existing inventory of the bryostatin drug product which is suitable for use in man. Our use of the substantial data package generated
by the NCI on bryostatin, as well as access to the clinical supply of this substance, is permitted under a material transfer agreements
entered into and between the NCI and CRE.
There are no known patent conflicts or
freedom to operate issues at this time which could encumber our ability to commercialize the PKCε activators for the treatment
of cognition and memory disorders. However, we cannot provide any assurance that such conflicts will not arise in the future. See
the Risk Factors captioned
“Our commercial success will depend, in part, on our ability, and the ability of our licensors,
to obtain and maintain patent protection. Our licensors’ failure to obtain and maintain patent protection for our products
may have a material adverse effect on our business.”
and
“Our licensed patented technologies may infringe
on other patents, which may expose us to costly litigation.”
under “Risk Factors.”
We also have the right to re-license certain
patents and patent applications in certain jurisdictions that we had licensed under the CRE License but had previously elected
to relinquish. In the event that we decide to re-license any of such patents and/or patent applications, then we are required to
reimburse CRE for all of the attorneys’ fees, translation costs, filing fees, maintenance fees, and other costs and expenses
related to such patents and/or patent applications that have been incurred since we elected to relinquish them under the CRE License.
Additional Intellectual Property
We have a granted U.S. Patent (US 9,724,328
B2) directed to treating lipid storage disorders (
e.g.
, Niemann-Pick Type C disease) with naturally occurring bryostatins
and analogs thereof,
i.e.
, “bryologs.” This patent will expire no earlier than April 14, 2035. Foreign counterpart
applications of this granted patent are pending in Canada, China, Europe, Hong Kong, Israel, Japan, Mexico, and Korea. Each of
these applications, if granted as a patent, would also expire no earlier than April 14, 2035.
We also have an international application
(PCT/US17/31144) directed to activating a synaptic growth factor in a patient suffering from Rett Syndrome with a PKC activator
(
e.g.
, bryostatins, bryologs, PUFA, and others), wherein the activation results in a corrective and/or normalizing effect
on brain development and an increase in the protein levels of synaptic growth factors. National phase entry applications filed
from this international application, if granted as a patent, would expire no earlier than May 4, 2037.
Governmental Regulation and Product
Approval
The manufacturing and marketing of our
potential products and our ongoing research and development activities are subject to extensive regulation by the FDA and comparable
regulatory agencies in state and local jurisdictions and in foreign countries.
United States Regulation of Drugs
In the United States, the FDA approves
and regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. Before any drug product
can be marketed in the United States, it must receive approval from the FDA. To receive this approval, any drug we develop must
undergo rigorous preclinical testing and clinical trials that demonstrate the product candidate’s safety and effectiveness
for each indicated use. This extensive regulatory process controls, among other things, the development, testing, manufacture,
safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of pharmaceutical
products. The failure to comply with requirements under the FDCA and other applicable laws at any time during the product development
process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial
sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold,
issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production
or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil or criminal
investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.
In general, before any new pharmaceutical
product can be marketed in the United States, the process typically required by the FDA includes:
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preclinical laboratory and animal tests in compliance with the FDA’s good laboratory practice,
or GLP, regulations;
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submission of an IND, which must become effective before human clinical trials may begin;
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approval by an independent institutional review board, or IRB, representing each clinical site
before each clinical trial may be initiated;
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adequate and well-controlled human clinical trials to establish the safety and efficacy of the
proposed drug for its intended use, conducted in accordance with good clinical practices, or GCP;
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satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities
at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP,
requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength,
quality and purity;
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preparation and submission to the FDA of a new drug application, or NDA, requesting marketing for
one or more proposed indications;
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review by an FDA advisory committee, where appropriate or if applicable;
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Payment of user fees and securing FDA approval of an NDA or an NDA supplement (for subsequent indications
or other modifications, including a change in location of the manufacturing facility); and
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compliance with any post-approval requirements, including the potential requirement to implement
a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies.
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Preclinical Testing
In the United States, drug candidates are
tested in animals until adequate proof of safety and efficacy is established. These preclinical studies generally evaluate the
mechanism of action and pharmacology of the product and assess the potential safety and efficacy of the product. Tested compounds
must be produced according to applicable current good manufacturing practice requirements and preclinical safety tests must be
conducted in compliance with FDA and international regulations regarding good laboratory practices. The results of the preclinical
tests, together with manufacturing information and analytical data, are generally submitted to the FDA as part of an IND, which
must become effective before human clinical trials may commence. The IND will automatically become effective 30 days after receipt
by the FDA, unless before that time the FDA requests an extension or raises concerns about the conduct of the clinical trials as
outlined in the application. If the FDA has any concerns, the sponsor of the IND and the FDA must resolve the concerns before clinical
trials can begin. Regulatory authorities may require additional preclinical data before allowing the clinical studies to commence
or proceed from one phase to another, and could demand that the studies be discontinued or suspended at any time if there are significant
safety issues. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may
continue after the IND is submitted.
Furthermore, an independent institutional
review board for each medical center proposing to participate in the conduct of the clinical trial must review and approve the
clinical protocol and patient informed consent form before commencement of the study at the respective medical center. An IRB must
operate in compliance with FDA regulations.
Clinical Trials
Human clinical trials are typically conducted
in four sequential phases, which may overlap or be combined:
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Phase 1.
The drug is initially introduced into healthy human subjects or, in certain
indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption,
metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal
dosage.
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Phase 2.
The drug is administered to a limited patient population to identify
possible adverse effects and safety risks, to evaluate preliminarily the efficacy of the product for specific targeted diseases
and to determine dosage tolerance and optimal dosage.
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Phase 3.
The drug is administered to an expanded patient population, generally
at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to evaluate statistically
the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product and to provide
adequate information for the labeling of the product.
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Phase 4
. Post-approval studies may be conducted after initial marketing approval.
These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.
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During all clinical trials, physicians
will monitor patients to determine effectiveness of the drug candidate and to observe and report any reactions or safety risks
that may result from use of the drug candidate. The FDA, the trial sites institutional review board or the sponsor may suspend
a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health
risk.
Information about certain clinical trials
must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov
website.
Progress reports detailing the results
of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition,
IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings
from other studies or animal or
in vitro
testing that suggest a significant risk in humans exposed to the drug; and any
clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator
brochure. The FDA, the sponsor or the data monitoring committee may suspend or terminate a clinical trial at any time on various
grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is
not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious
harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of
the clinical data submitted.
Review of the NDA by FDA
The data from the clinical trials, together
with preclinical data and other supporting information that establishes a drug candidate’s profile, are submitted to the
FDA in the form of an NDA or NDA supplement (for approval of a new indication if the product candidate is already approved for
another indication). Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently
exceeding $2.3 million, and the sponsor of an approved NDA is subject to annual product and establishment user fees, currently
exceeding $114,000 per product and $585,000 per establishment. These fees typically increase annually. Certain exceptions and waivers
are available for some of these fees, such as an exception from the application fee for drugs with orphan designation and a waiver
for certain small businesses.
Under applicable laws and FDA regulations,
each NDA submitted for FDA approval is usually given an internal administrative review within 45 to 60 days following submission
of the NDA. If deemed complete, the FDA will “file” the NDA, thereby triggering substantive review of the application.
The FDA can refuse to file any NDA that it deems incomplete or not properly reviewable. The FDA has established internal substantive
review goals of six months for priority NDAs (for drugs addressing serious or life threatening conditions for which there is an
unmet medical need) and ten months for regular NDAs. The FDA, however, is not legally required to complete its review within these
periods, and these performance goals may change over time. Moreover, the outcome of the review, even if generally favorable, is
not typically an actual approval, but an “action letter” that describes additional work that must be done before the
NDA can be approved. The FDA’s review of an NDA may involve review and recommendations by an independent FDA advisory committee.
The FDA may deny approval of an NDA or an NDA supplement if the applicable regulatory criteria are not satisfied, or it may require
additional clinical data and/or an additional pivotal phase 3 clinical trial. Even if such data are submitted, the FDA may ultimately
decide that the NDA or NDA supplement does not satisfy the criteria for approval.
Before approving an NDA, the FDA typically
will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections may cover
all facilities associated with an NDA submission, including drug component manufacturing (e.g., active pharmaceutical ingredients),
finished drug product manufacturing and control testing laboratories. The FDA will not approve an application unless it determines
that the manufacturing processes and facilities comply with cGMP requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical
sites to assure compliance with GCP.
In addition, as a condition of approval,
the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure
that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the
size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration
of treatment, seriousness of known or potential adverse events and whether the product is a new molecular entity. REMS can include
medication guides, physician communication plans for healthcare professionals and elements to assure safe use, or ETASU. ETASU
may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain
circumstances, special monitoring and using of patient registries. The FDA may require a REMS before approval or post-approval
if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the
potential market and profitability of a product.
The FDA is required to refer an application
for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel
of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation
as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory
committee, but it considers such recommendations carefully when making decisions.
Data Review and Approval
Substantial financial resources are necessary
to fund the research, clinical trials and related activities necessary to satisfy FDA requirements or similar requirements of state,
local and foreign regulatory agencies. It normally takes many years to satisfy these various regulatory requirements, assuming
they are satisfied. Information generated in this process is susceptible to varying interpretations that could delay, limit, or
prevent regulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to
market may vary substantially. We cannot assure you that we will submit applications for required authorizations to manufacture
and/or market potential products or that any such application will be reviewed and approved by the appropriate regulatory authorities
in a timely manner, if at all. Data obtained from clinical activities is not always conclusive and may be susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. Success in early stage clinical trials does not ensure
success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may be significantly
limited to specific disease states, patient populations and dosages, or have conditions placed on them that restrict the commercial
applications, advertising, promotion or distribution of these products.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition
that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an
NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review
and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which
it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other
applications to market the same drug for the same disease, except in very limited circumstances, for seven years. These very limited
circumstances are (i) an inability to supply the drug in sufficient quantities or (ii) a situation in which a new formulation of
the drug has shown superior safety or efficacy. This exclusivity, however, also could block the approval of our product for seven
years if a competitor obtains earlier approval of the same drug for the same indication.
Fast Track, Breakthrough Therapy and
Priority Review Designations
The FDA is authorized to designate certain
products for expedited review if the product is intended to address an unmet medical need in the treatment of a serious or life-threatening
disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.
Specifically, the FDA may designate a product
for fast track review if the product is intended, whether alone or in combination with one or more other products, for the treatment
of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such
a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review
of sections of a fast track product’s application before the application is complete. This rolling review may be available
if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be
effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information
and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track application
does not begin until the last section of the application is submitted. In addition, the FDA may withdraw the fast track designation
if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Second, in 2012, Congress enacted the Food
and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory scheme allowing for expedited
review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if
it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease
or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout
the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior
staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design
the clinical trials in an efficient manner.
Third, the FDA may designate a product
for priority review if it is a product designed to treat a serious condition and, if approved, would provide a significant improvement
in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents a significant
improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness
in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement
of patient compliance that may lead to improvement in serious outcomes and evidence of safety and effectiveness in a new subpopulation.
A priority review designation is intended to direct overall attention and resources to the evaluation of such applications, and
to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
Accelerated Approval Pathway
The FDA may grant accelerated approval
to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing
treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict
clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate
clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably
likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity,
rarity or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval
must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
For the purposes of accelerated approval,
a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is
thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured
more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect
that is considered reasonably likely to predict the clinical benefit of a product, such as an effect on IMM. The FDA has limited
experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally
may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis
for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate
clinical benefit of a product.
The accelerated approval pathway is most
often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended
clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated
approval has been used extensively in the development and approval of products for treatment of a variety of cancers in which the
goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires
lengthy and sometimes large trials to demonstrate a clinical or survival benefit.
The accelerated approval pathway is usually
contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify
and describe the product’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous
post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect
on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing
studies, would allow the FDA to withdraw the product from the market on an expedited basis. All promotional materials for product
candidates approved under accelerated regulations are subject to prior review by the FDA.
The FDA’s Decision on an NDA
Based on the FDA’s evaluation of
an NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue
an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific
prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission
and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those
deficiencies have been addressed to the FDA’s satisfaction in a resubmission of an NDA, the FDA will issue an approval letter.
The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even
with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory
criteria for approval.
If the FDA approves a product, it may limit
the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product
labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s
safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other
conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect
the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the
results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as
adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA
review and approval.
Post-Approval Requirements
Drugs manufactured or distributed pursuant
to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating
to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences
with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims,
are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products
and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data.
In addition, drug manufacturers and other
entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the
FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly,
manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may
withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions
to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety
risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other
things:
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restrictions on the marketing or manufacturing of the product, suspension of the approval, or complete
withdrawal of the product from the market or product recalls;
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fines, warning letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs;
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product seizure or detention, or refusal to permit the import or export of products; or
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injunctions or the imposition of civil or criminal penalties
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The FDA strictly regulates marketing, labeling,
advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and
in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting
the promotion of off-label uses, and a company found to have improperly promoted off-label uses may be subject to significant liability.
In addition, the distribution of prescription
pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as
the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription
drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states. The PDMA, its
implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes
requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from
the market.
Patent Term Restoration and Extension
A patent claiming a new drug product may
be eligible for a limited patent term extension, also known as patent term restoration, under the Hatch-Waxman Act, which permits
a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. Patent
term extension is generally available only for drug products whose active ingredient has not previously been approved by the FDA.
The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an
NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term extension cannot be used to
extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable
to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the
expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in
connection with one of the approvals. The United States PTO reviews and approves the application for any patent term extension
in consultation with the FDA.
Foreign Regulation
In addition to regulations in the United
States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution
of our products in foreign countries. Whether or not we obtain FDA approval for a product, we must obtain approval of a product
by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product
in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required
for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary
greatly from country to country.
Under European Union regulatory systems,
we may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure,
which is available for medicines produced by biotechnology or which are highly innovative, provides for the grant of a single marketing
authorization that is valid for all EU member states. This authorization is a marketing authorization application. The decentralized
procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing
authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment
report, each member state must decide whether to recognize approval. This procedure is referred to as the mutual recognition procedure.
The policies of the FDA and foreign regulatory
authorities may change and additional government regulations may be enacted which could prevent or delay regulatory approval of
our products and could also increase the cost of regulatory compliance. We cannot predict the likelihood, nature or extent of adverse
governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.
Other Government Regulation
Our research and development activities
use biological and hazardous materials that are dangerous to human health and safety or the environment. We are subject to a variety
of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of
these materials and wastes resulting from these materials. We are also subject to regulation by the Occupational Safety and Health
Administration and federal and state environmental protection agencies and to regulation under the Toxic Substances Control Act.
In addition, once our products are marketed
commercially, we will have to comply with the various laws relating to the Medicare, Medicaid and other federal healthcare programs.
These federal laws include, by way of example, the following:
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The anti-kickback statute (Section 1128B(b) of the Social Security Act) prohibits certain business
practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid
and other federal healthcare programs, including, among other things, the payment or receipt of remuneration for the referral of
patients whose care or services will be paid by Medicare or other governmental programs;
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The physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as amended, commonly
referred to as the Stark Law, Section 1877 of the Social Security Act), which prohibits referrals by physicians of Medicare or
Medicaid patients to providers of a broad range of designated healthcare services in which the physicians (or their immediate family
members) have ownership interests or with which they have certain other financial arrangements;
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The anti-inducement law (Section 1128A(a)(5) of the Social Security Act), which prohibits providers
from offering anything of value to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered
by either program;
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The False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from knowingly
presenting or causing to be presented false or fraudulent claims for payment to the federal government (including the Medicare
and Medicaid programs);
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and
their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations,
including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable
health information;
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The Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which authorizes the
United States Department of Health and Human Services to impose civil penalties administratively for various fraudulent or abusive
acts;
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The Physician Payment Sunshine Act (Section 1128G of the Social Security Act), which requires manufacturers
of drugs, medical devices and biologicals that participate in U.S. federal health care programs to report certain payments and
items of value given to physicians and teaching hospitals; and
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Analogous state and foreign laws and regulations, such as state anti-kickback and false claims
laws, which may apply to healthcare items or services that are reimbursed by non-governmental third-party payors, including private
insurers
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Sanctions for violating these federal laws
include criminal and civil penalties that range from punitive sanctions, damage assessments, money penalties, imprisonment, denial
of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs, or both. These laws also impose an affirmative
duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract with persons excluded from the
Medicare and other government programs. Additionally, many states have laws and regulations that contain prohibitions that are
similar to, and in many cases broader than, these federal laws and once our products are marketed commercially, we will have to
comply with these various state laws as well.
Some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to
physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security
of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted
by HIPAA, thus complicating compliance efforts.
Competition
We compete with many companies, research
institutes, hospitals, governments and universities that are working to develop products and processes to treat AD. Many of these
entities have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than we do.
However, there has been a dearth of new product introductions in the last 20 years for the treatment of AD symptoms in patients
who begin exhibiting the memory and cognitive disorders associated with the disease. All of the products introduced to date for
the treatment of AD have yielded negative or marginal results with little effect on the progression of AD and no improvement in
the memory or cognitive performance of the patients receiving these therapies. We believe we are the only company currently pursuing
PKCε activation (with consequent prevention of neuronal death and induction synaptic network growth) as a mechanism to
treat AD and neurodegenerative disease. Although we believe that we have no direct competitors working in this same field at the
present time, we cannot provide assurance that our competitors will not discover compounds or processes that may be competitive
with our products and introduce such products or processes before us.
Employees
As of the date of this Annual Report on Form 10-K, we have five
full-time personnel.
Item 1A. Risk Factors.
An investment in shares of our common
stock is highly speculative and involves a high degree of risk. We face a variety of risks that may affect our operations and financial
results and many of those risks are driven by factors that we cannot control or predict. Before investing in our common stock you
should carefully consider the following risks, together with the financial and other information contained in this report. If any
of the following risks actually occurs, our business, prospects, financial condition and results of operations could be materially
adversely affected. In that case, the trading price of our common stock would likely decline and you may lose all or a part of
your investment. Only those investors who can bear the risk of loss of their entire investment should invest in our common stock.
Risks Related to Our Business and Financial
Condition
We will need additional financing
to fund our operations in the future. If we are unable to obtain additional financing on acceptable terms, we will need to curtail
or cease our development plans and operations.
As of December 31, 2017, we had approximately
$16.1 million of available cash and cash equivalents. While we anticipate our current cash resources on hand will be sufficient
to sustain operations and a follow-on clinical trial for the next approximately 18 months, we do not have sufficient capital to
complete all necessary clinical trials in order to have a product approvable for commercial sale. As a result, we will need to
raise additional capital and/or obtain a strategic partner to facilitate bringing a product to market. We raised approximately
$24.5 million of gross proceeds in the November 2016 Private Placement. We are currently reviewing our current operating plans,
and we will require additional capital in the future. Additional funds may be raised through the issuance of equity securities
and/or debt financing, there being no assurance that any type of financing on terms acceptable to us will be available or otherwise
occur. Debt financing must be repaid regardless of whether we generate revenues or cash flows from operations and may be secured
by substantially all of our assets. Any equity financing or debt financing that requires the issuance of warrants or other equity
securities to the lender would cause the percentage ownership by our current stockholders to be diluted, which dilution may be
substantial. Also, any additional equity securities issued may have rights, preferences or privileges senior to those of existing
stockholders. If such financing is not available when required or is not available on acceptable terms, we may be required to reduce
or eliminate certain product candidates and development activities, including those related to bryostatin, the “bryologs”
or polyunsaturated fatty acid analogs, and it may ultimately require us to suspend or cease operations, which could cause investors
to lose the entire amount of their investment.
Our ongoing viability as a company
depends on our ability to successfully develop and commercialize our licensed technology.
We are principally focused on developing
a drug, bryostatin, for the treatment of AD and other diseases, which is still in the clinical testing stage and has not yet been
fully developed. Our potential success is highly uncertain since our principal product candidate (bryostatin to treat AD) is in
Phase 2 of development. Our other product candidates (use of bryostatin to treat Niemann Pick Type-C and Fragile X Syndrome) are
even earlier in their development cycles. Bryostatin is also subject to regulatory approval. Our potential success depends upon
our ability to raise more capital, complete development of and successfully commercialize bryostatin in a timely manner for the
treatment of AD or other diseases. We must develop bryostatin, successfully test it for safety and efficacy in the targeted patient
population, and manufacture the finished dosage form on a commercial scale to meet regulatory standards and receive regulatory
approvals. The development and commercialization process is both time-consuming and costly, and involves a high degree of business
risk. Bryostatin is still at an early stage in its product development cycle, and any follow-on product candidates are still at
the concept stage. The results of pre-clinical and clinical testing of our product candidates are uncertain and we cannot assure
anybody that we will be able to obtain regulatory approvals of our product candidates. If obtained, regulatory approval may take
longer or be more expensive than anticipated. Furthermore, even if regulatory approvals are obtained, our products may not perform
as we expect and we may not be able to successfully and profitably produce and market any products. Delays in any part of the process
or our inability to obtain regulatory approval of our products could adversely affect our future operating results by restricting
(or even prohibiting) the introduction and sale of our products.
If the CRE License were terminated,
we may be required to cease operations.
Our rights to develop, commercialize and
sell certain of our proposed products, including bryostatin, is, in part, dependent upon the CRE License. CRE has the right to
terminate this agreement after 30 days prior notice in certain circumstances, including if we were to materially breach any provisions
of the agreement after a 60-day cure period for breaches that are capable of being cured, in the event of certain bankruptcy or
insolvency proceedings. Additionally, the CRE License provides that the license may not be assigned, including by means of a change
of control of the Company, or sublicensed without the consent of CRE. For additional information regarding the CRE License, see
“Business – Intellectual Property – Technology License and Services Agreement.” If the CRE License were
terminated, we would lose rights to a substantial portion of the intellectual property currently being developed by us and no longer
have the rights to develop, commercialize and sell some of our proposed products. As a result, we may be required to cease operations
under such circumstance.
We rely on independent third-party
contract research organizations to perform clinical and non-clinical studies of our drug candidate and to perform other research
and development services.
The CRE License requires us to use CRE
to provide research and development services and other scientific assistance and support services, including clinical trials, under
certain conditions. The CRE License limits our ability to make certain decisions, including those relating to our drug candidate,
without CRE’s consent. See “Business – Intellectual Property – Technology License and Services Agreement.”
Under certain conditions, we may, however, also rely on independent third-party contract research organizations (“CROs”),
to perform clinical and non-clinical studies of our drug candidate. Many important aspects of the services that may be performed
for us by CROs would be out of our direct control. If there were to be any dispute or disruption in our relationship with such
CROs, the development of our drug candidate may be delayed. Moreover, in our regulatory submissions, we would expect to rely on
the quality and validity of the clinical work performed by our CROs. If any of our CROs’ processes, methodologies or results
were determined to be invalid or inadequate, our own clinical data and results and related regulatory approvals could be materially
adversely impacted.
We have relied on the representations
and materials provided by CRE, including scientific, peer-reviewed and non-peer reviewed publications, abstracts, slides, internal
documents, verbal communications, patents and related patent filings, with respect to the results of its research related to our
proposed products.
BRNI (now known as CRE) began the development
of the intellectual property that forms the basis for our proposed products in 1999. We have relied on the quality and validity
of the research results obtained by CRE with respect to this intellectual property, and we have conducted limited verification
of the raw preclinical and clinical data produced by CRE. No independent third-party has verified any such data. If any of CRE’s
basic processes, methodologies or results were determined to be invalid or inadequate, our own clinical data and results and related
regulatory approvals, could be materially adversely impacted.
We have a limited operating history
upon which investors can evaluate our future prospects.
Our drug product, bryostatin, is in an
early development stage and we are subject to all of the risks inherent in the establishment of a new business enterprise. While
development of our product candidates was started in 1999 by BRNI (now known as CRE), Neurotrope BioScience was incorporated on
October 31, 2012 and on that same date entered into the Technology License and Services Agreement with CRE and NRV II, LLC for
the continuing development and commercialization of our product candidates, and, therefore, we have a limited operating history.
Our proposed products are currently in the research and development stage and we have not generated any revenues, nor do we expect
our products to generate revenues for the near term, if ever. As a result, any investment in our securities must be evaluated in
light of the potential problems, delays, uncertainties and complications encountered in connection with a newly established pharmaceutical
development business. The risks include, but are not limited to, the possibilities that any or all of our potential products will
be found to be unsafe, ineffective or, that the products once developed, although effective, are not economical to market; that
our competitors hold proprietary rights that preclude us from marketing such products; that our competitors market a superior or
equivalent product; or the failure to receive necessary regulatory clearances for our proposed products. To achieve profitable
operations, we must successfully develop, obtain regulatory approval for, introduce and successfully market, sell or license at
a profit product candidates that are currently in the research and development phase. We only have one product candidate in clinical
development, i.e., bryostatin to treat AD. Much of the clinical development work and testing for our product candidates remains
to be completed. No assurance can be given that our research and development efforts will be successful, that required regulatory
approvals will be obtained, that any of our candidates will be safe and effective, that any products, if developed and introduced,
will be successfully marketed, sold or licensed or achieve market acceptance or that products will be marketed at prices necessary
to generate profits. Failure to successfully develop, obtain regulatory approvals for, or introduce and market, sell or license
our products would have material adverse effects on our business prospects, financial condition and results of operations.
If we do not obtain the necessary regulatory approvals
in the United States and/or other countries, we will not be able to sell our drug candidates.
We cannot assure you that we will receive
the approvals necessary to commercialize bryostatin, or any other potential drug candidates we acquire or attempt to develop in
the future. We will need approval from the FDA to commercialize our drug candidates in the U.S. and approvals from similar regulatory
authorities in foreign jurisdictions to commercialize our drug candidates in those jurisdictions. In order to obtain FDA approval
of bryostatin or any other drug candidate for the treatment of AD, we must submit first an Investigational New Drug (“IND”)
application and then a New Drug Application (“NDA”) to the FDA, demonstrating that the drug candidate is safe, pure
and potent, and effective for its intended use. This demonstration requires significant research including completion of clinical
trials. Satisfaction of the FDA’s regulatory requirements typically takes many years, depending upon the type, complexity
and novelty of the drug candidate and requires substantial resources for research, development and testing. We cannot predict whether
our clinical trials will demonstrate the safety and efficacy of our drug candidates or if the results of any clinical trials will
be sufficient to advance to the next phase of development or for approval from the FDA. We also cannot predict whether our research
and clinical approaches will result in drugs or therapeutics that the FDA considers safe and effective for the proposed indications.
The FDA has substantial discretion in the drug approval process. The approval process may 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 may prevent or delay commercialization of, and our ability to derive revenues from, our drug
candidates and diminish any competitive advantages that we may otherwise believe that we hold. Even if we comply with all FDA requests,
the FDA may ultimately reject one or more of our applications. We may never obtain regulatory clearance for any of our drug candidates.
Failure to obtain FDA approval of our drug candidates will leave us without a saleable product and therefore without any source
of revenues. In addition, the FDA may require us to conduct additional clinical testing or to perform post-marketing studies, as
a condition to granting marketing approval of a drug product or permit continued marketing, if previously approved. If conditional
marketing approval is obtained, the results generated after approval could result in loss of marketing approval, changes in product
labeling, and/or new or increased concerns about the side effects or efficacy of a product. The FDA has significant post-market
authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety
information and compliance with FDA-approved risk evaluation and mitigation strategies. The FDA’s exercise of its authority
has in some cases resulted, and in the future could result, in delays or increased costs during product development, clinical trials
and regulatory review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions
on sales of approved drugs. In foreign jurisdictions, the regulatory approval processes generally include the same or similar risks
as those associated with the FDA approval procedures described above. We cannot assure you that we will receive the approvals necessary
to commercialize our drug candidates for sale either within or outside the United States.
Data from our bryostatin-1 Phase
2 clinical trial may be subject to differing interpretations, and regulatory agencies, medical and scientific experts and others
may not share the Company's views of the Phase 2 data.
On May 1, 2017, we reported topline results
from our Phase 2 clinical trial of bryostatin for the treatment of moderate to severe AD. In January 2018, we reported the post-hoc
analysis of data from the Phase 2 clinical trial. Further analyses of the Phase 2 data may lead to different interpretations
of the data than the analyses conducted to date and/or may identify important implications of the Phase 2 data that are not currently
known. Clinical trial data are subject to differing interpretations, and regulatory agencies, medical and scientific experts
and others may not share our views of the Phase 2 data. There can be no assurance that the clinical program for bryostatin-1
will be successful in demonstrating safety and/or efficacy, that we will not encounter problems or delays in clinical development,
or that bryostatin-1 will ever receive regulatory approval or be successfully commercialized.
We have not generated any revenues
since our inception and we do not expect to generate revenue for the foreseeable future. If we do not generate revenues and achieve
profitability, we will likely need to curtail or cease our development plans and operations.
Our ability to generate revenues depends
upon many factors, including our ability to complete our currently planned clinical study and development of our proposed products,
our ability to obtain necessary regulatory approvals for our proposed products and our ability to successfully commercialize market
and sell our products. We have not generated any revenues since we began operations on October 31, 2012. We expect to incur significant
operating losses over the next several years. If we do not generate revenues, do not achieve profitability and do not have other
sources of financing for our business, we will likely need to curtail or cease our development plans and operations, which could
cause investors to lose the entire amount of their investment.
Our commercial success will depend,
in part, on our ability, and the ability of our licensors, to obtain and maintain patent protection. Our licensors’ failure
to obtain and maintain patent protection for our products may have a material adverse effect on our business.
Pursuant to the CRE License, we have obtained
rights to certain patents owned by CRE or licensed to NRV II, LLC by CRE as of or subsequent to October 31, 2012. For additional
information regarding the CRE License, see “Business – Intellectual Property – Technology License and Services
Agreement.” In the future, we may seek rights from third parties to other patents or patent applications. Our success will
depend, in part, on our ability and the ability of our licensors to maintain and/or obtain and enforce patent protection for our
proposed products and to preserve our trade secrets, and to operate without infringing upon the proprietary rights of third parties.
Patent positions in the field of biotechnology and pharmaceuticals are generally highly uncertain and involve complex legal and
scientific questions. We cannot be certain that we or our licensors were the first inventors of inventions covered by our licensed
patents or that we or they were the first to file. Accordingly, the patents licensed to us may not be valid or afford us protection
against competitors with similar technology. The failure to maintain and/or obtain patent protection on the technologies underlying
our proposed products may have material adverse effects on our competitive position and business prospects.
Changes in our ownership could limit
our ability to utilize net operating loss carryforwards.
As of December 31, 2017, we had aggregate
federal and state net operating loss carryforwards of approximately $42.8 million, which begin to expire in fiscal 2032. Under
Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, changes in our ownership may limit the amount of our
net operating loss carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would
generally apply in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any
such limitation may significantly reduce our ability to utilize our net operating loss carryforwards and tax credit carryforwards
before they expire. Any such limitation, whether as the result of historical transactions, future offerings, prior private placements,
sales of our common stock by our existing stockholders or additional sales of our common stock by us in the future (through the
conversion of preferred stock, the exercise of outstanding warrants, or otherwise), could have a material adverse effect on our
results of operations in future years. We have not completed a study to assess whether an ownership change for purposes of Section
382 has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities
associated with such study.
Our licensed patented technologies
may infringe on other patents, which may expose us to costly litigation.
It is possible that our licensed patented
technologies may infringe on patents or other rights owned by others. We may have to alter our products or processes, pay additional
licensing fees, pay to defend an infringement action or challenge the validity of the patents in court or cease activities altogether
because of patent rights of third parties, thereby causing additional unexpected costs and delays to us. Patent litigation is costly
and time consuming, and we may not have sufficient resources to pay for such litigation. Pursuant to the CRE License, CRE has the
exclusive right (but not the obligation) to apply for, file, prosecute or maintain patents and patent applications for our licensed
technologies. However, in order to maintain our rights to use our licensed technologies, we must reimburse CRE for all of the attorney’s
fees and other costs and expenses related to any of the foregoing. For additional information regarding the CRE License, see “Business
– Intellectual Property – Technology License and Services Agreement.” If the patents licensed to us are determined
to infringe a patent owned by a third party and we do not obtain a license under such third-party patents, or if we are found liable
for infringement or are not able to have such third-party patents declared invalid, we may be liable for significant money damages,
we may encounter significant delays in bringing products to market or we may be precluded from participating in the manufacture,
use or sale of products or methods of treatment requiring such licenses.
We may not be able to protect our
trade secrets and other unpatented proprietary technologies, which could give our competitors an advantage over us.
In addition to our reliance on patents
and pending patents owned by CRE, we rely upon trade secrets and other unpatented proprietary technologies. We may not be able
to adequately protect our rights with regard to such unpatented proprietary technologies or competitors may independently develop
substantially equivalent technologies. We seek to protect trade secrets and proprietary knowledge, in part through confidentiality
agreements with our employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent
disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure
of such information and, as a result, our competitors could gain a competitive advantage over us.
If we are unable to hire additional
qualified personnel, our business prospects may suffer.
Our success and achievement of our business
plans depend upon our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition
for qualified employees among pharmaceutical and biotechnology companies is intense, and the loss of any of such persons, or an
inability to attract, retain and motivate any additional highly skilled employees required for the implementation of our business
plans and activities could have a material adverse effect on us. Our inability to attract and retain the necessary technical and
managerial personnel and consultants and scientific and/or regulatory consultants and advisors could have a material adverse effect
on our business prospects, financial condition and results of operations.
We may not be able to in-license
or acquire new development-stage products or technologies.
Our product commercialization strategy
relies, to some extent, on our ability to in-license or acquire product formulation techniques, new chemical entities, or related
know-how that has proprietary protection. If resources permit, we may also seek to acquire, by license or otherwise, other development
stage products that are consistent with our product portfolio objectives and commercialization strategy. The acquisition of products
requires the identification of appropriate candidates, negotiation of terms of acquisition, and financing for the acquisition and
integration of the candidates into our portfolio. Failure to accomplish any of these tasks may diminish our growth rate and adversely
alter our competitive position.
We are partly dependent upon the
NCI to supply bryostatin for our clinical trials.
CRE has entered into a material transfer
agreement with the NCI, pursuant to which the NCI has agreed to supply bryostatin required for our pre-clinical research and clinical
trials. This agreement does not provide for a sufficient amount of bryostatin to support the completion of our clinical trials
that we are required to conduct in order to seek FDA approval of bryostatin for the treatment of AD. Therefore, CRE or we will
have to enter into one or more subsequent agreements with the NCI for the supply of additional amounts of bryostatin. If CRE or
we are unable to secure such additional agreements or if the NCI otherwise discontinues for any reason supplying us with bryostatin,
then we would have to either secure another source of bryostatin or discontinue our efforts to develop and commercialize bryostatin
for the treatment of AD. We have entered into license agreements with Stanford for the development of bryostatin structural derivatives
known as “bryologs” and an accelerated synthesis of bryostatin-1 as alternative potential sources of bryostatin. There
can be no assurance that we will be able to secure future bryostatin supplies from any source on commercially reasonable terms,
if at all.
We expect to rely on third parties
to manufacture our proposed products and, as a result, we may not be able to control our product development or commercialization.
We currently do not have an FDA approved
manufacturing facility. We expect to rely on contract manufacturers to produce quantities of products and substances necessary
for product commercialization. See also the risk factor above captioned “We are partly dependent upon the NCI to supply bryostatin
for our clinical trials.” Contract manufacturers that we use must adhere to current good manufacturing practice regulations
enforced by the FDA through its facilities inspection program. If the facilities of such manufacturers cannot pass a pre-approval
plant inspection, the FDA pre-market approval of our products will not be granted. As a result:
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there are a limited number of manufacturers that could produce the products for us and we may not be able to identify and enter into acceptable agreements with any manufacturers;
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the products may not be produced at costs or in quantities necessary to make them commercially viable;
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the quality of the products may not be acceptable to us and/or regulatory authorities;
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our manufacturing partners may go out of business or file for bankruptcy;
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our manufacturing partners may decide not to manufacture our products for us;
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our manufacturing partners could fail to manufacture to our specifications;
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there could be delays in the delivery of quantities needed;
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we could be unable to fulfill our commercial needs in the event we obtain regulatory approvals and there is strong market demand; or
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ongoing inspections by the FDA or other regulatory authorities may result in suspensions, seizures, recalls, fines, injunctions, revocations and/or criminal prosecutions.
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If we are unable to engage contract manufacturers
or suppliers to manufacture or package our products, or if we are unable to contract for a sufficient supply of required products
and substances on acceptable terms, or if we encounter delays or difficulties in our relationships with these manufacturers, or
with a regulatory agency, then the submission of products for regulatory approval and subsequent sales of such products would be
delayed. Any such delay may have a material adverse effect on our business prospects, financial condition and results of operations.
We may rely on third parties for
marketing and sales and our revenue prospects may depend on their efforts.
We currently have no experience in sales,
marketing or distribution. We do not anticipate having the resources in the foreseeable future to allocate to the sales and marketing
of our proposed products. As a result, if our product development is successful, our future success will likely depend, in part,
on our ability to enter into and maintain collaborative relationships with one or more third parties for sales, marketing or distribution,
on the collaborator’s strategic interest in the products we have under development and on such collaborator’s ability
to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing
of our products as appropriate. However, we may not be able to establish or maintain such collaborative arrangements or, if we
are able to do so, they may not have effective sales forces. To the extent that we decide not to, or are unable to, enter into
collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures,
management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise.
To the extent that we depend on third parties for marketing and distribution, any revenues received by us will depend upon the
efforts of such third parties, which may not be successful.
If our products are not accepted
by patients, the medical community or health insurance companies, our business prospects will suffer.
Commercial sales of any products we successfully
develop will substantially depend upon the products’ efficacy and on their acceptance by patients, the medical community,
providers of comprehensive healthcare insurance, healthcare benefit plan managers, the Centers for Medicare and Medicaid Services
(“CMS”) (which is the U.S. federal agency which administers Medicare, Medicaid and the State Children’s Health
Insurance Program), and other organizations. Widespread acceptance of our products will require educating patients, the medical
community and third-party payors of medical treatments as to the benefits and reliability of the products. Our proposed products
may not be accepted, and, even if they are accepted, we are unable to estimate the length of time it would take to gain such acceptance.
The branded prescription segment
of the pharmaceutical industry in which we operate is competitive, and we are particularly subject to the risks of such competition.
The branded prescription segment of the
pharmaceutical industry in which we operate is competitive, in part, because the products that are sold require extensive sales
and marketing resources invested in their commercialization. The increasing cost of prescription pharmaceuticals has caused providers
of comprehensive healthcare insurance, healthcare benefit plan managers, CMS, as well as other organizations, collectively known
as third-party payors, to tightly control and dictate their drug formulary plans to control the costs associated with the use of
prescription pharmaceutical products by enrollees in these plans. Our ability to gain formulary access to drug plans supported
by these third-party payors is substantially dependent on the differentiated patient benefit that our proposed products can provide,
compared closely to similar products claiming the same benefits or advantages. We may not be able to differentiate our proposed
products from those of our competitors, successfully develop or introduce new products that are less costly or offer better performance
than those of our competitors, or offer purchasers of our proposed products payment and other commercial terms as favorable as
those offered by our competitors. We expect that some of our proposed products, even if successfully developed and commercialized,
will eventually face competition from a significant number of biotechnology or large pharmaceutical companies. Because most of
our competitors have substantially greater financial and other resources than we have, we are particularly subject to the risks
inherent in competing with them. The effects of this competition could materially adversely affect our business prospects, financial
condition and results of operations.
We compete with many companies, research
institutes, hospitals, governments and universities that are working to develop products and processes to treat or diagnose AD.
We believe that others are doing research on Fragile X Syndrome and Niemann Pick disease. Many of these entities have substantially
greater financial, technical, manufacturing, marketing, distribution and other resources than we do. However, there has been a
dearth of new product introductions in the last 20 years for the treatment of AD symptoms in patients who begin exhibiting the
memory and cognitive disorders associated with the disease. All of the products introduced to date for the treatment of AD have
yielded negative or marginal results with little effect on the progression of AD and no improvement in the memory or cognitive
performance of the patients receiving these therapies. The absolute determination of AD in patients is currently achieved only
upon autopsy. We believe we are the only company currently pursuing PKCε activation as a mechanism to treat AD and neurodegenerative
diseases. Although we believe that we have no direct competitors working in this same field on product candidates using the same
mechanism of action, we cannot provide assurance that our competitors will not discover compounds or processes that may be competitive
with our products and introduce such products or processes before us.
We are developing our product candidates
to address unmet medical needs in the treatment of AD and other neurodegenerative diseases. Our competition will be determined
in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally,
the timing of market introduction of some of our potential products or of competitors’ products may be an important competitive
factor. Accordingly, the relative speed with which we can develop our product candidates, complete preclinical testing, clinical
trials and approval processes and supply commercial quantities to market are expected to be important competitive factors. We expect
that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability,
availability, price and patent position.
Our business will expose us to potential
product liability risks, which could result in significant product liability exposure.
Our business will expose us to potential
product liability risks that are inherent in the testing, designing, manufacturing and marketing of human therapeutic products.
Product liability insurance in the pharmaceutical industry is generally expensive, and we may not be able to obtain or maintain
product liability insurance in the future on acceptable terms or with adequate coverage against potential liabilities, if at all.
A successful products liability claim brought against us could have a material adverse effect on our business prospects, financial
condition and results of operations.
A successful clinical trial liability
claim against us could have a material adverse effect on our financial condition even with such insurance coverage.
Our business will expose us to potential
liability that results from risks associated with conducting clinical trials of our product candidates. Although we have procured
clinical trial product liability insurance coverage for our bryostatin product candidate with coverages and deductibles we believe
are adequate, there is no guarantee that our coverage will be adequate to satisfy any liability we may incur. We do not currently
have insurance with respect to any other drug product. A successful clinical trial liability claim brought against us could have
a material adverse effect on our business prospects, financial condition and results of operations even if we successfully obtain
clinical trial insurance.
A successful liability claim against
us could have a material adverse effect on our financial condition.
Our business and actions can expose us
to potential liability risks that are inherent in business, generally, and in the pharmaceutical industry, specifically. While
we maintain commercial general liability insurance with coverages and deductibles we believe are adequate, there is no guarantee
that our coverage will be adequate to satisfy any liability we may incur. A successful liability claim brought against us could
have a material adverse effect on our business prospects, financial condition and results of operations.
Reforms in the health care industry
and the uncertainty associated with pharmaceutical and laboratory test pricing, reimbursement and related matters could adversely
affect the marketing, pricing and demand for our products.
Public and private entities are seeking
ways to reduce or contain increasing health care costs. All generic pharmaceutical manufacturers whose products are covered by
the Medicaid program are required to rebate to each state a percentage of their “average manufacturer price” for the
products in question. The extension of prescription drug coverage to all Medicare recipients was approved by Congress several years
ago. Numerous other proposals to curb rising pharmaceutical prices have also been introduced or proposed in Congress and in some
state legislatures. We cannot predict the nature of the measures that may be adopted or their effect on our competitive position.
Our ability to market our products depends, in part, on reimbursement levels for them and related treatment established by health
care providers, private health insurers and other organizations, including health maintenance organizations and managed care organizations.
In the event that governmental authorities enact additional legislation or adopt regulations that affect third party coverage and
reimbursement, demand for our products may be reduced, which may materially adversely affect our business prospects, financial
condition and results of operations.
Our business and operations would suffer in the event
of computer system failures.
Despite the implementation of security
measures, our internal computer systems and those of our CROs and other third parties on which we rely, are vulnerable to damage
from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures.
Like other companies, we may from time to time experience threats to our data and systems, including malware and computer virus
attacks, unauthorized access, systems failures and disruptions. In addition, our systems safeguard important confidential personal
data regarding our subjects. If a disruption event were to occur and cause interruptions in our operations, it could result in
a material disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or
planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover
or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of
bryostatin could be delayed
Consolidation in the pharmaceutical
industry could materially affect our ability to operate as an independent entity.
The pressure to grow revenues while containing
the escalating costs of basic research and development has resulted in an increase in mergers and acquisitions in our industry.
More consolidation in the pharmaceutical industry is expected over the next five years. We could become an acquisition target by
a larger competitor and, as a consequence, suffer serious disruptions to our business model or even lose control of our ability
to operate as an independent entity. Such events could have a material adverse effect on our product development efforts or the
commercialization of our proposed products.
Risks Related to Our Common Stock
There currently is a limited public
market for our common stock. Failure to develop or maintain an active trading market could negatively affect the value of our common
stock and make it difficult or impossible for you to sell your shares.
There is currently a limited public market
for shares of our common stock, and an active trading market may not continue to develop or be maintained. Our common stock has
been listed on The Nasdaq Capital Market since March 29, 2017 and was quoted on the OTC Market prior to such time. The average
daily trading volume in our common stock was approximately 40,000 shares during the 90-day period ended February 28, 2018. If an
active market for our common stock does not continue to develop or is not sustained, it may be difficult for investors to sell
shares without depressing the market price for the shares, or at all.
Volatility in the price of our common
stock could lead to losses by investors and costly securities litigation.
The trading price of our common stock is
likely to be highly volatile and could fluctuate in response to factors such as:
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additions or departures of
key personnel;
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actual or anticipated variations in our operating results;
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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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adoption of new accounting standards affecting our industry;
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sales of our common stock or other securities in the open market or in any publicized transaction;
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changes in our industry;
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regulatory and economic developments, including our ability to obtain working capital financing;
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shares of our common stock are saleable under Rule 144 of the Securities Act of 1933, as amended, or the Securities Act, and as a result, potential and actual sales of our common stock by our present stockholders may have a depressive effect on the price of our common stock in the marketplace;
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potential and actual sales of our common stock by our present stockholders pursuant to registration statements may have a depressive effect on the price of our common stock in the marketplace;
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our ability to execute our business plan;
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other events or factors, many of which are beyond our control; and
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announcement of clinical trial results.
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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 the public company. 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. Since May 17, 2017, there have been two purported class action lawsuits and a shareholder
derivative suit commenced against us. While we believe we have substantial legal and factual defenses to these claims in these
lawsuits and we will vigorously defend the lawsuits, the outcome of litigation is difficult to predict and quantify, and the defense
against such claims or actions can be costly and divert management resources. In connection with these lawsuits, we could incur
substantial costs and such costs and any related settlements or judgments may not be covered in full by insurance.
We do not anticipate dividends to be paid on our common
stock, and investors may lose the entire amount of their investment.
Cash dividends have never been declared
or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use
future earnings, if any, to fund business growth. Therefore, stockholders will not likely receive any funds absent a sale of their
shares. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if
our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell their shares,
nor can we assure that stockholders will not lose the entire amount of their investment.
If securities analysts do not initiate
coverage or continue to cover our common stock or if they publish unfavorable research or reports about our business, there could
be a negative impact on the market price of our common stock.
The trading market for our common stock
may depend, in part, on the research and reports that securities analysts publish about our business and the Company. We do not
have any control over securities analysts. There is no guarantee that securities analysts will cover our common stock. If securities
analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered
by securities analysts, and our stock is the subject of an unfavorable report, our stock price and trading volume would likely
decline. If one or more of these analysts ceases to cover the Company or fails to publish regular reports on the Company, we could
lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
You may experience dilution of your
ownership interests because of the future issuance of additional shares of our common stock.
Any future issuance of our equity or equity-backed
securities will dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market
value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As described above, we
will need additional financing to continue our operations and may raise additional capital through public or private offerings
of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options and
other equity compensation issued under our equity incentive plans), as payment to providers of goods and services, in connection
with future acquisitions or for other business purposes. Our Board of Directors (the “Board”) may at any time authorize
the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized
common and preferred shares set forth in our Articles of Incorporation. The terms of equity securities issued by us in future transactions
may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the
issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any
such additional shares of our common or preferred stock or other securities may create downward pressure on the trading price of
our common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the
price at which shares of our common stock are then traded.
We may obtain additional capital
through the issuance of preferred stock, which may limit your rights as a holder of our common stock.
Without any stockholder vote or action,
our Board may designate and approve for issuance shares of our preferred stock. The terms of any preferred stock may include priority
claims to assets and dividends and special voting rights which could limit the rights of the holders of our common stock. The designation
and issuance of preferred stock favorable to current management or stockholders could make any possible takeover of us or the removal
of our management more difficult.
Being a public company is expensive
and administratively burdensome.
Public reporting companies are subject
to the information and reporting requirements of the Securities Act, the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act.
Complying with these laws and regulations requires the time and attention of our Board and management, and increases our expenses.
Among other things, public reporting companies must:
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maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”) and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
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maintain policies relating to disclosure controls and procedures;
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prepare and distribute periodic reports in compliance with our obligations under federal securities laws;
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institute a more comprehensive compliance function, including with respect to corporate governance; and
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involve, to a greater degree, our outside legal counsel and accountants in the above activities.
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The costs of preparing and filing annual
and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders is expensive
and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire
additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory,
legal and accounting expenses and the attention of management. We currently do not comply with all of these regulations. See below
Risk Factor entitled “Any failure to maintain
effective internal control over our financial reporting could
materially adversely affect us.” There can be no assurance that we will be able to comply with the applicable regulations
in a timely manner, if at all. In addition, being a public company has made it more expensive for us to obtain director and officer
liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain
this coverage. These factors could also make it more difficult for us to attract and retain qualified executives and members of
our Board, particularly directors willing to serve on the audit and compensation committees.
Any failure to maintain effective
internal control over our financial reporting could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act (“Section
404”) requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal
control over financial reporting. In addition, at such time, if any, as we are no longer a “smaller reporting company,”
our independent auditors will have to attest to and report on management’s assessment of the effectiveness of such internal
control over financial reporting. We have limited experience operating as a public reporting company under the level of internal
control over financial reporting required by the Sarbanes-Oxley Act. We performed an evaluation under the supervision and with
the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal
financial officer, respectively, of the effectiveness of our disclosure controls and procedures and internal controls over financial
reporting. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures and internal controls over financial reporting are not effective due to the material weakness resulting
from a limited segregation of duties among our employees with respect to our control activities. This deficiency is the result
of our limited number of employees. This deficiency may affect management’s ability to determine if errors or inappropriate
actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible
changes in our disclosure controls and procedures.
Even in the event that our management concludes
that our internal control over financial reporting becomes effective, if our independent auditors are not satisfied with the adequacy
of our internal control over financial reporting, or if the independent auditors interpret the requirements, rules or regulations
differently than we do, then (to the extent we are no longer a “smaller reporting company”) they may decline to attest
to management’s assessment or may issue a report that is qualified. Any of these events could result in a loss of investor
confidence in the reliability of our financial statements, which in turn could negatively impact the price of our common stock.
We must perform system and process evaluation
and testing of our internal control over financial reporting to allow management and (if required in the future) our independent
registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required
by Section 404. Our compliance with Section 404 may require that we incur substantial accounting expense and expend significant
management efforts. We currently do not have an internal audit group, and we will need to retain the services of additional accounting
and financial staff or consultants with appropriate public company experience and technical accounting knowledge to satisfy the
ongoing requirements of Section 404.