Item
1. Business
Background
TFF Pharmaceuticals,
Inc. was formed as a Delaware corporation on January 24, 2018 for
the purpose of developing and commercializing innovative drug products
based on our patented Thin Film Freezing, or TFF, technology platform. We were formed by Lung
Therapeutics, Inc., or LTI, an early stage biotechnology company focused on the development of certain technologies in the pulmonary
field. In March 2018, we completed a Series A preferred stock financing with third-party investors, at which time we acquired certain
of LTI’s non-core intellectual property rights and other assets, all of which relate to our TFF technology, for 4,000,000
shares of our common stock. As of the date of this report, LTI owns 4,000,000 shares of our common stock, or approximately 21%
of our capital stock. We are no longer a subsidiary of LTI.
Since our formation,
we have focused on the development of our initial drug candidates, the establishment of strategic relationships with established
pharmaceutical companies for the licensing of our TFF technology platform and the pursuit of additional working capital. We have
not commenced revenue-producing operations. Unless otherwise indicated, the terms “TFF Pharmaceuticals,” “Company,”
“we,” “us,” and “our” refer to TFF Pharmaceuticals, Inc. and its wholly-owned subsidiaries.
Since our organization
in 2018, we have engaged in several capital raising transactions, which are summarized below in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – General.”
Overview
We are an early-stage
biopharmaceutical company focused on developing and commercializing innovative drug products based on our patented Thin Film Freezing,
or TFF technology platform. We believe, and early testing confirms, that our TFF platform can significantly improve the solubility
of poorly water-soluble drugs, a class of drugs that makes up approximately 33% of the major pharmaceuticals worldwide, thereby
improving the pharmacokinetic effect of those drugs. We believe that in the case of some new drugs that cannot be developed due
to poor water-solubility, our TFF platform has the potential to increase the pharmacokinetic effect of the drug to a level allowing
for its development and commercialization. In November 2019, we initiated Phase I human clinical trials of our lead product, TFF
Vori, however, as of the date of this report, we have not progressed the development of any other of our drug candidates to human
clinical trials and our efforts have focused on the formulation, early stage animal testing and formal toxicology studies of our
initial drug candidates in preparation for our first clinical trials.
We intend to initially
focus on the development of inhaled dry powder drugs for the treatment of pulmonary diseases and conditions. While the TFF platform
was designed to improve solubility of poorly water-soluble drugs generally, the researchers at University of Texas at Austin, or
UT, found that the technology was particularly useful in generating dry powder particles with properties which allow for superior
inhalation delivery, especially to the deep lung, which is an area of extreme interest in respiratory medicine. We believe that
our TFF platform can significantly increase the number of pulmonary drug products that can be delivered by way of breath-actuated
inhalers, which are generally considered to be the most effective and patient-friendly means of delivering medication directly
to the lungs. Our dry powder drug products will be designed for use with dry powder inhalers, which are generally considered to
be the most effective of all breath-actuated inhalers. We plan to focus on developing inhaled dry powder formulations of existing
off-patent drugs intended for lung diseases and conditions, which we believe includes dozens of potential drug candidates, many
of which have a potential market ranging from $100 million to over $500 million.
We also focused on
the joint development of dry powder formulations of proprietary drugs owned or licensed by other pharmaceutical companies. As of
the date of this report, we are at various stages of three different feasibility studies of new chemical entities owned by three
international pharmaceutical companies. In addition, we recently commenced preliminary analysis and testing of dry powder formulations
of certain drugs and vaccines through topical, ocular and nasal applications in connection with our participation in submissions
made to certain government agencies for government contracts.
Our business model
is to develop proprietary innovative drug product candidates that offer commercial or functional advantages, or both, to currently
available alternatives. Because our initial dry powder drug candidates, TFF Vori and TFF Tac-Lac, will be established drugs that
are off-patent, we believe that our initial drug product candidates will qualify for approval by the U.S. Food and Drug Administration,
or FDA, through the FDA’s 505(b)(2) regulatory pathway and in corresponding regulatory paths in other foreign jurisdictions.
The 505(b)(2) pathway sometimes does not require clinical trials other than a bioequivalence trial. However, to the extent we claim
that our product candidates target a new indication or offer improved safety compared to the existing approved products, and it
is our present expectation that we will in many cases, it is likely that we will be required to conduct additional clinical trials
in order to obtain marketing approval. For example, and as more fully described below, based on a February 2019 pre-Investigational
New Drug Application, or IND, meeting with the FDA concerning TFF Vori, we believe we will need to conduct Phase I and Phase II
studies prior to filing for marketing approval for TFF Vori. In addition, based on a September 2019 pre-IND meeting with the FDA
concerning TFF Tac-Lac, we also believe we will require Phase I and Phase IIb/IIIa studies prior to filing for marketing approval
for TFF Tac-Lac. However, there can be no assurance that the FDA will not ask for additional clinical data for either TFF Vori
or TFF Tac-Lac.
While we intend to
target the development of off-patent drugs for which we would directly pursue the development of a dry powder formulation through
the FDA’s 505(b)(2) regulatory pathway, not all of our product candidates will target off-patent drugs and, at least in the
case of a dry powder formulation of cannabidiol, or CBD, our product candidate may not be a drug. We do not expect our proposed
dry powder formulation of CBD drug product to be off-patent and our proposed dry powder formulation of aluminum salt vaccines may
not be off-patent. We also expect that our dry powder formulation of CBD drug product will likely require a full New Drug Application,
or NDA, through the FDA’s 505(b)(1) regulatory pathway; however, a non-pharmaceutical CBD dry powder formulation, such as
a dietary supplement, may not require FDA pre-market approval. We expect that our dry powder formulation of aluminum salt vaccines
will require a biological license application, or BLA, which is very similar to a full NDA through the FDA’s 505(b)(1) regulatory
pathway.
We also believe that
in some cases our dry powder drug products may qualify for the FDA’s orphan drug status. Upon and subject to receipt of the
requisite approvals, we intend to commercialize our drug product candidates through a combination of our internal direct sales
and third-party marketing and distribution partnerships. In some cases, such as the development of combination drugs or the development
of dry powder formulations of patented drugs, we intend to pursue the licensing of our TFF platform or a joint development arrangement.
Our Intended Regulatory Pathway
The 505(b)(2) pathway
is intended for molecules that have been previously approved by the FDA or have already been proven to be safe and effective. A
505(b)(2) product reformulates the known molecule in a new strength or dosage form. 505(b)(2) products have the advantage of potentially
significantly lower development costs and shorter development timelines versus traditional new molecular entities. We expect to
utilize the 505(b)(2) pathway for all of our current product candidates.
A 505(b)(2) NDA is
an application that contains full reports of investigations of safety and effectiveness, but where at least some of the information
required for approval comes from studies not conducted by or for the applicant. This alternate regulatory pathway enables the applicant
to rely, in part, on the FDA’s findings of safety and efficacy for an existing product, or published literature, in support
of its application. A 505(b)(2) product candidate might rely on the clinical studies or literature of a previously FDA-approved
drug, or rely on the literature and physician usage of an FDA-unapproved, or DESI, drug. The clinical requirements for a 505(b)(2)
drug candidate can vary widely from product to product and may include new clinical trials, bioequivalence trials, limited safety
and efficacy trials, or full Phase I through III trials. Unless the FDA has released a guidance document, the clinical requirement
for a new product candidate is typically not known until the drug sponsor has a Pre-IND meeting with the FDA. We believe there
is a significant opportunity to pursue dry powder formulations of off-patent drugs using the 505(b)(2) regulatory pathway.
We also believe that
in some cases the indication for some of our dry powder drug product candidates may qualify for the FDA’s orphan drug status.
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition generally
affecting fewer than 200,000 individuals in the United States, or in other limited cases. Orphan drug designation provides for
seven years of exclusivity, independent of patent protection, to the company that brings a particular orphan drug to market. In
addition, companies developing orphan drugs are eligible for certain incentives, including tax credits for qualified clinical testing.
In addition, an NDA for a product that has received orphan drug designation is not subject to a prescription drug user fee unless
the application includes an indication other than the rare disease or condition for which the drug was designated.
The Problem We Address
Solubility is an issue
that all drugs must address. No matter how active or potentially active a new drug is against a particular molecular target, if
the drug is not available in solution at the site of action, it is most likely not a viable development candidate. Based on independent
third-party studies, 40% of newly discovered drugs have little or no water solubility, and in some therapeutic areas this number
can reach 90%, which in most cases will prohibit development since most pharmaceutical companies cannot or will not conduct rigorous
preclinical and clinical studies on a molecule that does not have a sufficient pharmacokinetic profile due to poor water solubility.
Water solubility can also be an issue for some marketed drugs. Based on independent third-party studies, only two-thirds of the
drugs on the World Health Organization, or WHO, Essential Drug List were classified as high solubility. A marketed drug with poor
water solubility can show performance limitations, such as incomplete or erratic absorption, poor bioavailability, and slow onset
of action. Effectiveness can vary from patient to patient, and there can be a strong effect of food on drug absorption. Finally,
it may be necessary to increase the dose of a poorly soluble drug to obtain the efficacy required, which can lead to adverse side
effects, toxicity issues and increased costs.
In addition to water
solubility issues generally, certain drugs that target lung conditions and diseases have poor solubility that prevent them from
being delivered by way of a breath-actuated inhaler and can only be given orally or intravenously. Breath actuated inhalers include
dry powder inhalers, metered dose inhalers and nebulizers. A dry powder inhaler (such as the Advair Diskus) delivers drugs in a
dry powder form directly to the lungs by way of a deep, fast breath on the mouth of the inhaler. A metered dose inhaler (such as
the Symbicort asthma inhaler) uses propellant to push medication to the lungs. A nebulizer (such as the Aeroneb Pro) creates a
mist that is breathed into the lungs through a mouthpiece. The dry powder inhaler is generally considered to be the most effective
and convenient form of breath-actuated inhaler for all users, other than for those whose severe condition does not allow them to
take a sufficiently deep breath.
We believe the primary
benefit of a breath-actuated inhaler is its ability to administer a greater portion of the drug dosage directly to the target site.
Dosing directly to the lungs has been shown to allow for better effect with fewer adverse events. In addition, it has been shown
that dosing directly to the lungs requires a much lower dose of drug, sometimes as little as 10%, compared to delivery by oral
or parenteral routes. While breath-actuated inhalers allow for a greater portion of the administered drug to reach the treatment
site, which should allow for much smaller dosages compared to oral or intravenous delivery, not all drugs targeting lung conditions
and diseases can be formulated for use with a breath-actuated inhaler. We believe there are dozens of off-patent drugs targeting
lung conditions and diseases that are currently not eligible for delivery by way of breath-actuated inhalers, many of which have
a potential market of $100 million to over $500 million. This is the market we intend to initially address through our development
of dry powder drugs utilizing our TFF platform.
Our Thin Film Freezing Platform
Our development of
dry powder drugs is enabled by technology licensed to us by the University of Texas at Austin, or UT. Researchers at UT have developed
a technology employing a process called Thin Film Freezing, or TFF. While the TFF platform was designed to improve solubility of
poorly water-soluble drugs generally, the researchers at UT found that the technology was particularly useful in generating dry
powder particles with properties suitable for inhalation delivery, especially to the deep lung, an area of extreme interest in
respiratory medicine. It was found that the TFF platform yields particles that are particularly well suited to dry powder inhaler
delivery. The process results in a “Brittle Matrix Particle,” which possess low bulk density, high surface area, and
typically an amorphous morphology, allowing them to supersaturate when contacting the target site, such as lung tissue. The aerodynamic
properties of the particles are such that the portion of drug deposited to the deep lung may reach as high as 75% or greater of
the administered dose, compared to 10% or less when given orally or intravenously.
The TFF process, outlined
in the figures below, involves dissolving a drug or drugs in a solvent system, and it will often include agents designed to promote
dispersion and avoid clumping and excipients to promote adhesion to the target site. The drug solution is then applied to a cryogenic
substrate, such as a liquid nitrogen cooled stainless steel drum. When the drug solution contacts the cryogenic surface it vitrifies,
or flash freezes, resulting in a “drug ice” typically with amorphous drug morphology. The solvent system is removed
by lyophilization, resulting in Brittle Matrix Particles, shown in the photographs below, that are highly porous, large surface
area, low-density particles. The process uses industry standard solvents, lung-approved excipients, a custom-made TFF drum and
conventional process equipment.
We believe our TFF
platform is a breakthrough platform technology for making dry powders from drugs which previously were not candidates for the dry
powder inhaler or any breath-actuated inhaler. We believe our TFF technology opens the way for direct-to-lung delivery of dozens
of pharmaceuticals, including the reformulation of existing drugs into a more safe and convenient inhaled dry powder product. We
believe the technology can be used with molecules of all types and works with existing and off-the-shelf dry powder inhalers without
the need for any additional equipment or devices.
We believe our TFF
platform presents the following high value opportunities:
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Reformulation of drugs for lung conditions.
Today, many drugs intended for lung conditions are only given orally or intravenously due to properties that make them ill-suited
for direct delivery by inhalers. Given by these routes, typically only 10% of the drug reaches the lungs, and these drugs may cause
unwanted and even deadly side effects. We believe that our TFF platform for the first time will allow many of these medications
to be formulated into the convenient, direct-to-lung dry powder inhaler format, thereby enhancing efficacy, reducing or eliminating
side effects and providing for delivery of drug direct to the target site.
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Biologics. Biopharmaceuticals (or
biologics) are by far the fastest growing sector in the pharmaceutical industry today. According to Visiongain, the market for
biologics is expected to top $270 billion by 2019. Biologics are most commonly delivered intravenously, and they can be an especially
challenging class of drugs for formulation into a dry powder. We believe our TFF platform is uniquely suited to meet many of the
challenges of biologic formulations, and our UT collaborators have demonstrated, via animal model testing and in vitro testing,
the effectiveness of the TFF technology to produce dry powder biologics with up to 100% activity retained. We intend to explore
dry powder forms of numerous biological drugs, including drugs intended to treat indications other than lung conditions and diseases.
We are also pursuing TFF formulations of salt containing vaccines, which we believe may provide significant advantages over the
traditional method of handling vaccines through liquid suspension and cold chain.
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Combination Drugs. Combination
drugs are products with two or more active pharmaceutical ingredients. In addition to providing for increased patient compliance
with multiple medications, some drugs act synergistically and provide for superior benefit when given as a combination. However,
combining pharmaceutical agents can be challenging, especially for inhalation delivery. Our TFF platform has shown the ability
to produce fixed dose combinations of many agents in a manner that delivers the drugs simultaneously to the site of action in a
precise amount.
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UT initially licensed
the TFF technology to The Dow Chemical Company, or Dow, and Dow researchers pursued the development of the TFF platform until Dow’s
decision to divest its pharmaceutical assets in 2007. While at Dow, the technology was scaled from laboratory (milligrams) to pilot/commercial
quantities (kilos). In addition, the Dow team showed that the scaling process did not alter the morphology or other properties
of particles made using TFF. More than a dozen drugs, including both small molecules and biologics, were processed by Dow researchers
and UT collaborators using the technology, and the benefits were quantified using both in vivo and analytical techniques. In a
report published by Dow researchers in 2008, they reported that in several drugs tested by them, there was evidence of enhanced
dissolution rates using the TFF platform compared to bulk drugs. In one instance, the researchers measured that a TFF prepared
drug was able to reach 96% dissolution in two minutes compared to 60% dissolution in 30 minutes by the same drug in bulk form.
Following its decision
to divest its pharmaceutical assets in 2007, Dow’s license rights to the TFF platform were terminated. In July 2015, UT granted
to our former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights for the TFF platform in all fields
of use, other than vaccines, for which LTI was granted a non-exclusive worldwide, royalty bearing license to the patent rights
for the TFF platform. In January 2018, we entered into a Contribution and Subscription Agreement with LTI, pursuant to which we
agreed to acquire from LTI certain intellectual property rights and other assets, including the UT patent license agreement, all
of which relate to our TFF platform. We closed on the acquisition of the LTI assets in March 2018. In November 2018, we and UT
amended the UT patent license agreement pursuant to which, among other things, our exclusive patent rights to the TFF platform
were expanded to all fields of use.
We continue to work
with the inventors of the TFF platform through a series of Sponsored Research Agreements, or SRAs, with UT. Our SRAs with UT are
industry standard sponsored research agreements pursuant to which UT provides to us certain product formulation, characterization
and evaluation services with regard to our product candidates incorporating our TFF technology in exchange for our payment of UT’s
expenses and reasonable overhead. The services conducted by UT are to be carried out under the direction of a principal investigator
at UT who is the principal inventor of the TFF technology. The current SRA expires in April 2022 and is subject to renewal upon
mutual agreement of the parties. The SRAs includes customary provisions concerning confidentiality, indemnification and intellectual
property rights, including each party’s exclusive ownership of all intellectual property developed solely by them and the
parties’ joint ownership of all intellectual property developed jointly. All patented intellectual property rights
relating to the TFF technology developed solely or jointly by UT are subject to our patent license agreement with UT and are included
among our licensed patent rights. Pursuant to those SRAs, the research scientists, together with their labs and collaborators,
provide expertise and initial development work, including:
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the preliminary development and in vitro
evaluation of our drug candidates;
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the determination of the key characteristics
influencing performance of our product candidates;
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the determination of the formulation and
manufacturing parameters that influence the key characteristics of our product candidates;
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supply of bulk dry powders for initial
good laboratory practice, or GLP, and non-GLP toxicity studies;
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supportive stability for future GLP and
GMP studies; and
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the evaluation of the in vivo performance
of our product candidates in various animal models.
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We have entered into
short-term contract manufacturing agreements with IriSys, Inc. and CoreRx, Inc. for their provision of certain product testing,
development and clinical manufacturing services for our TFF Vori and TFF Tac-Lac product candidates, respectively. Our agreements
with IriSys and CoreRx include customary provisions concerning confidentiality, indemnification and intellectual property rights,
including our exclusive ownership of all intellectual property developed severally or jointly relating to our TFF technology. We
have not entered into agreements with any contract manufacturers for the commercial supply, however, we believe that both IriSys
and CoreRx, among several other manufacturers, have the experience and the capacity to serve as a commercial contract manufacturer.
We believe we will be able to engage a commercial contract manufacturer for our product candidates in a timely manner at competitive
pricing.
Each of Patheon’s,
CoreRx’s and IriSys’ facilities and services are conducted in accordance with the FDA’s current good manufacturing
practices, or cGMPs, regulations, and IriSys and CoreRx are in the process of onboarding the TFF technology to support preclinical
and clinical supply of our TFF Vori and TFF Tac-Lac drug product candidates, respectively.
Pursuant to the agreements
with CoreRx and IriSys, they will generate clinical supplies and provide release and stability testing of the respective TFF drug
product candidate. Specific tasks will include:
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Engineering review and TFF technology
installation;
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Familiarization with TFF technology, including
powder processing and handling;
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Analytical method transfer, development,
and validation;
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Conducting process development trials
and short-term supportive stability analysis;
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Scale-up and demonstration batches of
the product candidate;
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Manufacture and analytical characterization
of materials to support toxicology studies, both, placebo and active;
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Process train qualification for cGMP manufacturing;
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Manufacturing and release of cGMP batches
for clinical trials; and
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Conducting formal stability study under
the guidelines of International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use, or ICH.
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Because our dry powder
drug candidates will represent a new formulation of an existing drug, we will need to obtain FDA approval of the TFF prepared drug
candidate before we can begin commercialization. However, because we begin our formulation with a drug that has previously received
FDA approval in another form, we believe that in most cases we should qualify for the FDA’s 505(b)(2) regulatory pathway,
which potentially will take less time and investment than the standard FDA approval process.
Our Initial Drug Targets
We intend to initially
focus on the development of inhaled dry powder drugs for the treatment of pulmonary diseases and conditions. Our dry powder drug
product candidates will be designed for use with dry powder inhalers, which are generally considered to be the most effective of
all breath-actuated inhalers. We intend to develop dry powder drugs that can be used with existing dry powder inhalers that are
commercially available without licensing. We plan to focus on developing dry powder drugs intended for lung diseases and conditions
that are off-patent, which we believe includes dozens of potential drug candidates, many of which have a potential market ranging
from $100 million to over $1 billion. As of the date of this report, we have identified and are focusing on three initial
drug candidates and with each we are in the early stages of formulation and testing.
TFF Vori - For the Treatment of Invasive
Pulmonary Aspergillosis
We are developing an
inhaled dry powder drug intended to treat invasive pulmonary aspergillosis, or IPA, a severe fungal pulmonary disease with a mortality
rate that can reach 90% in some patient populations. IPA occurs primarily in patients with severe immunodeficiency, such as bone
marrow transplant recipients, other transplant patients, patients with chemotherapy-induced immunodeficiency, and HIV patients.
To date, the antifungals used to treat IPA have been delivered orally or intravenously. However, these delivery methods have resulted
in low drug concentrations in the lung due to poor bioavailability. We believe these antifungals have serious side effects and
drug interaction issues, which places a premium on any solution that can provide effective treatment in more limited dosages. Due
to the nature of these drugs, it has not been possible to make formulations for breath-actuated inhalers that might maximize lung
concentration while limiting side effects.
We believe, and early
in vitro and animal testing confirms, that our TFF platform can be used to formulate a dry powder version of Voriconazole, generally
considered to be one of the best antifungal drugs used in the treatment of IPA. Voriconazole is an off-patent drug and our TFF
prepared version of Voriconazole would represent the first inhaled antifungal medication for the treatment of IPA, which has the
potential to put the drug exactly where it is needed while minimizing off target effects.
Voriconazole is currently
marketed in Australia, Europe and the U.S. as Vfend, and is available in several strengths and presentations for oral delivery
or IV infusion. As of the date of this report, the Clinical Practice Guidelines released by the Infectious Diseases Society of
America recommend Voriconazole as first-line monotherapy for IPA. However, since the registration of Vfend in Europe and the U.S.
in 2002, several studies have examined the exposure-response relationship with Voriconazole, identifying a relationship between
low Voriconazole exposure and higher rates of treatment failure, as well as a higher propensity for neurotoxicity at higher exposures.
Studies have shown that when delivered orally or intravenously Voriconazole can have differing bioavailability, and therefore differing
concentration of the drug available to the lungs, based on whether the patient recently had food. In addition, Voriconazole when
delivered orally or intravenously has been shown to have various side effects including nausea and headaches, and adverse events
including optic neuritis and papilledema, hepatic toxicity, galactose intolerance, arrhythmias and QT prolongation. These studies
confirm that when administered orally or intravenously, Voriconazole provides a narrow therapeutic window between treatment failure
and unacceptable treatment toxicity.
We believe a TFF prepared
dry powder formulation of Voriconazole can maximize both the prophylactic value to the lungs for immunocompromised patients susceptible
to IPA and the treatment value of patients suffering from chronic IPA. We also believe our dry powder drug would benefit patients
by providing the drug at the “port of entry” of invasive fungal infections, while also reducing or eliminating the
unpleasant and potentially fatal side effects associated with Voriconazole and other last line antifungals. We also believe that
the administration of our TFF prepared dry powder formulation directly to the lungs will significantly reduce any potential differences
in bioavailability due to the effects of eating or fasting. In addition, animal and in vitro studies have shown that our TFF prepared
dry powder formulation will improve the solubility of Voriconazole compared to oral or intravenous delivery. We believe that the
combination of improved solubility and direct-to-lung administration of our TFF prepared dry powder formulation will allow for
a lower dose directly to the lungs and thereby reduce the high systemic exposure of oral administration and associated side effects,
including optic neuritis and papilledema, hepatic toxicity, galactose intolerance, arrhythmias and QT prolongation.
Through our work with
UT, we have already completed performance characterization of a TFF formulation of Voriconazole, early animal model testing and,
in 2018, a seven-day toxicology study in rats. Through our drug characterization activities, we have worked with researchers at
UT to define the appropriate dosage, particle size, porosity, density and other dosage characteristics of a TFF prepared dry powder
formulation of Voriconazole and related excipients. Previous third-party studies suggest that inhaled Voriconazole may be effective
in animal models and as a therapy in humans when delivered to the lung by nebulization. Our TFF formulation of Voriconazole has
been used to produce a 95% Voriconazole powder for inhalation that has been tested in rats and at inhaled doses up to 4 mg/kg,
with no local or systemic toxicity while showing good exposure in lung tissue and plasma.
On
February 4, 2019, we participated in a pre-IND meeting with the FDA for purposes of discussing our proposed regulatory pathway
for TFF Vori and obtaining guidance from the FDA on the pre-clinical plan leading to the filing and acceptance of an IND application
for TFF Vori. We were successful in gaining agreement that a 505(b)(2) approach would be appropriate for TFF Vori. However, the
FDA requested that we perform an additional 28-day toxicity study in rats and a 14-day study in dogs, both of which have been completed,
as well as a Phase I study in healthy human subjects. In October 2019, we submitted to the FDA an IND for our TFF Vori and
initiated our Phase I human clinical trials in November 2019. In addition,
we believe we will need to complete a Phase II study prior to filing for marketing approval. However, there can be no assurance
that the FDA will not ask for additional clinical data. We also believe that our dry powder formulation may qualify as an orphan
drug, as there are an estimated 50,000 transplants in the U.S. each year as well as approximately 50,000 patients suffering with
chronic IPA.
TFF Tac-Lac — For Immunosuppression
to Prevent Organ Transplant Rejection
We are developing TFF
Tac-Lac, a dry powder version of Tacrolimus, an immunosuppressive drug used in transplant medicine. Prograf Tacrolimus is currently
the second most commonly administered immunosuppressive agent in solid organ transplantation despite what we believe to be the
many challenges for patients and physicians when used for extended periods. Prograf Tacrolimus can cause nephrotoxicity, particularly
when used in high doses. According to product labeling and prescribing information for Prograf Tacrolimus, nephrotoxicity was reported
in approximately 52% of kidney transplantation patients and in 40% and 36% of liver transplantation patients receiving Prograf
in the U.S. and European randomized trials, respectively, and in 59% of heart transplantation patients in a European randomized
trial.
Although Tacrolimus
has been shown via animal models to be beneficial for a number of immunological diseases that affect the lung, systemic toxicity
(including renal failure, hypertension, hirsutism, diabetes) has limited its use. In addition, Tacrolimus when delivered orally
or intravenously has been shown to have side effects including nausea, indigestion, stomach pain and headaches. Adverse events
associated with Tacrolimus when delivered orally or intravenously include increase in cancer, increase in infections, anemia, kidney
problems, nervous system problems (including seizures, coma, tremors, confusion, headaches), high blood pressure, QT prolongation,
high level of potassium in the blood, myocardial hypertrophy, diabetes, damage to the brain, high level of fats or lipids or phosphates
in the blood, constipation, diarrhea, bronchitis, inability to sleep, high magnesium levels, reduction in white blood cells, lack
of energy, damage to the peripheral nerves, and fluid around the heart.
Tacrolimus is an off-patent
drug and we intend to develop a dry powder version suitable for use with a dry powder inhaler. Because our dry powder version would
provide for a high local lung concentration without the typical systemic toxicity frequently experienced with oral dosage form
immunosuppressants, we believe our drug candidate should have a high likelihood of success in competing in the immunosuppressant
market for lung and heart/lung transplants.
Through our partners
at UT, we have already completed development work and performance characterization of our dry powder formulation of Tacrolimus
through early animal modeling testing. Through our drug characterization activities, we have worked with researchers at UT to define
the particle size, distribution and aerodynamic properties suitable for delivery to humans using a dry powder inhaler. Past third-party
studies report that inhaled Tacrolimus delivered to the lungs by nebulization has proven to produce robust drug levels in lung
tissue, while the drug level is reduced in peripheral tissues, where toxicity limits dosing. Our TFF formulation of Tacrolimus
has been used to produce a 50% Tacrolimus powder for inhalation that has been tested in rats. The inhaled doses in our animal tests
exhibited higher pulmonary bioavailability with a prolonged retention time in the lung. In addition, our TFF formulation generated
a lower systemic concentration of Tacrolimus, thereby suggesting the possibility of reduced side effects compared to oral or intravenous
delivery.
On September 26, 2019,
we participated in a pre-IND meeting with the FDA for purposes of discussing our proposed regulatory pathway for TFF Tac-Lac and
obtaining guidance from the FDA on the pre-clinical plan leading to the filing and acceptance of an IND application for TFF Tac-Lac.
We were successful in gaining agreement that a 505(b)(2) approach would be appropriate for TFF Tac-Lac. However, since we are
pursuing a new indication in the treatment of prophylaxis of organ rejection in patients receiving lung transplants, the FDA confirmed
our expectation that we will probably need to complete a Phase I and a Phase IIb/IIIa study prior to filing for marketing approval
for TFF Tac-Lac. The proposed Phase IIb/IIIa study would essentially be a Phase II clinical study but would include more rigorous
and expansive controlled and uncontrolled clinical trials for purposes of generating greater data on efficacy, dosing and labeling.
However, there can be no assurance that the FDA will not ask for additional clinical data. We also believe that our dry powder
formulation may qualify as an orphan drug, as there are an estimated 50,000 transplants in the U.S. each year.We intend to conduct
Phase 1 clinical trials for our TFF formulation of Tacrolimus in Australia, which we consider to be a highly desirable site to
conduct human clinical trials. On March 13, 2020, we had received the approval of the Australian Human Research Ethics Committee
to commence Phase 1 trials in Australia. However, later in March 2020, our contract research organization partner in Australia
informed us that because of the spread of the COVID-19 virus in Australia, there would be a delay in initiating the trials.
One contributing factor is that Tacrolimus is an immunosuppressant drug and, given the threat of the COVID-19 virus, concern exists
that even though we would be dosing healthy volunteers the inhalation of an immunosuppressant could increase the risk of severe
complications if a volunteer was to contract COVID-19. As of the date of this report, we are unable to predict the length
of the delay in the commencement of Phase 1 clinical trials for our TFF Tac-Lac. As of the date of this report, we intend
to submit to the FDA an IND for TFF Tac-Lac upon completion of the Phase 1 clinical trials.
Triple Combination For COPD/Asthma
We
are developing a dry powder drug combination intended to treat chronic obstructive pulmonary disease, or COPD, and asthma. There
is a trend towards a three-drug combination in the treatment of uncontrolled COPD and asthma. Data suggests that therapy with a
long-acting antimuscarinic agent, or LAMA, a long-acting β2-agonist,
or LABA, and an inhaled corticosteroid, or ICS, is effective in patients with severe COPD. GSK has received FDA approval for a
triple combination drug, Trelegy Ellipta, for the treatment of pulmonary disease. In addition, a variety of triple combinations
are currently under development by large pharmaceutical companies, including AstraZeneca and Chiesi Farmaceutici.
We are currently pursuing
the development of a combination dry powder drug intended for use with a dry powder inhaler for the maintenance treatment of bronchospasm
associated with moderate to severe COPD. Unlike most other triple combinations, which are chosen in part from the pharmaceutical
company’s list of existing products, our triple combination drug contains what we consider will be the best-in-class drug
in each category of LAMA, LABA and ICS.
Each of the drugs in
our proposed dry powder triple combination is currently off-patent and each is available for delivery individually by way of breath-actuated
inhalers. However, the three drugs in combination are not available for delivery through any breath-actuated inhalers due to the
inability to deliver the drugs through the airway in the exact ratio designed for treatment. We believe, however, that our TFF
platform allows for all three drugs to end up in each particle delivered to the airway in the exact ratio designed for treatment.
Since competition exists,
and typically large clinical trials are needed to approve this type of triple combination drug, our strategy would be to develop
the triple combination dry powder drug in partnership with a large pharmaceutical company looking to compete in the COPD and asthma
markets. We intend to engage large pharmaceutical companies in discussions concerning a potential joint development of our triple
combination dry powder drug. However, as of the date of this report we have no agreements, understandings or arrangements concerning
a joint development program and there can be no assurance we will be able to enter into a joint development agreement on terms
acceptable to us. We do not intend to pursue the development of our triple combination dry powder drug beyond performance characterization
and efficacy data through early animal testing until such time, if ever, as we obtain a development partner.
Other Potential Dry Powder Products
Our business model
is to develop proprietary innovative drug product candidates that offer commercial or functional advantages, or both, to currently
available alternatives. In our initial evaluation of the market, we have identified a number of potential drug candidates that
show promise upon initial assessment, for two of which we have conducted meaningful development activities, including dry powder
formulations of:
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Cannabidiol, or CBD, a controlled
substance as defined in the federal Controlled Substances Act of 1970, or CSA, that is reported to be used by some for the treatment
of various epilepsy syndromes as well as anxiety, insomnia, and different types of pain. We are in the early stages of developing
an inhaled dry powder drug that could be used to support or to treat a variety of health issues that may benefit from CBD administration.
Researchers have explored using the broader class of cannabinoids for inflammation, symptoms of multiple sclerosis, anorexia, schizophrenia,
and other conditions. The FDA has approved Epidiolex for the treatment of seizures associated with Lennox-Gastaut syndrome or Dravet
syndrome in patients two years of age or older. The Epidiolex product is an oral solution containing 100 mg/mL of CBD.
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We believe, and early in-vitro
research confirms, that our TFF platform can be used to formulate a dry powder version of CBD. Through our work with UT, early
animal model testing of TFF formulations of CBD administered via inhalation have been completed. The inhaled CBD showed more sustained
pharmacokinetic blood levels compared to the IV delivery method in the animal studies.
We intend to engage pharmaceutical
and non-pharmaceutical companies in the CBD space in discussions concerning a potential joint development of our dry powder formulation
of CBD, which may target a CBD drug product subject to FDA regulation or a non-drug CBD product that may not be subject to FDA
approval. We do not intend to pursue the development of our dry powder formulation of a CBD drug product beyond performance characterization
and efficacy data through early animal testing until such time, if ever, as we obtain a drug development partner. There can be
no assurance that our early testing and development will lead to a commercial dry powder formulation of a CBD drug product.
The 2018 Farm Bill, which was
signed into law on December 20, 2018, liberalized to some degree the regulation of hemp and hemp-derived products, such as CBDs,
under the CSA. However, the 2018 Farm Bill did not alter the FDA’s authority to regulate products containing cannabis or
cannabis-derived compounds, including CBD, under the Federal Food, Drug, and Cosmetic Act, or the FDCA. Following passage of the
2018 Farm Bill, the FDA reaffirmed its enforcement authority and reiterated the requirement that a CBD product (hemp-derived or
otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, be approved by the FDA for its
intended use before it may be introduced into interstate commerce. However, we believe that CBD products that are not marketed
with a claim of therapeutic benefit, or with any other disease claim, and meet the requirements of a dietary supplement, may not
require FDA pre-marketing approval. Hemp products, including CBDs, that qualify as drugs, food, dietary supplements, veterinary
products, and cosmetics will continue to be regulated by the FDA under the applicable regulatory frameworks. As of the date of
this report, we believe that Epidiolex is the only CBD-based product that has received market approval from the FDA.
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Vaccines containing aluminum salts,
which make up approximately 35% of all vaccines. Aluminum salts are incorporated into many vaccine formulations as an adjuvant,
which is a substance added to vaccines to enhance the immune response of vaccinated individuals. A major limitation with these
vaccines is that they are very fragile and to maintain their efficacy they must be formulated as liquid suspensions and kept in
a cold chain (2–8°C) during transport and storage, which is burdensome and expensive. Also, exposure of the liquid vaccines
to either ambient or freezing temperatures will cause a loss of efficacy, including particle aggregation in the case of freezing.
Alternatives to cold chain have been examined, including the introduction of stabilizing agents in vaccines to prevent aggregation
during freezing and the application of novel freezing and drying techniques; however, we believe that to date none of these techniques
have led to an acceptable alternative to cold chain.
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We have conducted drug and performance
characterization activities of certain TFF formulated salt containing vaccines. Our activities suggest that the salt containing
vaccines can be successfully converted from liquid suspension into dry powder using our TFF platform using a relatively low concentration
of trehalose as an excipient, and that the dry powder can later be reconstituted at the time of use without causing particle aggregation
or decrease in efficacy. In addition, the dry vaccine powder did not aggregate after repeated dry-freezing-and-thawing. We believe
that the TFF platform may be used to formulate new vaccines, or to reformulate existing vaccines, that are adjuvanted with aluminum
salts into dry vaccine powder without significant loss of efficacy.
We intend to engage pharmaceutical
companies in the vaccine space in discussions concerning a potential joint development of TFF formulated salt containing vaccines
and, in the meantime, we do not intend to pursue the development of our dry powder formulation of salt containing vaccines beyond
performance characterization and efficacy data through early animal testing until such time, if ever, as we obtain a development
partner. There can be no assurance, however, that our early testing and development will lead to a commercial dry powder formulation
of salt containing vaccines.
We have identified
a number of additional drug candidates that show promise upon initial evaluation. In each case, these are drugs for which we would
directly pursue the development of a dry powder formulation for use through a dry powder inhaler. We have not commenced meaningful
development activities for any of these product candidates at this time and there can be no assurance that we will pursue any of
the product candidates below.
Candidate
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Intervention
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Indication
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Rapamycin
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Acute
Treatment
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Lymphangioleiomyomatosis
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Alpha-1-antitrypsin
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Chronic
Treatment
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Vitamin
A deficiency
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GM-CSF
(filgrastim)
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Treatment
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Autoimmune
pulmonary alveolar proteinosis
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Treprostinil
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Treatment
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Pulmonary
Arterial Hypertension
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Pembrolizumab
(Keytruda)
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Acute
Treatment
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Cancer:
Non–Small Cell Lung Cancer, Liver, brain, melanoma, metastatic
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Cisplatin
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Acute
Treatment
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Lung
or esophageal cancer
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Gemcitabine
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Acute
Treatment
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Lung
or esophageal cancer
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Isoniazid/Rifampicin
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Acute
Treatment
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Tuberculosis
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Amphotericin
B
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Acute
Treatment
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Antifungal
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Palivizumab
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Prophylaxis
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Tuberculosis
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Ciprofloxacin
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Acute
Treatment
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Infection
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Tobramycin
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Acute
Treatment
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Infection
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Azithromycin
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Acute
Treatment
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Infection
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Calcium
channel blockers
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Acute
Treatment
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Raynaud’s
disease
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Sumatriptin
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Acute
Treatment
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Migraine
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Stem
cells
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Lung
remodeling
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Pneumococcal
pneumonia; cardiomyopathy
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We believe that our
TFF technology provides a very diverse and effective way to develop solutions for lung specific disorders. Many potentially beneficial
drugs for lung diseases and disorders are unable to be dosed in high enough concentration to provide therapeutic benefit to the
lung due to the systemic nature (oral or IV dosing) of the drug leading to toxicity of the kidney, lungs and other systemic safety
concerns. We believe our TFF platform has the potential to take these difficult to formulate drugs and develop products to be delivered
directly to the lung for treatment of lung diseases and disorders. This direct dosing may reduce plasma levels and has the potential
to increase efficacy while reducing side effects.
We believe that all
of the above potential drug candidates are off-patent drugs for which we would directly pursue the development of a dry powder
formulation through the FDA’s 505(b)(2) regulatory pathway. However, not all of our drug product candidates will target off-patent
drugs. For example, we do not expect our proposed dry powder formulation of CBD to be off-patent and our proposed dry powder formulation
of aluminum salt vaccines may not be off-patent. We also expect that our dry powder formulation of a CBD drug product will likely
require a full NDA through the FDA’s 505(b)(1) regulatory pathway and that our dry powder formulation of aluminum salt vaccines
will require a biological license application, or BLA, which is very similar to a full NDA through the FDA’s 505(b)(1) regulatory
pathway.
Licenses and Intellectual Property Rights
We hold rights to our
TFF technology pursuant to a patent license agreement entered into in July 2015, between University of Texas at Austin, or UT,
and our former parent, LTI, which LTI assigned to us in March 2018, as amended by UT and us on November 30, 2018. UT is the owner
of 39 U.S. and international patents and patent applications with claims covering the TFF platform. Pursuant to the amended patent
license agreement, we hold an exclusive worldwide, royalty bearing license to the rights to the aforementioned patents, including
any divisionals, continuations and extensions, in all fields of use.
We are required to
pay royalties to UT in the amount of 2% of net sales received by us from the sale of products covered by the licensed patent rights.
We will also be required to make certain milestone payments to UT in connection with the certain regulatory submissions and approvals
and pay fees in connection with any assignments or sublicenses, including:
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$50,000 upon each approval of an IND for
the first indication of each product candidate;
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$100,000 upon submission of a final Phase
II report (or a foreign equivalent) on the first product candidate;
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$250,000 upon submission of a final Phase
III report (or a foreign equivalent) on the first product candidate;
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$500,000 upon regulatory approval in the
U.S. (or a foreign equivalent) on the first product candidate;
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$500,000 upon regulatory approval in the
U.S. (or a foreign equivalent) on the second product candidate or on the second indication of the first product candidate; and
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Our issuance to UT of one percent (1%)
of our outstanding common stock, calculated on a fully-diluted basis, upon and as of our first IND approval for a product candidate.
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Pursuant to the UT
patent license agreement, UT has agreed to consult with us concerning the development and implementation of a strategy for the
prosecution and maintenance of the licensed patent rights, including any infringement of the licensed patents rights by third-parties.
However, UT has retained control and final decision-making authority over such matters. We are responsible for the payment of all
fees and expenses involved in the prosecution and maintenance of the licensed patent rights and are obligated to negotiate in good
faith with UT over the funding and allocation of any recovery involved in any patent infringement action brought to enforce the
licensed patent rights, which are presently scheduled to expire over a period of time commencing in 2023 and ending in 2035. The
term of the UT patent license agreement is co-terminus with the licensed patent rights. However, UT has the right to terminate
the patent license agreement, or any part of the licensed patent rights or field of use, in the event of our breach of any provision
of the patent license agreement that remains uncured after UT’s written notice of breach and an applicable cure period or
in the event we initiate any proceeding to challenge the validity or scope of the licensed patent rights. The agreement also contains
customary representations, warranties, covenants and indemnities by the parties.
In addition to the
licensed patent rights, we also rely on our trade secrets, know-how and continuing technological innovation to develop and maintain
our proprietary position. We will vigorously defend our intellectual property to preserve our rights and gain the benefit of our
technological investments.
Government Regulations and Funding
Pharmaceutical companies
are subject to extensive regulation by foreign, federal, state and local agencies, such as the U.S. FDA, and various similar agencies
in most countries worldwide. The manufacture, distribution, marketing and sale of pharmaceutical products are subject to government
regulation in the U.S. and various foreign countries. Additionally, in the U.S., we must follow rules and regulations established
by the FDA requiring the presentation of data indicating that our product candidates are safe and efficacious and are manufactured
in accordance with cGMP regulations. If we do not comply with applicable requirements, we may be fined, the government may refuse
to approve our marketing applications or allow us to manufacture or market our product candidates, and we may be criminally prosecuted.
We, our manufacturers and clinical research organizations, may also be subject to regulations under other foreign, federal, state
and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, the Resource Conservation and Recovery
Act, the Clean Air Act and import, export and customs regulations as well as the laws and regulations of other countries. The U.S.
government has increased its enforcement activity regarding illegal marketing practices domestically and internationally. As a
result, pharmaceutical companies must ensure their compliance with the Foreign Corrupt Practices Act and federal healthcare fraud
and abuse laws, including the False Claims Act.
These regulatory requirements
impact our operations and differ from one country to another, so that securing the applicable regulatory approvals of one country
does not imply the approval of another country. The approval procedures involve high costs and are manpower intensive, usually
extend over many years and require highly skilled and professional resources.
FDA Market Approval Process
The steps usually required
to be taken before a new drug may be marketed in the U.S. generally include:
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completion of pre-clinical laboratory
and animal testing;
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completion of required chemistry, manufacturing
and controls testing;
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the submission to the FDA of an IND, which
must be evaluated and found acceptable by the FDA before human clinical trials may commence;
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performance of adequate and well-controlled
human clinical trials to establish the safety, pharmacokinetics and efficacy of the proposed drug for its intended use;
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submission and approval of an NDA;
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successful pre-approval inspection of
the manufacturer and analytical testing facilities; and
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agreement with FDA of the label language,
including the prescribing information insert.
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Clinical studies are
conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter the study,
schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety,
and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be submitted
to the FDA as part of the IND process.
Clinical trials are
usually conducted in three phases. Phase I clinical trials are normally conducted in small groups of healthy volunteers to assess
safety and tolerability of various dosing regimens and pharmacokinetics. After a safe dose has been established, in Phase II clinical
trials the drug is administered to small populations of sick patients to look for initial signs of efficacy via dose ranging studies
in treating the targeted disease or condition and to continue to assess safety and the effective doses to be studied in larger
trials in Phase III. In the case of vaccines, the participants are healthy and the signs of efficacy can be obtained in early Phase
I, therefore this Phase is defined as Phase I/II. Phase III clinical trials are usually multi-center, double-blind controlled trials
in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety and effectiveness of
the drug.
Clinical trials must
be conducted in accordance with the FDA’s good clinical practice, or GCP, requirements. The FDA may order the temporary or
permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is not
being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk.
An institutional review board, or IRB, generally must approve the clinical trial design and patient informed consent at study sites
that the IRB oversees and also may halt a study, either temporarily or permanently, for failure to comply with the IRB’s
requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified
experts organized by the clinical study sponsor, known as a data safety monitoring board or committee. This group recommends whether
or not a trial may move forward at designated check points based on access to certain data from the study. The clinical study sponsor
may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.
As a product candidate
moves through the clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The
level of control and validation required by the FDA increases as clinical studies progress. We and the third-party manufacturers
on which we rely for the manufacture of our product candidates and their respective components (including the API) are subject
to requirements that drugs be manufactured, packaged and labeled in conformity with cGMPs. To comply with cGMP requirements, manufacturers
must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and
process, labeling and packaging, quality control, recordkeeping and other requirements.
Assuming completion
of all required testing in accordance with all applicable regulatory requirements, detailed information on the product candidate
is submitted to the FDA in the form of an NDA, requesting approval to market the product for one or more indications, together
with payment of a user fee, unless waived. An NDA includes all relevant data available from pertinent nonclinical and clinical
studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry,
manufacture, controls and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient
in quality and quantity to establish the safety and efficacy of the product candidate for its intended use to the satisfaction
of the FDA. The FDA also conducts a pre-approval inspection of the manufacturer and laboratory prior to approval of the NDA.
If an NDA submission
is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s
goal is to complete its initial review and respond to the applicant within ten months of submission, unless the application relates
to an unmet medical need, or is for a serious or life-threatening indication, in which case the goal may be within six months of
NDA submission. However, PDUFA goal dates are not legal mandates and the FDA response often occurs several months beyond the original
PDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the
NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA
review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory
committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the
recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies are not always
conclusive and the FDA and/or any advisory committee it appoints may interpret data differently than the applicant.
After the FDA evaluates
the NDA and inspects manufacturing facilities where the drug product and/or its API will be produced and tested, it will either
approve commercial marketing of the drug product with prescribing information for specific indications or issue a complete response
letter indicating that the application is not ready for approval and stating the conditions that must be met in order to secure
approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data,
the FDA nevertheless may ultimately decide that the NDA does not satisfy its criteria for approval. The FDA could also approve
the NDA with a Risk Evaluation and Mitigation Strategies, or REMS, plan to mitigate risks, which could include medication guides,
physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and
other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development
of adequate controls and specifications, or a commitment to conduct post-marketing testing. Such post-marketing testing may include
Phase IV clinical trials and surveillance to further assess and monitor the product’s safety and efficacy after approval.
Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studies be
followed for long periods to determine the overall survival benefit of the drug.
If the FDA approves
one of our product candidates, we will be required to comply with a number of post-approval regulatory requirements. We would be
required to report, among other things, certain adverse reactions and production problems to the FDA, provide updated safety and
efficacy information and comply with requirements concerning advertising and promotional labeling for any of our product candidates.
Also, quality control and manufacturing procedures must continue to conform to cGMPs after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with cGMPs, which imposes extensive procedural, substantive and record keeping requirements.
If we seek to make certain changes to an approved product, such as certain manufacturing changes, we may need FDA review and approval
before the change can be implemented.
While physicians may
use products for indications that have not been approved by the FDA, we may not label or promote the product for an indication
that has not been approved. Securing FDA approval for new indications is similar to the process for approval of the original indication
and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the product’s
safety and efficacy in the new indication. Even if such studies are conducted, the FDA may not approve any change in a timely fashion,
or at all.
The FDA may also require
post-marketing testing, or Phase IV testing, as well as risk minimization action plans and surveillance to monitor the effects
of an approved product or place conditions or an approval that could otherwise restrict the distribution or use of the product.
Section 505(b)(2) New Drug Applications
We intend to submit
applications for both of our lead therapeutic candidates via the 505(b)(2) regulatory pathway. As an alternate path for FDA approval
of new indications or new formulations of previously-approved products, a company may file a Section 505(b)(2) NDA, instead
of a “stand-alone” or “full” NDA. Section 505(b)(2) of the FDCA was enacted as part of the Drug Price
Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits
the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for
the applicant and for which the applicant has not obtained a right of reference. Some examples of products that may be allowed
to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or
indication.
The Hatch-Waxman Amendments
permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s
conclusions from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support
any changes from the approved product. The FDA may then approve the new product for all or some of the labeled indications for
which the reference product has been approved, as well as for any new indication supported by the Section 505(b)(2) application.
While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right
of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and
quality of the new product must be included in an NDA submitted under Section 505(b)(2).
To the extent that
the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved
product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Approved
Drug Products with Therapeutic Equivalence Evaluations, or Orange Book. Specifically, the applicant must certify that: (i) the
required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired,
but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid
or will not be infringed by the new product. The Section 505(b)(2) application also will not be approved until any non-patent
exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product
has expired. If the Orange Book certifications outlined above are not accomplished, the Section 505(b)(2) applicant may invest
a significant amount of time and expense in the development of its products only to be subject to significant delay and patent
litigation before its products may be commercialized.
Orphan Drugs
Under the Orphan Drug
Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition affecting fewer than 200,000
individuals in the United States, or in other limited cases. Orphan drug designation (ODD) provides for seven years of market exclusivity,
independent of patent protection, to the company with ODD that brings a particular product to market. In addition, companies developing
orphan drugs are eligible for certain incentives, including tax credits for qualified clinical testing. In addition, an NDA for
a product that has received orphan drug designation is not subject to a prescription drug user fee unless the application includes
an indication other than the rare disease or condition for which the drug was designated.
To gain exclusivity,
if a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which
it has such designation, the product is entitled to the orphan drug exclusivity, which means that the FDA may not approve any other
applications to market the same active moiety for the same indication for seven years, except in limited circumstances, such as
another drug’s showing of clinical superiority over the drug with orphan exclusivity. Competitors, however, may receive approval
of different active moieties for the same indication or obtain approval for the same active moiety for a different indication.
In addition, doctors may prescribe products for off-label uses and undermine our exclusivity. Orphan drug exclusivity could block
the approval of one of our product candidates for seven years if a competitor obtains approval for the same active moiety for the
same indication before we do, unless we are able to demonstrate that our product is clinically superior.
We may plan to pursue
orphan drug designation and exclusivity for some of our product candidates in the United States, European Union, and other geographies
of interest for specific products. We cannot guarantee that we will obtain orphan drug designation for any products in any jurisdiction.
Even if we are able to obtain orphan drug designation for a product, we cannot be sure that such product will be approved, that
we will be able to obtain orphan drug exclusivity upon approval, if ever, or that we will be able to maintain any exclusivity that
is granted.
Continuing Regulation
After a drug is approved
for marketing and enters the marketplace, numerous regulatory requirements continue to apply. These include, but are not limited
to:
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the FDA’s cGMP regulations require
manufacturers, including third party manufacturers, to follow stringent requirements for the methods, facilities and controls used
in manufacturing, processing and packing of a drug product;
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labeling regulations and the FDA prohibitions
against the promotion of drugs for unapproved uses (known as off-label uses), as well as requirements to provide adequate information
on both risks and benefits during promotion of the drug;
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approval of product modifications or use
of a drug for an indication other than approved in an NDA;
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adverse drug experience regulations, which
require us to report information on adverse events during pre-market testing and post-approval safety reporting;
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NDA quarterly reporting for the first
three years, then annual reporting thereafter, of changes in chemistry, manufacturing and control or CMC, labeling, clinical studies
and findings, and toxicology studies from the data submitted in the NDA;
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post-market testing and surveillance requirements,
including Phase IV trials, when necessary to protect the public health or to provide additional safety and effectiveness data for
the drug; and
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the FDA’s recall authority, whereby
it can ask, or under certain conditions order, drug manufacturers to recall from the market a product that is in violation of governing
laws and regulation. After a drug receives approval, any modification in conditions of use, active ingredient(s), route of administration,
dosage form, strength or bioavailability, will require a new approval, for which it may be possible to submit a 505(b)(2), accompanied
by additional clinical data necessary to demonstrate the safety and effectiveness of the product with the proposed changes. Additional
clinical studies may be required for proposed changes.
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Other U.S. Healthcare Laws and Compliance
Requirements
For products distributed
in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal government and
the states in which we conduct our business. Applicable federal and state healthcare laws and regulations include the following:
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The federal healthcare anti-kickback statute
prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration,
directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order,
or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and
Medicaid;
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The Ethics in Patient Referrals Act, commonly
referred to as the Stark Law, and its corresponding regulations, prohibit physicians from referring patients for designated health
services (including outpatient drugs) reimbursed under the Medicare or Medicaid programs to entities with which the physicians
or their immediate family members have a financial relationship or an ownership interest, subject to narrow regulatory exceptions,
and prohibits those entities from submitting claims to Medicare or Medicaid for payment of items or services provided to a referred
beneficiary;
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The federal False Claims Act imposes criminal
and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting,
or causing to be presented, to the federal government claims for payment that are false or fraudulent or making a false statement
to avoid, decrease, or conceal an obligation to pay money to the federal government;
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Health Insurance Portability and Accountability
Act of 1996, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes
obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually
identifiable health information. This statute also prohibits knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or
services; and
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Analogous state laws and regulations,
such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non-governmental third-party payors, including private insurers, and 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.
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Reimbursement
Sales of our product
candidates in the United States may depend, in part, on the extent to which the costs of the product candidates will be covered
by third-party payers, such as government health programs, commercial insurance and managed health care organizations. These third-party
payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health
care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The
United States government, state legislatures and foreign governments have shown significant interest in implementing cost-containment
programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption
of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls
and measures, could further limit our net revenue and results. If these third-party payers do not consider our product candidates
to be cost-effective compared to other available therapies, they may not cover our product candidates after approval as a benefit
under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product candidates on a profitable
basis.
The Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, or the MMA, imposes new requirements for the distribution and pricing of prescription
drugs for Medicare beneficiaries and includes a major expansion of the prescription drug benefit under Medicare Part D. Under Part
D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient
prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as
a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription
drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary
that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include
drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category
or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee.
Government payment for some of the costs of prescription drugs may increase demand for product candidates for which we receive
marketing approval. However, any negotiated prices for our product candidates covered by a Part D prescription drug plan will likely
be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries,
private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction
in payment that results from the MMA may result in a similar reduction in payments from non-governmental payers.
On February 17, 2009,
the American Recovery and Reinvestment Act of 2009 was signed into law. This law provides funding for the federal government to
compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department
of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes of Health, and periodic
reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative
effectiveness studies are not intended to mandate coverage policies for public or private payers, it is not clear how such a result
could be avoided and what if any effect the research will have on the sales of our product candidates, if any such product or the
condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating
benefits in a competitor’s product could adversely affect the sales of our product candidates. Decreases in third-party reimbursement
for our product candidates or a decision by a third-party payer to not cover our product candidates could reduce physician usage
of the product candidates and have a material adverse effect on our sales, results of operations and financial condition.
Employees and Consultants
As of the date of this
report, we have four employees, including our executive officers, and several consultants providing technical, financial and general
administrative services.
Available Information
Our website is located
at www.tffpharma.com. The information on or accessible through our website is not part of this annual report on Form 10-K.
A copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an internet site that contains reports and other information regarding our filings at www.sec.gov.
Item 1A. Risk Factors
Investing in our
common stock involves a high degree of risk. Before purchasing our common stock, you should read and consider carefully the following
risk factors as well as all other information contained in this report, including our financial statements and the related notes.
Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial
condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do
not presently know of or that we currently believe are immaterial, which could also impair our business and financial position.
If any of the events described below were to occur, our financial condition, our ability to access capital resources, our results
of operations and/or our future growth prospects could be materially and adversely affected and the market price of our common
stock could decline. As a result, you could lose some or all of any investment you may make in our common stock.
Risks Related to Our Business
We are a clinical-stage
biopharmaceutical company with limited operating history. We are a biopharmaceutical company, newly-formed in January 2018,
and have limited operating history. We have not commenced revenue-producing operations. In November 2019, we initiated Phase I
human clinical trials for our TFF Vori product candidate, however, to date, our operations have otherwise consisted of preliminary
research and development, drug formulation and characterization and testing of our initial product candidates. Our limited operating
history makes it difficult for potential investors to evaluate our technology or prospective operations. As a development stage
biopharmaceutical company, we are subject to all the risks inherent in the organization, financing, expenditures, complications
and delays involved with a new business. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays
and difficulties frequently encountered by companies in the early stages of development, especially clinical-stage biopharmaceutical
companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited
operating history will face. In particular, potential investors should consider that we may be unable to:
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successfully implement or execute our business plan, or ensure that our business plan is sound;
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successfully complete pre-clinical and clinical trials and obtain regulatory approval for the marketing
of our product candidates;
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successfully demonstrate a favorable differentiation between our dry powder candidates and the
current products on the market;
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successfully contract for the manufacture of our clinical drug products and establish a commercial
drug supply;
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secure market exclusivity and/or adequate intellectual property protection for our product candidates;
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attract and retain an experienced management and advisory team; and
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raise sufficient funds in the capital markets to effectuate our business plan, including product
and clinical development, regulatory approval and commercialization for our product candidates.
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Investors should evaluate
an investment in us in light of the uncertainties encountered by developing companies in a competitive environment. There can be
no assurance that our efforts will be successful or that we will ultimately be able to attain profitability. If we cannot successfully
execute any one of the foregoing, our business may not succeed and your investment will be adversely affected. You must be prepared
to lose all of your investment.
We have a history
of significant operating losses and anticipate continued operating losses for the foreseeable future. For the fiscal years
ended December 31, 2019 and 2018, we incurred a net loss applicable to common stockholders of $36.7 million and $4.6 million, respectively.
As of December 31, 2019, we had an accumulated deficit of $15.7 million. We expect to continue to incur substantial expenses
without any corresponding revenues unless and until we are able to obtain regulatory approval and successfully commercialize at
least one of our product candidates. However, there can be no assurance we will be able to obtain regulatory approval for any of
our product candidates. Even if we are able to obtain regulatory approval and subsequently commercialize our product candidates,
there can be no assurance that we will generate significant revenues or ever achieve profitability.
We expect to have significant
research, regulatory and development expenses as we advance our product candidates towards commercialization. As a result, we expect
to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain when or if we will
be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability
in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and adversely affect
our business and our ability to raise capital. If we are unable to generate positive cash flow within a reasonable period of time,
we may be unable to further pursue our business plan or continue operations, in which case you may lose your entire investment.
We expect we
will need additional financing to execute our business plan and fund operations, which additional financing may not be available
on reasonable terms or at all. As of December 31, 2019, we had total assets of approximately $29.2 million and
working capital of approximately $28.8 million. As of December 31, 2019, our liquidity included approximately $28.1 million
of cash and cash equivalents. We believe that our cash on-hand as of the date of this report is sufficient to fund our proposed
operating plan for, at least, the 12 months following the date of this report. However, as of the date of this report, we believe
that we will need additional capital to fund our operations through to the marketing approval for TFF Vori and TFF Tac-Lac, assuming
such approval can be obtained at all, and to engage in the substantial development of any other of our drug candidates, such as
formulation, early stage animal testing and formal toxicology studies. We intend to seek additional funds through various financing
sources, including the sale of our equity and debt securities, licensing fees for our technology and co-development and joint ventures
with industry partners, with a preference towards licensing fees for our technology and co-development and joint ventures with
industry partners. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue
producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that
such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms,
we may be unable to further pursue our business plan and we may be unable to continue operations, in which case you may lose your
entire investment.
Our business
model is entirely dependent on certain patent rights licensed to us from the University of Texas at Austin, and the loss of those
license rights would, in all likelihood, cause our business, as presently contemplated, to fail. In July 2015, the University
of Texas at Austin, or UT, granted to our former parent, LTI, an exclusive worldwide, royalty bearing license to the patent rights
for the TFF platform in all fields of use, other than vaccines. In March 2018, LTI assigned to us all of its interest to the TFF
platform, including the patent license agreement with UT. In November 2018, we and UT amended the patent license agreement such
that our exclusive patent rights to the TFF platform were expanded to all fields of use. Our current business model, which focuses
exclusively on the development of drugs using the TFF technology, is based entirely on the availability of the patent rights licensed
to us by UT under the patent license agreement. The patent license agreement requires us to pay royalties and milestone payments
and conform to a variety of covenants and agreements, and in the event of our breach of the agreement, UT may elect to terminate
the agreement. As of the date of this report, we believe we are in compliance with the patent license agreement and consider our
relationship with UT to be excellent. However, in the event of our breach of the patent license agreement for any reason, and our
inability to cure such breach within any cure period or obtain a waiver from UT, we could lose the patent license agreement, which
would result in our loss of all rights to the TFF technology.
Our
business may be adversely affected by the recent COVID-19 outbreak. In December 2019, a novel strain of coronavirus, COVID-19,
was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United
States, and efforts to contain the spread of COVID-19 have intensified. At this time, the United States and certain other countries
are the subject of lock-downs and self-isolation procedures, which have significantly limited business operations and restricted
internal and external meetings. We had expected to commence Phase 1 clinical trials our TFF formulation of Tacrolimus, or TFF
Tac-Lac, in Australia in the first quarter of 2020, and on March 13, 2020 we had received the approval of the Australian Human
Research Ethics Committee to commence Phase 1 trials, however later in March 2020 our contract research organization in Australia
informed us that because of the spread of the COVID-19 virus in Australia, there would be a delay in initiating the trial. One
contributing factor is that Tacrolimus is an immunosuppressant drug and, given the threat of the COVID-19 virus, concern exists
that even though we would be dosing healthy volunteers the inhalation of an immunosuppressant could increase the risk of severe
complications if a volunteer was to contract COVID-19. As of the date of this report, we are unable to predict the length of the
delay in the commencement of Phase 1 clinical trials for our TFF Tac-Lac. Further, the outbreak and any preventative or protective
actions that we or our customers may take in respect of COVID-19 may result in a period of disruption to other work in progress.
Our customers’ businesses could be disrupted, and our future costs and potential revenues and technology evaluations could
be negatively affected. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our
business and financial condition. The extent to which COVID-19 impacts our results will depend on future developments, which are
highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the
actions to contain COVID-19 or treat its impact, among others.
We currently
have no sales and marketing organization. If we are unable to establish satisfactory sales and marketing capabilities or secure
a third-party sales and marketing relationship, we may not be able to successfully commercialize any of our product candidates.
At present, we have no sales or marketing personnel. Upon and subject to initial receipt of the requisite regulatory approvals
for one or more of our drug products, we intend to commercialize our drug products through a combination of our internal direct
sales force, third-party marketing and distribution relationships. In some cases, such as involving the development of combination
drugs or the development of dry powder formulations of patented drugs, we intend to pursue the licensing of our TFF technology
or enter into a joint development arrangement. If we are not successful in recruiting sales and marketing personnel and building
a sales and marketing infrastructure or entering into appropriate collaboration arrangements with third parties, we will have difficulty
successfully commercializing our product candidates, which would adversely affect our business, operating results and financial
condition.
Even if we enter into
third-party marketing and distribution arrangements, we may have limited or no control over the sales, marketing and distribution
activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties.
In terms of establishing a sales and marketing infrastructure, we will have to compete with established and well-funded pharmaceutical
and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts
to build an internal sales organization or enter into collaboration arrangements with third parties include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians
to prescribe any of our product candidates;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive
disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating an internal sales and marketing organization.
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We will be completely
dependent on third parties to manufacture our product candidates, and the commercialization of our product candidates could be
halted, delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable
foreign regulatory authorities fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable
quality levels or prices. We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture
our drug candidates for use in our clinical trials or for commercial sales, if any. As a result, we will be obligated to rely on
contract manufacturers, if and when any of our product candidates are approved for commercialization. We have entered into short-term
contract manufacturing agreements with IriSys, Inc. and CoreRx, Inc. for their provision of certain product testing, development
and clinical manufacturing services for our TFF Vori and TFF Tac-Lac product candidates, respectively, and we are currently in
discussion with several contract manufacturers for the commercial supply of any drug candidates we are able to bring to market.
However, we have not entered into agreements with any contract manufacturers for commercial supply and may not be able to engage
contract manufacturers for commercial supply of any of our product candidates on favorable terms to us, or at all, should the need
arise.
The facilities used
by our current and future contract manufacturers to manufacture our product candidates must be approved by the FDA or comparable
foreign regulatory authorities. Such approvals are subject to inspections that will be conducted after we submit a New Drug Application,
or NDA, or Biologics License Application, or BLA, to the FDA or their equivalents to other relevant regulatory authorities. We
will not control the manufacturing process of our product candidates, and will be completely dependent on our contract manufacturing
partners for compliance with Current Good Manufacturing Practices, or cGMPs, for manufacture of both active drug substances and
finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control, storage, distribution
and record keeping relating to our product candidates. If our contract manufacturers do not successfully manufacture material that
conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure or maintain
regulatory approval for product made at their manufacturing facilities. If the FDA or a comparable foreign regulatory authority
does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future,
we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, manufacture,
obtain regulatory approval for or market our product candidates, if approved. Likewise, we could be negatively impacted if any
of our contract manufacturers elect to discontinue their business relationship with us.
Our contract manufacturers
will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance
with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturers’ compliance with
these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could result
in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our
product candidates, delays, suspensions or withdrawals of approvals, inability to supply product, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect our business. In addition, we will not have control over the
ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure
by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop,
manufacture, obtain regulatory approval for or market any of our product candidates, if approved.
If, for any reason,
these third parties are unable or unwilling to perform we may not be able to locate alternative manufacturers or formulators or
enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity
to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant
difficulties in its respective manufacturing processes for our active pharmaceutical ingredients, or APIs, or finished products
or should cease doing business with us for any reason, we could experience significant interruptions in the supply of any of our
product candidates or may not be able to create a supply of our product candidates at all. Were we to encounter manufacturing difficulties,
our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability to coordinate
the efforts of our third-party manufacturing partners, or the lack of capacity available at our third-party manufacturing partners,
could impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements
that we would need to satisfy in order to qualify a new bulk drug substance or finished product manufacturer, if we face these
or other difficulties with our then current manufacturing partners, we could experience significant interruptions in the supply
of any of our product candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative
manufacturers in an effort to deal with such difficulties.
Any manufacturing problem
or the loss of a contract manufacturer could be disruptive to our operations and result in development delays and lost sales. Additionally,
we will rely on third parties to supply the raw materials needed to manufacture our product candidates. Any such reliance on suppliers
may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs,
delivery schedules, reliability and quality. Any unanticipated disruption to the operation of one of our contract manufacturers
caused by problems with suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result
in lost sales.
If product liability
lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product
candidates. We will face a potential risk of product liability as a result of the clinical testing of our product candidates
and will face an even greater risk of such liability if we commercialize any of our product candidates. For example, we may be
sued if any product we develop, including any of our product candidates, or any materials that we use in our product candidates
allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such
product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent
in the product, negligence, strict liability and a breach of warranties. In the U.S., claims could also be asserted against us
under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur
substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense of these claims
would require us to employ significant financial and management resources. Regardless of the merits or eventual outcome, liability
claims may result in:
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decreased demand for any of our product candidates or any future products that we may develop;
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injury to our reputation;
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failure to obtain regulatory approval for our product candidates;
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withdrawal of participants in our clinical trials;
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costs associated with our defense of the related litigation;
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a diversion of our management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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the inability to commercialize some or all of our product candidates; and
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a decline in the value of our stock.
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As of the date of this
report, we have procured insurance coverage for our human clinical trials, which we consider adequate for our current level of
clinical testing and development, however we do not carry product liability insurance. We intend to obtain product liability insurance
at the time we commence commercial sale of our initial product. Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of products we develop. Although we will endeavor to obtain and maintain such insurance in coverage amounts we deem adequate, any
claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole
or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies would also have
various exclusions, and we may be subject to a product liability claim for which we have no coverage. As a result, we may have
to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered
by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Our business
operations could suffer in the event of information technology systems’ failures or security breaches. While we believe
that we have implemented adequate security measures within our internal information technology and networking systems, our information
technology systems may be subject to security breaches, damages from computer viruses, natural disasters, terrorism, and telecommunication
failures. Any system failure or security breach could cause interruptions in our operations in addition to the possibility of losing
proprietary information and trade secrets. To the extent that any disruption or security breach results in inappropriate disclosure
of our confidential information, our competitive position may be adversely affected and we may incur liability or additional costs
to remedy the damages caused by these disruptions or security breaches.
Sales of counterfeit
versions of our product candidates, as well as unauthorized sales of our product candidates, may have adverse effects on our revenues,
business, results of operations and damage our brand and reputation. Our product candidates may become subject to competition
from counterfeit pharmaceutical products, which are pharmaceutical products sold under the same or very similar brand names and/or
having a similar appearance to genuine products, but which are sold without proper licenses or approvals. Such products divert
sales from genuine products, often are of lower cost and quality (having different ingredients or formulations, for example), and
have the potential to damage the reputation for quality and effectiveness of the genuine product. Obtaining regulatory approval
for our product candidates is a complex and lengthy process. If during the period while the regulatory approval is pending illegal
sales of counterfeit products begin, consumers may buy such counterfeit products, which could have an adverse impact on our revenues,
business and results of operations. In addition, if illegal sales of counterfeits result in adverse side effects to consumers,
we may be associated with any negative publicity resulting from such incidents. Although pharmaceutical regulation, control and
enforcement systems throughout the world have been increasingly active in policing counterfeit pharmaceuticals, we may not be able
to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our product candidates.
Such sales may also be occurring without our knowledge. The existence and any increase in production or sales of counterfeit products
or unauthorized sales could negatively impact our revenues, brand reputation, business and results of operations.
Risks Related to Product Regulation
Our success is
entirely dependent on our ability to obtain the marketing approval for our product candidates by the FDA and the regulatory authorities
in foreign jurisdictions in which we intend to market our product candidates, of which there can be no assurance. We are
not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive approval
of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United
States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive
pharmaceutical development to ensure its quality before an NDA is approved. Of the large number of drugs in development, only a
small percentage result in the submission of an NDA to the FDA and even fewer are eventually approved for commercialization. As
of the date of this report, we have not submitted an NDA to the FDA or comparable applications to other regulatory authorities
for any of our product candidates.
Because our initial
dry powder drug candidates, TFF Vori and TFF Tac-Lac, will be established drugs that are off-patent, we believe that our initial
drug product candidates will qualify for FDA approval through the FDA’s 505(b)(2) regulatory pathway and in corresponding
regulatory paths in other foreign jurisdictions. The 505(b)(2) pathway sometimes does not require clinical trials other than a
bioequivalence trial; however, to the extent we claim that our drug product candidates target a new indication or offer improved
safety compared to the existing approved products, and it is our present expectation that we will do so in many cases, it is likely
that we will be required to conduct additional clinical trials in order to obtain marketing approval. For example, based on separate
pre-IND meetings with the FDA concerning TFF Vori and TFF Tac-Lac, we believe we will need to conduct Phase I and Phase II studies
prior to filing for marketing approval for TFF Vori and Phase I and Phase IIb/IIIa studies prior to filing for marketing approval
for TFF Tac-Lac. However, there can be no assurance that the FDA will not ask for additional clinical data for either TFF Vori
or TFF Tac-Lac.
Our business model
is to pursue the development of off-patent drugs for which we would directly pursue the development of a dry powder formulation
through the FDA’s 505(b)(2) regulatory pathway; however, not all of our product candidates will target off-patent drugs and,
at least in the case of a dry powder formulation of CBD, our product candidate may not be a drug. We do not expect any dry powder
formulation of a CBD drug product to be off-patent and our proposed dry powder formulation of aluminum salt vaccines may not be
off-patent. We also expect that our dry powder formulation of a CBD drug product will likely require a full NDA through the FDA’s
505(b)(1) regulatory pathway; however, a non-pharmaceutical CBD dry powder formulation may not require FDA approval. We expect
that our dry powder formulation of aluminum salt vaccines will require a biological license application, or BLA, which is very
similar to a full NDA through the FDA’s 505(b)(1) regulatory pathway.
Our success depends
on our receipt of the regulatory approvals described above, and the issuance of such regulatory approvals is uncertain and subject
to a number of risks, including the following:
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the results of toxicology studies may not support the filing of an IND for our product candidates;
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the FDA or comparable foreign regulatory authorities or Institutional Review Boards, or IRB, may
disagree with the design or implementation of our clinical trials;
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we may not be able to provide acceptable evidence of our product candidates’ safety and efficacy;
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the results of our clinical trials may not be satisfactory or may not meet the level of statistical
or clinical significance required by the FDA, European Medicines Agency, or EMA, or other regulatory agencies for us to receive
marketing approval for any of our product candidates;
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the dosing of our product candidates in a particular clinical trial may not be at an optimal level;
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patients in our clinical trials may suffer adverse effects for reasons that may or may not be related
to our product candidates;
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the data collected from clinical trials may not be sufficient to support the submission of an NDA,
BLA or other submission or to obtain regulatory approval in the United States or elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may
significantly change in a manner rendering our clinical data insufficient for approval of our product candidates.
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The process of obtaining
regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon,
among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval
is sought and the substantial discretion of the regulatory authorities. Changes in regulatory approval policies during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product
application may cause delays in the approval or rejection of an application. Regulatory approval obtained in one jurisdiction does
not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval,
but the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction.
Failure to obtain regulatory approval for our product candidates for the foregoing, or any other reasons, will prevent us from
commercializing our product candidates, and our ability to generate revenue will be materially impaired.
Clinical testing
is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Our
business model depends entirely on the successful development, regulatory approval and commercialization of our product candidates,
which may never occur. In November 2019, we initiated Phase I human clinical trials for our TFF Vori product candidate and we
had a pre-IND meeting for TFF Tac-Lac in September 2019. We had intended to commence Phase 1 clinical trials for TFF Tac-Lac in
the first quarter of 2020, however the commencement of clinical trials has been delayed due to the COVID-19 pandemic. As of the
date of this report, we are unable to predict the length of the delay in the commencement of Phase 1 clinical trials for our TFF
Tac-Lac. Further, as of the date of this report, we have not otherwise progressed any of our product candidates beyond performance
characterization and animal testing. We may not be successful in obtaining approval from the FDA or comparable foreign regulatory
authorities to start clinical trials for any other of our product candidates. If we do not obtain such approvals as presently
planned, the time in which we expect to commence clinical programs for any product candidate will be extended and such extension
will increase our expenses, delay our potential receipt of any revenues, and increase our need for additional capital. Moreover,
there is no guarantee that we will receive approval to commence human clinical trials or, if we do receive approval, that our
clinical trials will be successful or that we will continue clinical development in support of an approval from the FDA or comparable
foreign regulatory authorities for any indication. We note that most product candidates never reach the clinical development stage
and even those that do commence clinical development have only a small chance of successfully completing clinical development
and gaining regulatory approval. Success in early phases of pre-clinical and clinical trials does not ensure that later clinical
trials will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one
or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a
result of, the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize
our product candidates. Therefore, our business currently depends entirely on the successful development, regulatory approval
and commercialization of our product candidates, which may never occur.
Even if we receive
regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product and the revenue
that we generate from its sales, if any, may be limited. If approved for marketing, the commercial success of our product
candidates will depend upon each product’s acceptance by the medical community, including physicians, patients and health
care payors. The degree of market acceptance for any of our product candidates will depend on a number of factors, including:
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demonstration of clinical safety and efficacy;
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relative convenience, dosing burden and ease of administration;
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the prevalence and severity of any adverse effects;
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the willingness of physicians to prescribe our product candidates, and the target patient population
to try new therapies;
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efficacy of our product candidates compared to competing products;
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the introduction of any new products that may in the future become available targeting indications
for which our product candidates may be approved;
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new procedures or therapies that may reduce the incidences of any of the indications in which our
product candidates may show utility;
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pricing and cost-effectiveness;
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the inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines;
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the effectiveness of our own or any future collaborators’ sales and marketing strategies;
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limitations or warnings contained in approved labeling from regulatory authorities;
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our ability to obtain and maintain sufficient third-party coverage or reimbursement from government
health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary
pricing approvals from government bodies regulating the pricing and usage of therapeutics; and
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the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement
or government pricing approvals.
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If any of our product
candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors, and patients, we
may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical
community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
In addition, even if
we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product
candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies
the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited
or subject to restrictions or post-approval commitments that render our product candidates not commercially viable. For example,
regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not
approve the price we intend to charge for any of our product candidates, may grant approval contingent on the performance of costly
post-marketing clinical trials, or may approve any of our product candidates with a label that does not include the labeling claims
necessary or desirable for the successful commercialization of that indication. Further, the FDA or comparable foreign regulatory
authorities may place conditions on approvals or require risk management plans or a Risk Evaluation and Mitigation Strategy, or
REMS, to assure the safe use of the drug. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards
or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial
success of our product candidates.
Even if we obtain
marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review,
which may result in significant additional expense. Additionally, our product candidates could be subject to labeling and other
restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements
or if we experience unanticipated problems with our product candidates. Even if we obtain regulatory approval for any of
our product candidates for an indication, the FDA or foreign equivalent may still impose significant restrictions on their indicated
uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time-consuming post-approval
studies, including Phase 4 clinical trials, and post-market surveillance to monitor safety and efficacy. Our product candidates
will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution,
safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These
requirements include registration with the FDA, as well as continued compliance with current Good Clinical Practices regulations,
or cGCPs, for any clinical trials that we conduct post-approval. In addition, manufacturers of drug products and their facilities
are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current
cGMPs, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.
The FDA has the authority
to require a REMS as part of an NDA or after approval, which may impose further requirements or restrictions on the distribution
or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized
training, limiting treatment to patients who meet certain safe-use criteria or requiring patient testing, monitoring and/or enrollment
in a registry.
With respect to sales
and marketing activities related to our product candidates, advertising and promotional materials must comply with FDA rules in
addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries.
In the United States, the distribution of product samples to physicians must comply with the requirements of the U.S. Prescription
Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature
of the change. We may also be subject, directly or indirectly through our customers and partners, to various fraud and abuse laws,
including, without limitation, the U.S. Anti-Kickback Statute, U.S. False Claims Act, and similar state laws, which impact, among
other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the U.S. Medicaid
Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs,
we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also
potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in many
of these areas in other countries.
In addition, if any
of our product candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject
to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made
about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected
in the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless
legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have
promoted such off-label uses, we may become subject to significant liability and government fines. The FDA and other agencies actively
enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted
off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against
companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also
requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed
or curtailed.
If we or a regulatory
agency discover previously unknown problems with a product candidate, such as adverse events of unanticipated severity or frequency,
problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory
requirements, we may be subject to the following administrative or judicial sanctions:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the
market, or voluntary or mandatory product recalls;
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issuance of warning letters or untitled letters;
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injunctions or the imposition of civil or criminal penalties or monetary fines;
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suspension or withdrawal of regulatory approval;
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suspension of any ongoing clinical trials;
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refusal to approve pending applications or supplements to approved applications filed by us, or
suspension or revocation of product license approvals;
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suspension or imposition of restrictions on operations, including costly new manufacturing requirements;
or
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product seizure or detention or refusal to permit the import or export of product.
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The occurrence of any
event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue. Adverse
regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product
liability exposure.
Obtaining and
maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining
regulatory approval of our product candidates in other jurisdictions. Obtaining and maintaining regulatory approval of
our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in
any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect
on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable
regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate
in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods
different from those in the United States, including additional preclinical studies or clinical trials, as clinical studies conducted
in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United
States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some
cases, the price that we intend to charge for our products is also subject to approval.
Obtaining foreign regulatory
approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us
and could delay or prevent the introduction of our product candidates in certain countries. If we fail to comply with the regulatory
requirements in international markets and/ or to receive applicable marketing approvals, our target market will be reduced and
our ability to realize the full market potential of our product candidates will be harmed.
Even though we
may apply for orphan drug designation for a product candidate, we may not be able to obtain orphan drug marketing exclusivity.
We believe that in some cases our dry powder drug products may qualify for the FDA’s orphan drug status. There is
no guarantee that the FDA will grant any future application for orphan drug designation for any of our product candidates, which
would make us ineligible for the additional exclusivity and other benefits of orphan drug designation.
Under the Orphan Drug
Act, the FDA may grant orphan drug designation to a drug 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 and for which there is no reasonable expectation
that the cost of developing and making a drug available in the United States for this type of disease or condition will be recovered
from sales of the product. 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 product
designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to
the potential period of exclusivity, orphan designation makes a company eligible for grant funding of up to $400,000 per year for
four years to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from
the FDA application user fee.
If a product that has
orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation,
the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same
drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation
is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s
product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing
of clinical superiority to the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product
receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity.
There can be no assurance that we will receive orphan drug designation for any of our product candidates in the indications for
which we think they might qualify, if we elect to seek such applications.
Current and future
legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates
and affect the prices we may obtain. In the United States and some foreign jurisdictions, there have been a number of legislative
and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for
our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities
for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates,
if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay
or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In the United States,
the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded
Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices
for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they
can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion
of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost
reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for our product
candidates and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private
payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction
in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
The Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 or, collectively,
the Health Care Reform Law, is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of
healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance
industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform
Law revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount
of Medicaid drug rebates to states. Further, the law imposed a significant annual fee on companies that manufacture or import branded
prescription drug products.
The Health Care Reform
Law remains subject to legislative efforts to repeal, modify or delay the implementation of the law. If the Health Care Reform
Law is repealed or modified, or if implementation of certain aspects of the Health Care Reform Law are delayed, such repeal, modification
or delay may materially adversely impact our business, strategies, prospects, operating results or financial condition. We are
unable to predict the full impact of any repeal, modification or delay in the implementation of the Health Care Reform Law on us
at this time. Due to the substantial regulatory changes that will need to be implemented by Centers for Medicare & Medicaid
Services, or CMS, and others, and the numerous processes required to implement these reforms, we cannot predict which healthcare
initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any
other future legislation or regulation will have on our business.
In addition, other
legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted. We expect
that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal
and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value
of certain development projects and reduce or eliminate our profitability.
Any termination
or suspension of, or delays in the commencement or completion of, any necessary studies of any of our product candidates for any
indications could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial
prospects. The commencement and completion of clinical studies can be delayed for a number of reasons, including delays
related to:
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the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and
placing the clinical study on hold;
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subjects for clinical testing failing to enroll or remain enrolled in our trials at the rate we
expect;
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a facility manufacturing any of our product candidates being ordered by the FDA or other government
or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements,
or cross-contaminations of product candidates in the manufacturing process;
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any changes to our manufacturing process that may be necessary or desired;
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subjects choosing an alternative treatment for the indications for which we are developing our
product candidates, or participating in competing clinical studies;
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subjects experiencing severe or unexpected drug-related adverse effects;
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reports from clinical testing on similar technologies and products raising safety and/or efficacy
concerns;
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third-party clinical investigators losing their license or permits necessary to perform our clinical
trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial
protocol, cGMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner;
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inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs
finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more
sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support
of our marketing applications;
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third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other
government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute
contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications;
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one or more IRBs refusing to approve, suspending or terminating the study at an investigational
site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable
terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to
extensive negotiation and may vary significantly among different CROs and trial sites;
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deviations of the clinical sites from trial protocols or dropping out of a trial;
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adding new clinical trial sites;
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the inability of the CRO to execute any clinical trials for any reason; and
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government or regulatory delays or “clinical holds” requiring suspension or termination
of a trial.
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Product development
costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform more or
larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to
amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable
foreign regulatory authorities, and IRBs for reexamination, which may impact the costs, timing or successful completion of that
study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, or other reviewing
entities, or any of our clinical study sites suspend or terminate any of our clinical studies of any of our product candidates,
its commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing
our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence
product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion
of, clinical studies may also ultimately lead to the denial of regulatory approval of our product candidates. In addition, if one
or more clinical studies are delayed, our competitors may be able to bring competing products to market before we do, and the commercial
viability of any of our affected product candidates could be significantly reduced.
Third-party coverage
and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our ability to successfully market our product candidates will depend in part on the level of reimbursement that government health
administration authorities, private health coverage insurers and other organizations provide for the cost of our product candidates
and related treatments. Countries in which any of our product candidates are sold through reimbursement schemes under national
health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval
of initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and
private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our product candidates
profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly,
third-party payors attempt to contain health care costs in ways that are likely to impact our development of products including:
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failing to approve or challenging the prices charged for health care products;
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introducing reimportation schemes from lower priced jurisdictions;
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limiting both coverage and the amount of reimbursement for new therapeutic products;
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denying or limiting coverage for products that are approved by the regulatory agencies but are
considered to be experimental or investigational by third-party payors; and
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refusing to provide coverage when an approved product is used in a way that has not received regulatory
marketing approval.
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Any product candidates
we develop that incorporate CBD will be subject to U.S. controlled substance laws and regulations and failure to comply with these
laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business
operations, both during clinical development and post approval, and our financial condition. We believe that our TFF platform
could be used to formulate a dry powder version of cannabidiol, or CBD, and we are in the early stages of developing a dry powder
form of CBD. CBD is a controlled substance as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances
are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing
quotas, security, recordkeeping, reporting, import, export and other requirements administered by the federal Drug Enforcement
Agency, or DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule
I substances by definition have a high potential for abuse, have no currently “accepted medical use” in the United
States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States.
Pharmaceutical products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances
considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse
among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and
procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further
restricted. For example, they may not be refilled without a new prescription.
While cannabis and
certain of its derivatives, including CBD, are Schedule I controlled substances, products approved for medical use in the United
States that contain cannabis or cannabis extracts must be placed in Schedules II through V, since approval by the FDA satisfies
the “accepted medical use” requirement. In 2018, the FDA approved Epidiolex, a sesame oil oral solution of CBD, and
the DEA scheduled Epidiolex to Schedule V. To our knowledge, Epidiolex is the only CBD-based drug to have received FDA marketing
approval. If we are able to develop a CBD-based dry powder drug candidate, and the FDA provides market approval for such drug candidate,
of which there can be no assurance, the DEA will make a scheduling determination and place our dry powder CBD-based drug candidate
in a schedule other than Schedule I in order for it to be prescribed to patients in the United States. If we are able to develop
a CBD-based dry powder drug candidate, we would be able to favorably cite Epidiolex for purposes of DEA scheduling; however, there
can be no assurance that any CBD-based drug candidate we develop will be listed by the DEA as a Schedule V controlled substance.
Furthermore, if the FDA, DEA or any foreign regulatory authority determines that any of our CBD-based drug candidates may have
potential for abuse, it may require us to generate more clinical data than would otherwise be required, which could increase the
cost or delay the launch of such drug candidate.
Facilities conducting
research, manufacturing, distributing, importing or exporting, or dispensing controlled substances must be registered (licensed)
to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA
to prevent drug loss and diversion. All these facilities must renew their registrations annually, except dispensing facilities,
which must renew every three years. The DEA conducts periodic inspections of certain registered establishments that handle controlled
substances. Obtaining the necessary registrations may result in delay of the importation, manufacturing or distribution of any
CBD-based drug candidates we may develop. Furthermore, failure to maintain compliance with the CSA, particularly non-compliance
resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, financial
condition and results of operations. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings
to restrict, suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.
Individual states have
also established controlled substance laws and regulations. Though state-controlled substance laws often mirror federal law, because
the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states automatically
schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action. State scheduling
may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling could have a material
adverse effect on the commercial attractiveness of such product. We must also obtain separate state registrations, permits or licenses
in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure
to meet applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from the
DEA or otherwise arising under federal law.
The passage of
the 2018 Farm Bill will impact our development of a dry powder version of CBD. The Agriculture Improvement Act of 2018,
or the 2018 Farm Bill, was signed into law on December 20, 2018. This new law excludes hemp from the definition of marijuana for
purposes of the CSA, and legalizes the cultivation and commercial sale of hemp in the United States, subject to state regulation
and continuing oversight by federal regulatory agencies. However, the 2018 Farm Bill does not legalize hemp-derived CBDs. CBDs
generally remain a Schedule I controlled substance under the CSA and the 2018 Farm Bill provides that a CBD will be removed from
Schedule I status if, among other requirements, the CBD is derived from hemp produced by a licensed grower in a manner consistent
with the 2018 Farm Bill and associated federal and state regulations.
In addition, the 2018
Farm Bill did not alter the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds, including
CBD, under the Federal Food, Drug, and Cosmetic Act. Hemp products, including CBDs, that qualify as drugs, food, dietary supplements,
veterinary products, and cosmetics will continue to be regulated by the FDA under the applicable regulatory frameworks. Following
passage of the 2018 Farm Bill, the FDA reaffirmed its enforcement authority and reiterated the requirement that a CBD product (hemp-derived
or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, be approved by the FDA for
its intended use before it may be introduced into interstate commerce. However, we believe that hemp-derived CBD products that
are not marketed with a claim of therapeutic benefit, or with any other disease claim, may not require FDA pre-marketing approval.
While we believe that recent legislation, most notably the 2018 Farm Bill, has reduced the amount of DEA regulation of CBDs, this
is a rapidly evolving area of law and there remains some uncertainty surrounding future state regulation of CBDs. In addition,
as of the date of this report, the FDA has approved for marketing only one CBD-based drug product, Epidiolex, and there can be
no assurance that we will not encounter increased costs or delays in pursuing FDA market approval of a CBD-based dry powder formula,
assuming we can obtain approval at all.
Risks Relating to Our Intellectual Property
Rights
We are dependent
on rights to certain technologies licensed to us. We do not have complete control over these technologies and any loss of our rights
to them could prevent us from selling our product candidates. As noted above, our business model is entirely dependent
on certain patent rights licensed to us by the University of Texas at Austin, or UT. See, “Risk Factors — Risks
Relating to Our Business — Our business model is entirely dependent on certain patent rights licensed to us from the University
of Texas at Austin, and the loss of those license rights would, in all likelihood, cause our business, as presently contemplated,
to fail.” Because we will hold those rights as a licensee, we have limited control over certain important aspects of
those patent rights. Pursuant to the patent license agreement, UT has reserved the right to control all decisions concerning the
prosecution and maintenance of all U.S. and foreign patents, as well as all decisions concerning the enforcement of any actions
against potential infringers of the patent rights. We believe that UT shares a common interest in these matters with us, and UT
has agreed to consult with us on the prosecution and enforcement of possible infringement claims as well as other matters for which
UT has retained control. However, there can be no assurance that UT will agree with our views as to how best to prosecute, maintain
and defend the patent rights subject to the patent license agreement.
It is difficult
and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights. Our commercial
success will depend, in part, on our ability to successfully defend the patent rights subject to our patent license agreement with
UT against third-party challenges and successfully enforcing these patent rights against third party competitors. The patent positions
of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important
legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value
of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in the
patent applications subject to the UT patent license agreement. The patents and patent applications relating to our TFF platform
and related technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors
with similar products or technologies.
The degree of future
protection afforded by the patent rights licensed to us is uncertain, because legal means afford only limited protection and may
not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage
at all. We cannot be certain that any patent application owned by a third party will not have priority over patent applications
in which we hold license rights or that we will not be involved in interference, opposition or invalidity proceedings before United
States or foreign patent offices.
Additionally, if UT
were to initiate legal proceedings against a third party to enforce a patent covering any of our product candidates, the defendant
could counterclaim that such patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims
alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet
any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions
include allegations that someone connected with prosecution of the patent withheld relevant information from the United States
Patent and Trademark Office, or the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise
similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms
include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g. opposition proceedings. Such
proceedings could result in revocation or amendment of UT’s patents in such a way that they no longer cover our product candidates
or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect
to validity, for example, we cannot be certain that there is no invalidating prior art, of which UT and the patent examiner were
unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would
lose at least part, and perhaps all, of the patent protection on any of our product candidates. Such a loss of patent protection
would have a material adverse impact on our business.
In the future, we may
rely on know-how and trade secrets to protect technology, especially in cases in which we believe patent protection is not appropriate
or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees, academic collaborators,
consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade
secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to
publish data and information in which we may have rights. Enforcing a claim that a third party illegally obtained and is using
any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less
willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods
and know-how.
If we fail to obtain
or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use
our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate
revenues and attain profitability.
Our product candidates
may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and
commercialization efforts. Our success depends in part on avoiding infringement of the proprietary technologies of others.
The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights.
Identification of third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching
is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning
of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may
be unaware of third-party patents that may be infringed by commercialization of any of our product candidates or any future product
candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license
in order to research, develop or commercialize any of our product candidates, and we do not know if such patents and patent applications
would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third
parties would be time-consuming and may:
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result in costly litigation;
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divert the time and attention of our technical personnel and management;
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prevent us from commercializing a product until the asserted patent expires or is held finally
invalid or not infringed in a court of law;
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require us to cease or modify our use of the technology and/or develop non-infringing technology;
or
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require us to enter into royalty or licensing agreements.
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Third parties may hold
proprietary rights that could prevent any of our product candidates from being marketed. Any patent-related legal action against
us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our processes could
subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market any of our
product candidates or any future product candidates. We cannot predict whether we would prevail in any such actions or that any
license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we
cannot be sure that we could redesign our product candidates or any future product candidates or processes to avoid infringement,
if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary
licenses, could prevent us from developing and commercializing any of our product candidates or a future product candidate, which
could harm our business, financial condition and operating results.
We expect that there
are other companies, including major pharmaceutical companies, working in the areas competitive to our product candidates which
either has resulted, or may result, in the filing of patent applications that may be deemed related to our activities. If we were
to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption
of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present
clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these
or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the U.S. PTO, we would
have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court
would find in our favor on questions of infringement, validity or enforceability. Even if we are successful, litigation could result
in substantial costs and be a distraction to management.
We may be subject
to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed
alleged confidential information or trade secrets of their former employers. As is commonplace in our industry, we will
employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors.
Although no claims against us are currently pending, we may be subject in the future to claims that our employees or prospective
employees are subject to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations)
or claims that our employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against
these claims, litigation could result in substantial costs and be a distraction to management.
Risks Related to Owning Our Common Stock
An active, liquid
and orderly trading market for our shares may not develop, which may inhibit the ability of our stockholders to sell their shares.
We recently commenced trading on the Nasdaq Capital Market, under the symbol “TFFP,” on October 25, 2019, and since
that date our common shares have been thinly traded. There can be no assurance that an active, liquid or orderly trading market
in our shares will develop or, if it does develop, that it will be sustained. The lack of an active market may impair your ability
to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market
may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling
shares and may impair our ability to acquire other companies by using our shares as consideration.
Our failure to
meet the continued listing requirements of NASDAQ could result in a delisting of our common stock. If we fail to satisfy
the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum closing bid price requirement,
NASDAQ may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common
stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we
can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock
to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from
dropping below the NASDAQ minimum bid price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
Future capital
raises may dilute your ownership and/or have other adverse effects on our operations. If we raise additional capital by
issuing equity securities, our existing stockholders’ percentage ownership will be reduced and these stockholders may experience
substantial dilution. If we raise additional funds by issuing debt securities, these debt securities would have rights senior to
those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations,
including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required
to relinquish some rights to our intellectual property or candidate products, or to grant licenses on terms that are not favorable
to us.
The market price
of our shares may be subject to fluctuation and volatility. You could lose all or part of your investment. The public offering
price for the shares in our initial public offering was determined by negotiations between us and the underwriter and may not be
indicative of prices that will prevail in the trading market. The stock market in general, and early stage public companies in
particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The stock market in general has been, and the market price of our shares in particular will likely
be, subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition. The market price
of our shares on the NASDAQ Capital Market may fluctuate as a result of a number of factors, some of which are beyond our control,
including, but not limited to:
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actual or anticipated variations in our and our competitors’ results of operations and financial
condition;
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market acceptance of our product candidates;
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changes in earnings estimates or recommendations by securities analysts, if our shares are covered
by analysts;
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development of technological innovations or new competitive products by others;
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announcements of technological innovations or new products by us;
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publication of the results of preclinical or clinical trials for our product candidates;
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failure by us to achieve a publicly announced milestone;
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delays between our expenditures to develop and market new or enhanced products and the generation
of sales from those products;
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developments concerning intellectual property rights, including our involvement in litigation brought
by or against us;
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regulatory developments and the decisions of regulatory authorities as to the approval or rejection
of new or modified products;
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changes in the amounts that we spend to develop, acquire or license new products, technologies
or businesses;
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changes in our expenditures to promote our product candidates;
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our sale or proposed sale, or the sale by our significant stockholders, of our shares or other
securities in the future;
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changes in key personnel;
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success or failure of our research and development projects or those of our competitors;
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the trading volume of our shares; and
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general economic and market conditions and other factors, including factors unrelated to our operating
performance.
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These factors and any
corresponding price fluctuations may materially and adversely affect the market price of our shares and result in substantial losses
being incurred by our investors. In the past, following periods of market volatility, public company stockholders have often instituted
securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and
divert the resources and attention of our management from our business.
We are an “emerging
growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements applicable to
emerging growth companies will make our common stock less attractive to investors. We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to:
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act;
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reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements;
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and stockholder approval of any golden parachute payments; and
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extended transition periods available for complying with new or revised accounting standards.
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We have chosen to take
advantage of all of the benefits available under the JOBS Act, including the exemptions discussed above. We cannot predict if investors
will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an “emerging
growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1.07 billion, if we
issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held
by non-affiliates exceeds $700 million as of June 30 in any future year.
If we fail to
maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial
results or prevent fraud. Commencing with our annual report on Form 10-K for the fiscal year ended December 31, 2020, we
will be required to provide a report on management’s assessment of our internal control over financial reporting. Once we
are neither an emerging growth company nor a non-accelerated filed, we will be required to obtain an attestation from our independent
registered public accounting firm on our internal control report. Effective internal controls over financial reporting are necessary
for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent
fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause
us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the
Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm when required, may reveal deficiencies
in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or
retrospective changes to our financial statements or identify other areas for further attention or improvement. Inferior internal
controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect
on the trading price of our common shares. There is also a risk that neither we nor our independent registered public accounting
firm (when applicable in the future) will be able to conclude within the prescribed timeframe that internal controls over financial
reporting is effective as required by Section 404. As a result, investors could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of our common stock.
Our status as
an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company,” we may
be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may
be unable to compare our business with other companies in our industry if they believe that our reporting is not as transparent
as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition
and results of operations may be materially and adversely affected.
We have not paid
dividends in the past and have no immediate plans to pay dividends. We plan to reinvest all of our earnings, to the extent
we have earnings, to cover operating costs and otherwise become and remain competitive. We do not plan to pay any cash dividends
with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient
surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not
expect to receive cash dividends on our common stock.
If equity research
analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our shares,
the price of our shares could decline. The trading market for our shares will rely in part on the research and reports
that equity research analysts publish about us and our business, if at all. We do not have control over these analysts and we do
not have commitments from them to write research reports about us. The price of our shares could decline if no research reports
are published about us or our business, or if one or more equity research analysts downgrades our shares or if those analysts issue
other unfavorable commentary or cease publishing reports about us or our business.
We will incur
significant increased costs as a result of becoming a public company that reports to the Securities and Exchange Commission and
our management will be required to devote substantial time to meet compliance obligations. As a public company reporting
to the Securities and Exchange Commission, we will incur significant legal, accounting and other expenses that we did not incur
as a private company. We will be subject to reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act,
and the reporting and governance provisions of the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Protection
Act, as well as rules subsequently implemented by the Securities and Exchange Commission, that impose significant requirements
on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes
in corporate governance practices. There are significant corporate governance and reporting provisions in these laws that will
increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place
undue strain on our personnel, systems and resources. Our management and other personnel will need to devote a substantial amount
of time to these regulations. In addition, we expect these rules and regulations to make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and
retain qualified people to serve on our board of directors, or Board, our Board committees or as executive officers.
Assuming a market
for our common stock develops, shares eligible for future sale may adversely affect the market for our common stock. We,
all of our directors and officers, and all of our common shares outstanding prior to our initial public offering, are subject to
lock-up agreements whereby the holder has agreed not to sell, transfer, pledge or lend, or offer to do any of the same, directly
or indirectly, any of our securities for a period of one year following the October 29, 2019 close of our initial public offering.
The holders of common shares issuable upon conversion of our Series A preferred stock have agreed not to sell, transfer, pledge
or lend, or offer to do any of the same, directly or indirectly, any of our securities for 180 days following the close of our
initial public offering, other than certain holders who purchased our Series A preferred stock as part of our May 2019 private
placement and are deemed “related persons” under the rules of FINRA, who have agreed to a one-year lock-up period.
Notwithstanding the lock-up agreements, we have agreed to register for resale shares of common stock expected to be issued upon
conversion of our Series A preferred stock and shares of common stock underlying certain warrants. Furthermore, after the 180th
day following the close of our initial public offering, certain stockholders will be eligible to begin publicly selling their shares
under Rule 144, promulgated under the Securities Act of 1933, or the Securities Act. Rule 144 becomes available to the holders
of our restricted stock on the 90th day following the close of our initial public offering. However, as noted above,
the holders of our restricted stock have agreed not to publicly sell any restricted stock pursuant to Rule 144 or otherwise for
at least 180 days following the close of our initial public offering. See “Shares Eligible for Future Sale”. Any substantial
sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus (including sales by investors of securities
acquired in connection with this offering) may have a material adverse effect on the market price of our common stock.
We may be at
an increased risk of securities class action litigation. Historically, securities class action litigation has often been
brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because
biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If we were to be
sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our
business.
Our charter documents
and Delaware law may inhibit a takeover that stockholders consider favorable. The provisions of our second amended and
restated certificate of incorporation, or Certificate, and amended and restated bylaws and applicable provisions of Delaware law
may delay or discourage transactions involving an actual or potential change in control or change in our management, including
transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might
otherwise deem to be in their best interests. The provisions in our Certificate and amended and restated bylaws:
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limit who may call stockholder meetings;
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do not provide for cumulative voting rights; and
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provide that all board vacancies may be filled by the affirmative vote of a majority of directors
then in office, even if less than a quorum.
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In addition, Section
203 of the Delaware General Corporation Law may limit our ability to engage in any business combination with a person who beneficially
owns 15% or more of our outstanding voting stock unless certain conditions are satisfied. This restriction lasts for a period of
three years following the share acquisition. These provisions may have the effect of entrenching our management team and may deprive
you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability
to obtain a control premium could reduce the price of our common stock.
Our Certificate
and amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain
litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors, officers or other employees. Provisions in our Certificate and amended and
restated bylaws provide that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the
sole and exclusive forum for:
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any derivative action or proceeding brought on our behalf;
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any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any
of our directors, officers or other employees;
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any action asserting a claim against us or any of our directors, officers or other employees arising
pursuant to any provision of Delaware law or our charter documents; or
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any action asserting a claim against us or any of our directors, officers or other employees governed
by the internal affairs doctrine, but excluding actions to enforce a duty or liability created by the Exchange Act or any other
claim for which the federal courts have exclusive jurisdiction.
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These exclusive forum
provisions do not apply to claims under the Securities Act or the Exchange Act. These exclusive forums provisions, however, do
provide that if no state court located in the State of Delaware has jurisdiction, the federal district court for the District of
Delaware shall be the exclusive forum. By becoming a stockholder in our company, you will be deemed to have notice of and have
consented to the provisions of our Certificate and amended and restated bylaws related to choice of forum, but will not be deemed
to have waived our compliance with the federal securities laws and the rules and regulations thereunder. The choice of forum provisions
in our Certificate and amended and restated bylaws may limit our stockholders’ ability to obtain a favorable judicial forum
for disputes with us or any of our directors, officers or other employees, which may discourage lawsuits with respect to such claims.
Alternatively, if a court were to find the choice of forum provision contained in our Certificate and amended and restated bylaws
to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could harm our business, results of operations and financial condition.