ITEM
1. BUSINESS
Business
Overview
We
are a clinical-stage medical device and biopharmaceutical company developing a nitric oxide (“NO”) generator and delivery
system (the “LungFit® system”) that is capable of generating NO from ambient air. The LungFit®
platform can generate NO up to 400 parts per million (“ppm”) for delivery to a patient’s lungs directly or
via a ventilator. LungFit® can deliver NO either continuously or for a fixed amount of time at various flow rates
and has the ability to either titrate dose on demand or maintain a constant dose. We believe that LungFit® can
be used to treat patients on ventilators that require NO, as well as patients with chronic or acute severe lung infections via delivery
through a breathing mask or similar apparatus. Furthermore, we believe that there is a high unmet medical need for patients suffering
from certain severe lung infections that the LungFit® platform can potentially address. Our current areas of focus
with LungFit® are persistent pulmonary hypertension of the newborn (“PPHN”), acute viral pneumonia
(“AVP”) including COVID-19, bronchiolitis (“BRO”) and nontuberculous mycobacteria (“NTM”) lung infection.
Our current product candidates will be subject to premarket reviews and certifications or approvals by the U.S. Food and Drug
Administration, (the “FDA”), as well as similar regulatory agencies in other countries or regions. If approved, our system
will be marketed as a medical device in the United States.
An
additional focus of ours is solid tumors. For this indication the LungFit® platform is not utilized due to need
for ultra-high concentrations of gaseous nitric oxide (“gNO”). We have developed a delivery system that can safely deliver
gNO in excess of 10,000 ppm directly to a solid tumor. This program is in pre-clinical development and will require approval from the
FDA or similar agencies in other countries to enter human studies. We expect to receive regulatory approval to enter a first in human
trial by the end of calendar year 2021.
Our
active pipeline of product candidates is shown in the table below:
†Caution
- LungFit® is an Investigational Device, Limited by Federal (or United States) Law to Investigational Use.
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(1)
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All
dates are based on projections and appropriate financing, anticipated first launch on a global basis pending appropriate regulatory
approvals
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(2)
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Label
expected to include cardiac surgery and PPHN
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Our
programs represent large market opportunities:
†Caution
- LungFit® is an Investigational Device, Limited by Federal (or United States) Law to Investigational Use.
All figures are Company estimates for peak year sales: Global sales potential includes US sales potential
The
LungFit® system generates NO from ambient air by simulating the electric discharge caused from a lightning strike.
Our proprietary technology allows for this reaction to occur in a plasma chamber. We believe the on-demand delivery, either to a ventilator
circuit or directly to a patient’s lungs, is safe due to our system design and our proprietary nitrogen dioxide (“NO2”)
filter. The NO2 filter removes toxic NO2 for 12 hours when used for PPHN and shorter periods for treating other
conditions that require NO concentrations of 150 ppm or more.
With
respect to PPHN, our novel LungFit® PH is designed to deliver a dosage of NO to the lungs that is consistent with
current guidelines for delivery of 20 ppm NO with a range of 0.5 ppm – 80 ppm (low-concentration NO) for ventilated patients. We
believe the ability of LungFit® PH to generate NO from ambient air provides Beyond Air many competitive advantages
over the current standard of NO delivery systems in the U.S., European Union, Japan and other markets. For example, LungFit®
PH does not require the use of a high-pressure cylinder, does not require cumbersome purging procedures and places less burden
on hospital staff in carrying out safety procedures.
Our
novel LungFit® platform can also deliver a high concentration (>150 ppm) of NO directly to the lungs,
which we believe has the potential to eliminate microbial infections including bacteria, fungi, and viruses, among others. We believe
current FDA-approved NO vasodilation treatments would have limited success in treating microbial infections given the low concentrations
of NO being delivered (<100 ppm). Given that NO is produced naturally by the body as an innate immunity mechanism at a concentration
of 200 ppm, supplemental high dose NO should aid in the body’s fight against infection. Based on our pre-clinical and clinical
studies, we believe that 150 ppm is the minimum therapeutic dose to achieve the desired pulmonary antimicrobial effect of NO. To date,
neither the FDA nor equivalent regulatory agencies in other countries or regions have approved any NO formulation and/or delivery system
for >80 ppm NO.
LungFit®
PH for the treatment of Persistent Pulmonary Hypertension
of the Newborn
On
November 10, 2020 we submitted a premarket approval (“PMA”) application to the FDA for the use of LungFit®
PH in PPHN. There is a standard 180-day review process that starts upon FDA acknowledgement of submission, though due in part to
the ongoing COVID-19 pandemic, we anticipate an FDA response towards the end of calendar 3Q 2021. We also expect to receive CE Mark
under the MDR in the European Union around the end of calendar year 2021. According to the most recent year-end report from Mallinckrodt
Pharmaceuticals, sales of NO were $574.1 million in 2020 (up from $571.4 million in 2019) for the United States, Canada, Japan, Mexico
and Australia, with >90% in the United States. Outside of the U.S. there are multiple market participants which translates to considerably
lower sales than in the U.S. We believe the U.S. sales potential of LungFit® PH in PPHN to be greater than $300
million and worldwide sales potential to be greater than $600 million. If regulatory approval is obtained, we anticipate a product launch
in the U.S. in calendar 4Q 2021 and will continue to launch in the EU and globally in 2022 and beyond.
LungFit®
PRO for the treatment of viral lung infections in hospitalized
patients
Acute
Viral Pneumonia (including COVID-19)
Viral
pneumonia in adults is most commonly caused by rhinovirus, respiratory syncytial virus (“RSV”) and influenza virus. However,
newly emerging viruses (including SARS-CoV-1, SARS-CoV-2, avian influenza A, and H1N1 viruses) have been identified as pathogens contributing
to the overall burden of adult viral pneumonia. COVID-19 is an infectious disease caused by SARS-CoV-2, that has resulted in a global
pandemic. Excluding the pandemic, there are approximately 350,000 annual viral pneumonia hospitalizations in the US, and 16 million
annual viral pneumonia hospitalizations globally. For the broader AVP, we believe U.S. sales potential to be greater than $1.5 billion
and worldwide market potential to be greater than $3 billion.
We
initiated a pilot study in late 2020 using our novel LungFit® PRO system at 150 ppm to treat patients with acute
viral pneumonia, including COVID-19. The ongoing trial is a multi-center, open-label, randomized clinical trial in Israel, including
patients infected with SARS-CoV-2. Patients are randomized in a 1:1 ratio to receive either inhalations of 150 ppm NO given intermittently
for 40 minutes four times per day for up to seven days in addition to standard supportive treatment (“NO+SST”) or standard
supportive treatment alone (“SST”). Endpoints related to safety (primary endpoint), oxygen saturation, and ICU admission,
among others, will be assessed.
We
reported interim data from this ongoing trial at the American Thoracic Society or ATS International Conference 2021, which was held virtually
from May 14 – May 19. At the time of the data cut off, the intent-to-treat (“ITT”) analysis population included 19
COVID-19 patients (9 NO + SST vs 10 SST). The data readout showed that 150 ppm NO treatment administered via LungFit®
PRO was safe and well tolerated and demonstrated encouraging efficacy signals. From a safety perspective, there were no treatment-related,
or possibly related, adverse events or severe adverse events. NO2 levels were below 4 ppm at all timepoints (trial safety
threshold is 5 ppm) and methemoglobin (“MetHb”) levels were below 4% at all times (trial safety threshold is 10%). With respect
to the requirement of oxygen support beyond hospital stay, 22.2% of subjects in the NO + SST group compared with 40% of control subjects
had this requirement. There was an observable trend of shortening the duration of hospital stay and duration on oxygen support for treated
patients. Additional detailed study results may be submitted for presentation at an upcoming scientific meeting.
Bronchiolitis
Bronchiolitis
is the leading cause of hospital admission in children less than 1 year of age. The incidence is estimated to be 150 million new cases
a year worldwide, with 2-3% (over 3 million) of them severe enough to require hospitalization. Worldwide, 95%3 of all cases
occur in developing countries. In the U.S., there are more than 120,000 annual bronchiolitis hospitalizations and approximately 3.2 million
annual child hospitalizations globally. Currently, there is no approved treatment for bronchiolitis. The treatment for acute viral lung
infections that cause bronchiolitis in infants is largely supportive care and is based primarily on prolonged hospitalization during
which the infant receives a constant flow of oxygen to treat hypoxemia, a reduced concentration of oxygen in the blood. In addition,
systemic steroids and inhalation with bronchodilators are sometimes utilized until recovery, but we believe these treatments do not successfully
reduce hospital length of stay. We believe the U.S. market potential for bronchiolitis to be greater than $500 million and worldwide
market potential to be greater than $1.2 billion.
Our
BRO program is currently on hold due to the COVID-19 pandemic. The pivotal study for bronchiolitis was originally set to be performed
in the winter of 2020/21 but was delayed due to the pandemic. We have completed three successful pilot studies for bronchiolitis. A further
analysis of the three previously reported pilot studies was presented at the ATS International Conference 2021, which was held virtually
from May 14 – May 19. Analysis across the studies (n=198 infants, mean age 3.9 months) showed that 150 – 160 ppm NO administered
intermittently was generally safe and well tolerated with adverse event rates similar among treatment groups with no reported treatment-related
serious adverse events. The short course of treatments with intermittent high concentration inhaled NO was effective in shortening hospital
length of stay and accelerating time to fit for discharge – a composite endpoint of clinical signs and symptoms to indicate readiness
to be evaluated for hospital discharge. This treatment was also effective in accelerating time to stable oxygen saturation –
measured as SpO2 ≥ 92% in room air. Additionally, NO at a dose of 85 ppm NO showed no difference compared to control for all efficacy
endpoints, while 150 ppm NO showed statistical significance when compared to control.
We
believe the entirety of data at 150-160 ppm NO in both adult and infant patient populations supports further development of LungFit®
PRO in a pivotal study for patients hospitalized with viral pneumonia.
LungFit®
GO for the treatment of Nontuberculous mycobacteria (NTM)
NTM
lung infection is a rare and serious pulmonary disease associated with increased morbidity and mortality. Patients with NTM lung disease
may experience a multitude of symptoms such as fever, weight loss, cough, lack of appetite, night sweats, blood in the sputum and fatigue.
Patients with NTM lung disease, specifically Mycobacterium abscessus (M.abscessus) representing 20-25%
of all NTM and other forms of NTM that are refractory to antibiotic therapy, frequently require lengthy and repeated hospital
stays to manage their condition. There are no treatments specifically indicated for the treatment of M. abscessus lung
disease in North America, Europe or Japan. There are approximately 50,000 to 90,000 people with NTM infections in the U.S. In Asia, the
number of patients suffering from NTM surpasses what is seen in the U.S. There is one inhaled antibiotic approved for the treatment of
refractory Mycobacterium avium complex (“MAC”). Current guideline-based approaches to treat NTM lung disease
involve multi-drug regimens of antibiotics that may cause severe, long lasting side effects, and treatment can be as long as 18 months
or more. Median survival for NTM MAC patients is approximately 13 years while median survival for patients with other variations of NTM
is typically 4.6 years. The prevalence of human disease attributable to NTM has increased over the past two decades. In a study conducted
between 2007 and 2016, researchers found that the prevalence of NTM in the U.S. is increasing at approximately 7.5% per year. M.
abscessus treatment costs are estimated to be more than double that of MAC. In total, a 2015 publication from co-authors
from several U.S. government departments stated annual cases in 2014 cost the U.S. healthcare system approximately $1.7 billion. For
this indication, we believe U.S. sales potential to be greater than $1 billion and worldwide sales potential to be greater than $2.5
billion.
In
December 2020 we began a 12-week, multi-center, open-label clinical trial in Australia and we plan to enroll approximately 20 adult patients
with chronic refractory NTM lung disease. We received a grant of up to $2.17 million from the Cystic Fibrosis Foundation to fund this
study and advance the clinical development of inhaled NO to treat NTM pulmonary disease. The trial is enrolling both cystic fibrosis
(“CF”) and non-CF patients infected with MAC or M. abscessus. The study consists of a run-in period
followed by two treatment phases. The run-in period provides a baseline for the efficacy endpoints. The first treatment phase takes place
over a two-week period and begins in the hospital setting where patients will be titrated from 150 ppm NO up to 250 ppm NO over several
days. During this phase patients receive NO for 40 minutes, four times per day while MetHb levels are monitored. Patients are
also trained to use LungFit® GO and subsequently discharged to complete the remaining portion of the two-week treatment
period at their home at the highest tolerated NO concentration. For the second treatment phase, a 10-week maintenance phase, the administration
is twice daily. The study is evaluating safety, quality of life, physical function, and bacterial load among other parameters.
We
anticipate reporting interim data in the second half of calendar year 2021, likely at a scientific conference. We will release top-line
results for the full data set approximately six months later. If the trial is successful, we would anticipate commencing a pivotal study
in the first half of calendar year 2023.
Our
program in chronic obstructive pulmonary disease (“COPD”) is in the pre-clinical stage and will remain there, subject to
obtaining additional financing.
Ultra-High
Concentration NO in solid tumors
For
our solid tumor program, we have released pre-clinical data at several medical/scientific conferences showing the promise of delivering
NO at concentrations of 20,000 ppm – 200,000 ppm directly to tumors. Results showed that local tumor ablation with NO conveyed
anti-tumor immunity to the host. In our most recent release of data, 8 of 11 mice treated with a single administration of 25,000 ppm
NO over 5 minutes were resistant to a subsequent tumor challenge and 11 of 11 mice treated with 50,000 ppm NO were resistant to a subsequent
tumor challenge. Pre-clinical work will continue throughout most of 2021 with a goal of receiving regulatory approval to initiate a first-in-human
trial by the end of calendar year 2021.
Background
and NO Mechanism of Action
NO
is recognized as a vital molecule involved in many physiological and pathological processes. NO is naturally produced by the body’s
immune system to provide a first line of defense against invading pathogens. It is a powerful molecule with a short half-life of a few
seconds in the blood, enabling it to be cleared rapidly from the body. NO has been shown to play a critical role in the function of several
body systems. For example, as vasodilator of smooth muscles, NO enhances blood flow and circulation. In addition, NO is involved in regulation
of a wound healing and immune responses to infection. The pharmacology, toxicity and other data for NO in humans is generally well known,
and its use has been approved by the FDA as a vasodilator. The precise effect of inhaled NO is dependent on concentration, oxidation
state and type of pathogen.
NO
has multiple immunoregulatory and antimicrobial functions that are likely to be of relevance to inhaled NO therapy. In vitro studies
suggest that NO possesses anti-microbial activity against common bacteria, gram positive and gram negative, as well as mycobacteria,
fungi, yeast, parasites and helminths. It has the potential to eliminate multi-drug resistant strains of the above. Anti-viral
activity covers respiratory viruses such as influenza, corona viruses, RSV and others. In healthy humans, NO has been shown to stimulate
mucocilary clearance, and low levels of nasal NO correlate with impaired mucociliary function in the human upper airway. Unlike other
inhaled drugs, NO is also a smooth muscle relaxant and avoids the concomitant bronchial constriction often associated with inhaled antibiotics
and mucolytics. A potential benefit of these multiple mechanisms may be that in addition to treating lung infections in CF patients,
this suggests that NO may be useful in directly treating the mucus caused by CF, which is the principal manifestation of the disease.
Nitric
Oxide and Infection
NO
possesses broad-spectrum anti-microbial activity acting against bacteria, fungi and viruses. NO is produced at high output as part of
the innate immune response. NO and its by-products (for example, reactive nitrogen species, or RNS) are responsible for the process of
killing microorganisms within white blood cells called macrophages and in organs such as the lungs and other mucolytic tissues.
More
than a decade ago, several research groups showed that NO and RNS possess anti-viral activity and affect several viruses including coxsackievirus,
RSV, influenza, severe acute respiratory syndrome, or SARS, coronavirus, rhinovirus, herpes simplex virus, Epstein-Barr virus, or EBV,
and others. NO has also been shown to be useful in preventing bacterial growth on surfaces.
Continuous
exposure to 150 ppm NO and above, especially in the lungs, may have side effects and cause damage to host cells. Intermittent exposure
to NO in cycles retains NO anti-microbial activity both in vitro and in animal model of infection. Exposure of bacteria to concomitant
30-minute treatments with 160 ppm NO resulted in a significant reduction in bacterial load. A similar dose has been shown to reduce viruses
(common influenza) by 30-100% in a canine kidney infection model. In vivo, in a pneumonia model in rats, inhaled 160 ppm NO, for 30 minutes,
every 4 hours, resulted in significant reduction in bacteria counts in the lungs, without affecting the body’s defense mechanisms,
and without any other adverse effect. In addition, we believe a daily dose of 160 ppm of NO can treat bovine respiratory disease (“BRD”)
in cattle.
Importantly,
several studies report synergy between NO and antibiotic drugs. Adjunctive treatment combining NO together with inhaled tobramycin antibiotics
or other anti-microbial agents has been shown to greatly enhance the efficacy of the antibiotics in dispersing P. aeruginosa biofilms
and to increase their ability to elicit anti-microbial activity. These studies suggest that adjuvant treatment combining NO with antibiotics
might have a beneficial role by reducing bacterial infectivity, and therefore reduce the dependency on antibiotics.
Beyond
Air Technology
We
have developed the Beyond Air nitric oxide generator and delivery system which we call LungFit®, a novel and precise
delivery system that uses NO generated from ambient air with a novel NO generator. Our system provides continuous monitoring and control
of the gaseous content administered during intermittent and continuous NO inhalation treatments, as well as a precise and reliable monitoring
system that is able to monitor patient status and alert medical staff to any adverse effects.
The
LungFit® system is innovatively designed to provide patients with a gaseous dose of NO (ranging from 0.5 ppm up
to 400 ppm) combined with ambient air. The gaseous blend is supplied to the patient via a ventilator for concentrations up to 80 ppm
and a face mask, or similar apparatus, for concentrations above 80 ppm. LungFit® is designed to minimize the time
that NO is mixed with oxygen and air. The system is also designed to continuously monitor inhaled NO concentration, NO2 concentration
and oxygen. A dedicated screen allows for monitoring of the gas mixture. Further, our product candidates resemble other inhalation systems,
making them user friendly, with operation and maintenance that we believe will be immediately familiar to medical staff. Our LungFit®
system has been manufactured at commercial scale with a contract manufacturer.
When
programmed for lung infections, the LungFit®, is designed to specifically deliver a NO dosage of 150 ppm and higher.
We believe that the LungFit® has a number of advantages over other NO formulation delivery systems. For example,
it is:
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optimized
to deliver 150 ppm and higher of NO, whereas existing NO delivery systems on the market consist of a maximum deliverable NO concentration
of 80 ppm;
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equipped
with a monitoring system that continuously monitors system parameters (e.g., NO, NO2 and inhaled fraction of inspired
oxygen (“FiO2”) concentrations);
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capable
of providing constant flow of NO, which we believe allows it to adequately cover the surface area of the lung to eliminate bacteria,
viruses, fungi and other microbes;
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programmable
and able to deliver different dosage regimens for a wide range of lung infections;
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able
to generate NO from ambient air, eliminating the need for the use of high-pressure cylinders;
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designed
to be used by the patient, thus convenient and portable; and
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administered
non-invasively through a facial mask, which has the potential to address severe infections in large, underserved chronic-care markets,
such as CF and COPD.
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We
believe that our solution has the potential for a number of additional benefits and opportunities, as follows:
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The
antimicrobial and multiple other properties of the NO molecule delivered to the lungs suggest the potential for application in a
wide range of respiratory diseases. In contrast to the often arduous and slow drug discovery process for small molecules, proteins,
peptides, etc., the use of NO in medicine is well-known, and therefore the identification of conditions where NO provides benefits
has been, and we expect will continue to be, much simpler, quicker and less costly.
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The
FDA approved the use of NO as an inhaled drug for the treatment of pulmonary hypertension in newborns in 1999. More than 20 years
of clinical experience in the delivery, monitoring and understanding of NO in the clinical environment for vascular uses has been
documented.
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NO
is naturally produced by the immune system and acts as a first line of defense against infectious diseases. We believe therapeutic
use of NO for viral and bacterial co-infections would potentially improve the success of antimicrobial and anti-viral treatments
by mimicking the body’s natural defense mechanism and thereby directly reduce viral infectivity, as well as antibiotic drug
resistant bacteria.
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NO
is used naturally by the body for vasodilation and we believe that the benefits to patients with various medical conditions will
be seen via vasodilation when delivered with our system.
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NitricGen
License
On
January 31, 2018, we announced that we entered into a definitive agreement to acquire a global, exclusive, perpetual, transferable license
to the eNOGenerator and associated critical assets including intellectual property, know-how, trade secrets and confidential information
(the “License”) from NitricGen Inc. (“NitricGen”). The eNOGenerator is a novel and precise delivery system that
uses NO generated from ambient air with a novel NO generator.
The
Beyond Air LungFit® system, which incorporates the eNOGenerator, has been designated as a medical device by the
FDA. The eNOGenerator can generate NO on demand for delivery to the lungs at concentrations ranging from 0.5 to 400 ppm. With the License,
we expect that we will be able to target all conditions requiring NO at any concentration, regardless of the need for intermittent or
continuous dosing.
Under
the terms of the License, we agreed to pay NitricGen an aggregate of $2 million in up-front, clinical, and regulatory milestone payments,
with the majority pertaining to regulatory milestones, as well as royalties on net sales of the delivery system containing the eNOGenerator
at a percentage in the low-single digits. As partial consideration for the License, we issued to NitricGen warrants to purchase 100,000
shares of our common stock at an exercise price of $6.90 per share. To date, $200,000 has been paid for milestones that were earned.
Upon FDA approval, the next milestone of $1,500,000 will be due to NitricGen
and payable six months, thereafter.
Cystic
Fibrosis Foundation Agreement
On
February 10, 2021 we received a grant for up to $2.17 million from the CFF to advance the clinical development of high concentration
NO for the treatment of nontuberculous mycobacteria pulmonary disease, which disproportionally affects CF patients. Under the
terms of the agreement, the funding will be allocated to the ongoing LungFit® GO NTM pilot study. The
Company has met the first milestone of $425,000 and has recorded a reimbursement receivable on the March 31, 2021 balance sheet. The
reimbursement was recorded as an offset to research and development expenses for the year ended March 31, 2021 to the extent that reimbursable
expenses were incurred, with the excess reimbursement included in accrued expenses as of March 31, 2021.
Strategies
Our
objective is to build a leading medical device and biopharmaceutical company that develops and commercializes patented and proprietary
products for the treatment of respiratory infections and diseases, with an initial focus on the treatment of PPHN, AVP, BRO, NTM
and severe infections in COPD, and CF patients, among others. Additionally, we are exploring the effects of NO on solid tumors. If our
clinical trials for our product candidates are successful, we expect to seek certification or marketing approval from the FDA
and other worldwide authorities and notified regulatory bodies.
Our
Clinical Results to Date
We
have conducted several clinical trials to assess our ≥ 150 ppm NO inhalation-treatment in various indications. These trials include:
Date
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Study
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Indication
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Primary
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Results
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2011
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Pilot
Safety (n=10)
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All
comers
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Safety
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No
SAEs
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2013
– 2014
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POC
double blind randomized (n=43)
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Bronchiolitis
(due to any virus)
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Safety
& Efficacy
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No
SAEs; 24 hour reduction in hospital length of stay
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2013
– 2014
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Pilot
open label (n=9)
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Cystic
Fibrosis (CF)
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Safety
& Efficacy
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No
SAEs; Lowered bacterial load
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2016
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Compassionate
use ISR (n=2)
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NTM
abscessus (CF)
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Safety
& Efficacy
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No
SAEs; clinical & surrogate endpoints improved
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2017
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Compassionate
use National Institute of Health, US (n=1)
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NTM
abscessus (CF)
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Safety
& Efficacy
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No
SAEs; Improvements in clinical endpoints
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2017
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Pilot
open label (n=9)
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NTM
abscessus
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Safety
& Efficacy
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No
SAEs; clinical & surrogate endpoints improved
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2017-2018
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Pilot;
double blind randomized (n=68)
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Bronchiolitis
(due to any virus)
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Safety
& Efficacy
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No
SAEs; 27 hour reduction in hospital length of stay
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2018
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Compassionate
use ISR (n=1)
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NTM
abscessus (CF)
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Safety
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No
SAEs at 250 ppm NO dose
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2019-2020
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Pilot;
double blind randomized (n=87)
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Bronchiolitis
(due to any virus)
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Safety
& Efficacy
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NO
SAEs; 150 ppm treatment showed statistically significant improvements in primary and key secondary endpoints compared to both 85
ppm and control
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Cystic
Fibrosis and NTM Clinical Development
In
2011, a prospective, open label, controlled, single-center pilot safety study was conducted on ten healthy adults between 20 and 62 years
of age. The data were published in the Journal of Cystic Fibrosis in 2012. Subjects received 160 ppm NO for 30 minutes, five times a
day, for five consecutive days via direct inhalation to the lungs using a prototype delivery system. The primary objective of the study
was to determine the effect of inhaled 160 ppm NO on pulmonary function tests and characterize the relationship between high-concentration
NO administration and MetHb – a form of hemoglobin that is a biproduct of NO and hemoglobin that cannot bind oxygen – and
establish a MetHb safety threshold level to assess adverse events associated with the treatment. Secondary objectives of the study were
to assess the changes in cytokine levels. Multiple safety markers were continuously monitored including: NO levels, NO2 (a
biproduct of NO and O2 that can be toxic at high concentrations), FiO2, as well as MetHb and oxygen saturation
(“SaO2”). Vital signs, lung function, blood chemistry (including nitrite/nitrates), hematology, prothrombin time,
inflammatory cytokine/chemokines levels and endothelial activation (angiopoietin ratio) were also closely monitored. All individuals
tolerated the NO formulation treatment courses well. No significant adverse events occurred. The maximum amount of air one can forcefully
exhale in one second, known as forced expiratory volume in one second (“FEV1”) and other lung function parameters, serum
nitrites/nitrates, prothrombin, pro-inflammatory cytokine and chemokine levels did not differ between baseline and day five, while MetHb
increased during the study period by an average of 0.9%, as expected. These data suggest that inhalation of 160 ppm NO for 30 minutes,
five times a day, for five consecutive days is well tolerated in healthy individuals.
In
2014, we completed a pilot open label, multi-center study in nine CF patients (≥10 years old). Patients received intermittent (30
minutes, three times a day) inhalation of 160 ppm NO formulation, five days a week, over a two-week period. The study was performed in
two centers, Soroka Medical Center and Schneider Children’s Medical Center of Israel. The primary endpoints of the study were to
determine the MetHb percentage, adverse events associated with inhaled NO and the percentage of subjects who prematurely discontinued
the study due to adverse events (“AEs”) and/or severe adverse events (“SAEs”), or for any other reason. AEs were
reported by five (55.5%) subjects. There were no SAEs related to NO therapy, no treatment-related withdrawals due to AEs, and no deaths.
AEs considered by the investigator as possibly or probably related to treatment were reported for two (22.2%) subjects. There were no
AEs of MetHb elevation >5% or NO 2 elevation >5 ppm (study safety threshold of MetHb and NO2, respectively).
In total, seven cases of hemoptysis were reported in two subjects and all events were mild in severity. There was no cumulative
effect of MetHb exposure during the study. The maximum MetHb level reported was 4.6%. Several secondary efficacy analyses were conducted
in this study, and though the study was not powered for efficacy, results show various positive effects of the treatment regime. Bacterial
and fungal sputum load analysis results were highly variable, though marked reductions of MSSA, Achromabacter, P. aeruginosa, and Aspergillus
were seen in several subjects. These results suggest non-specific targeting of bacteria and fungi that commonly manifest in CF patients.
In subjects with systemic inflammation (CRP >5 mg/mL) at baseline, CRP levels decreased over the treatment period, showing the effect
of NO in the reduction of systemic inflammation. There were no statistically significant or clinically relevant changes in FEV1 over
time, and lung function indices also remained relatively constant throughout the study duration.
In
2016, Rambam healthcare campus in Israel conducted a compassionate use treatment for two patients with CF who suffer from M, abscessus
lung infections. The data were published in the Pediatric Infectious Disease Journal in 2017. The NO treatment regime, as
well as the device for this treatment, was supplied by BA Ltd. our wholly owned subsidiary. Patients received intermittent 30-minute
treatments of 160 ppm NO, with two different regimes including hospitalization (5 times a day) and ambulatory treatment (2-3 inhalations
a day). Treatment was well tolerated with no evidence of any serious side effects. We observed significant improvement in sputum production
(up to 5-10 time more sputum), and subjective improvement in the well-being of both patients. Significant reduction in systemic inflammation
was observed in the first patient, as observed by reduction of CRP (C-reactive protein, a systemic inflammation marker that rises in
response to inflammation) levels during treatment. In addition, the first patient had a 2 log (100-fold) reduction in M.
abscessus during treatment (an effect that was lost after the treatment regime changed to ambulatory). The second patient showed
a significant increase in the 6-minute walk (“6MW”) test and the sputum culture became negative, which is consistent
with eradication of M. abscessus. Further information is needed, but we believe these results suggest that the treatment
of M. abscessus with high-concentration inhaled NO is effective.
In
2017, we treated one patient with CF who suffered from NTM infections (specifically, M. abscessus) under compassionate
use in the United Sates at the National Heart, Lung and Blood Institute with our generator based NO delivery system. The patient saw
improvements in 6MW, FEV1, most Quality of Life measures and had no SAEs. The bacteria was not eradicated. The patient requested
to be treated again and this treatment was commenced in February 2018. A total of 38 treatments were administered over 8 days, 29 of
them at a concentration of 240 ppm, with no SAEs believed to be related to NO reported.
Additionally
in 2017, we completed a single-arm, open-label Pilot trial in nine patients with M. abcessus lung disease, who were refractory
to standard-of-care. The patients were treated with inhaled NO at a concentration of 160 ppm for 30 minutes, in addition to treatment
with standard-of-care. Our inhaled NO treatment was administered intermittently five times per day over a 14-day period, followed by
a seven-day period with three treatments per day. The primary endpoint of safety, as measured by NO-related SAEs, over the 21-day treatment
period was met with no SAEs reported. Secondary endpoints of a 6MW test FEV1, Quality of Life and M. abscessus
load in sputum all trended positively. 6MW showed an increase of >40 meters at the end of treatment at day 21 versus baseline
and an increase of >25 meters on day 81 (60 days after the cessation of therapy). The mean percentage change in FEV1 at day 21 and
day 51 (30 days after the cessation of treatment) was > 3.5% with FEV1 returning to baseline at day 81 (60 days after the cessation
of therapy). At day 81 (60 days after the cessation of therapy) bacterial load was 65% lower than baseline. 1 of 9 patients saw culture
conversion. This study was published in the Journal of Cystic Fibrosis in 2019.
In
2018, an additional CF patient infected with M. abscessus was treated over a 4-week period with 76 of 84 treatments
at 250 ppm NO in Israel at Soroka Medical Center. The patient saw improvements in 6MW, FEV1 and most Quality of Life measures.
The bacteria was not eradicated. Importantly, there were no SAE’s reported and all treatments were completed without incident.
BRO
Clinical Development
In
2014, we completed a double blind, randomized Pilot study for infants with bronchiolitis (n=43) for which the data were published in
the Pediatric Pulmonology Journal in 2017. The study was performed at Soroka University Medical Center in Israel. Forty-three
infants between the ages of two to 12 months diagnosed with bronchiolitis were randomly assigned to either the treatment group or the
control group. The treatment group comprised 21 subjects who received intermittent (30 minutes, five times a day) inhalation of 160 ppm
NO formulation, in addition to supportive O2 treatment for up to five days. The control group, 22 subjects, received ongoing
inhalation of the supportive O2 treatment. Primary endpoints included determination of the MetHb levels, adverse events associated
with the inhaled NO formulation and proportion of subjects who prematurely discontinued the study. Baseline clinical score, indicating
disease severity at screening, was similar between treatment groups (~8). Results were encouraging, with similar overall incidence of
AEs between the treatment groups. Out of 43 patients, 39 (~90%) completed the study per protocol (“PP”), with similar percentages
(90%) for both the control and the treatment groups, individually. Only one subject from the treatment group discontinued treatment due
to an adverse event, namely – repeated MetHb levels above 5%. Adverse events were reported by 23 (53.5%) subjects overall, with
ten (47.6%) subjects in the NO group reporting a total of 22 AEs, and 13 (59.1%) subjects in the control group reporting a total of 22
AEs. Serious adverse events were reported by four (19.0%) subjects in the NO group and four (18.2%) in the standard treatment group.
There were no treatment-related SAEs in the NO treatment group.
In
the NO group, six (28.6%) subjects had any MetHb measurement >5% during the study treatment period, and three of these subjects had
more than one MetHb >5%. The maximum MetHb level was 5.6% in one subject in the NO group. There was no cumulative effect of MetHb
exposure during the study. The MetHb levels in this study were defined to <5% as a safety measure, though previous findings have shown
that higher levels (6.4%) are non-toxic in children. Secondary and exploratory analyses were performed, and results show positive impact
of the treatment regime. In a subgroup of subjects that stayed at the hospital at least 24 hours (Length of Stay (“LOS”)
>24 hours), a statistically significant treatment benefit of NO versus standard treatment was demonstrated. Mean results for subjects
with LOS > 24 hours show that LOS was shortened by approximately 34% in the NO group compared to the standard treatment group, with
a one-day difference between the groups (PP, N=24). Time to normal oxygenation ((SaO2 of 92%) was shortened by approximately 44% (27.75
hours) in the NO group compared to the standard treatment group (PP, N=24). An 80% improvement in time to clinical score (indicating
improvement in disease severity) and time to normal oxygenation (92%) was observed in favor of the NO group (PP, N=24).
In
2018 we completed a second pilot study in bronchiolitis in 6 centers in Israel. The data were published in Nature in 2020. The prospective,
randomized, double-blind, controlled pilot study enrolled 67 patients, aged 0-12 months, who were hospitalized due to bronchiolitis.
The patients received either standard of care (“SOC”) (typically oxygen and hydration) or SOC plus inhaled NO at a concentration
of 160 ppm for 30 minutes 5 times per day for up to 5 days. The primary endpoint of hospital LOS was met with a 26.7-hour reduction in
hospital length of stay demonstrated (p=0.04). Secondary endpoints of time required to achieve a clinical score of 5 or less on the modified
Tal score and time required to achieve oxygen saturation (SaO2) of 92% or greater showed improvement versus the standard-of-care.
There were no issues with NO2 or MetHb and no SAEs were recorded.
In
2020 we completed a third pilot study in bronchiolitis in 8 centers in Israel and presented the data at CHEST Annual Meeting 2020. The
prospective, randomized, double-blind, controlled pilot study enrolled 89 patients (ITT n=87), aged 0-12 months, who were hospitalized
due to bronchiolitis. The patients were randomized 1:1:1 to receive either SOC (typically oxygen and hydration) or SOC plus inhaled NO
at 85 ppm or SOC plus inhaled NO at 150 ppm for 40 minutes 4 times per day for up to 5 days. There were no SAEs related to NO therapy.
Efficacy results are shown in the table below.
|
|
150
ppm vs. 85 ppm
Hazard
Ratio (p-value)
|
|
150
ppm vs. SST
Hazard
Ratio (p-value)
|
Fit
for Discharge
|
|
2.11
(0.041)
|
|
2.32
(0.049)
|
Hospital
Length of Stay (LOS)
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|
2.01
(0.046)
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|
2.28
(0.043)
|
Oxygen
Saturation of > 92%
|
|
2.15
(0.056)
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|
2.62
(0.039)
|
We
plan to seek certification or regulatory approval for our current product candidates and, if approved, we expect they will be
marketed as medical devices.
If
we reach the commercialization stage, we expect that we will collaborate with companies outside the U.S. for all indications. We are
still determining whether to attempt to collaborate for any indication in the U.S.
Our
Pre-Clinical Results to Date
We
have completed 4 separate toxicology studies in animals.
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Rats:
30 days of intermittent treatments with LungFit® at 400 ppm NO showed no observations (differences) between
control rats and treated rats on observation during the treatment period prior to sacrifice and no observations on histopathology
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Rats:
12 weeks of intermittent treatments with LungFit® at 250 ppm NO showed no observations (differences) between
control rats and treated rats on observation during the treatment period prior to sacrifice and no observations on histopathology
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Dogs:
12 weeks of intermittent treatments with LungFit® at 250 ppm NO showed no observations (differences) between
control dogs and treated dogs on observation during the treatment period prior to sacrifice and no observations on
histopathology
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Rats:
Geno toxicology study of intermittent with LungFit® NO at 200 – 400 ppm showed a non-genotoxic
response at all concentrations
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Competition
The
biotechnology, pharmaceutical and medical device industries are highly competitive. There are many pharmaceutical companies, biotechnology
companies, medical device companies, public and private universities and research organizations actively engaged in the research and
development of products that may be similar to our product candidates. We are aware of several companies currently developing and selling
NO therapies for various indications such as pulmonary hypertension. For example, Mallinckrodt Pharmaceuticals (“Mallinckrodt”)
commercializes INOMAX® (nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN,
in the U.S., Canada, Australia, Mexico and Japan. Praxair markets a generic version of the Mallinckrodt offering with their delivery
system called NOxBOX®, acquired from Bedfont, in the United States. The Linde Group has marketing rights to INOMAX®
in Europe. Air Liquide sells a similar product in Europe, called VasoKINOX™, together with their delivery platform called
OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery. In Europe, Bedfont Scientific
Ltd. has a delivery system called NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used
in delivering inhaled NO formulations. Bellerophon Therapeutics is developing NO-based products for pulmonary arterial hypertension and
pulmonary hypertension associated with COPD. VERO Biotech LLC (formerly known as Geno LLC) received FDA approval for their delivery system
GENOSYL DS for PPHN in 2019. In addition, other companies may be developing generic NO formulation delivery systems for various dosages.
Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market a NO gas product
for use in membrane diffusing capacity testing in pulmonary function laboratories in the U.S. Novoteris, LLC previously received orphan
drug designation from the FDA and the European Medicines Agency (“EMA”) for the use of inhaled NO-based treatments in treating
CF.
Our
competitors, either alone or through their strategic partners, might have substantially greater name recognition and financial, technical,
manufacturing, marketing and human resources than we do and greater experience and infrastructure in the research and clinical development
of pharmaceutical products, obtaining FDA and other regulatory approvals of those products and commercializing those products around
the world.
We
have contracted with third-party contract manufacturers, Spartronics LLC (“Spartronics”), and Medisize Ireland
Limited (“Medisize”) who have completed a substantial portion of the commercial manufacturing process for our LungFit®
PH system. In addition, we will be reliant on our partners for commercial manufacture of our systems for both clinical studies
and commercial supply, if regulatory approval is received.
We
own or have exclusively licensed patents, pending patent applications, know-how and trade secrets that relate to our NO generator, NO2
filtration, delivery systems, devices configured for delivering NO to patients by inhalation, methods of exposing patients to inhalation
of NO, and methods for treating subjects in need of NO inhalation.
In
particular, we are party to a global, exclusive, transferable license agreement with NitricGen, Inc. for the eNOGenerator, its components,
and all associated patents and know how related thereto. Additionally, we have a broad intellectual property portfolio directed to our
product candidates and mode of delivery, monitoring parameters and methods of treating specific disease indications. Our intellectual
property portfolio consists of issued patents and pending applications, which includes patents we acquired pursuant to the exercise of
an option in 2017 granted to us by Pulmonox Technologies Corporation (“Pulmonox”).
CareFusion
Non-Exclusive License Agreement. In October 2013, we entered into a non-exclusive worldwide license agreement with CareFusion, whereby
we licensed seven issued U.S. patents and corresponding foreign counterparts. Our intellectual property licensed from CareFusion, for
which the earliest expiring patent term was 2019 and the last to expire is 2025. The term of the agreement extends through the life of
the patents and may be terminated by either party with 60 days’ prior written notice in the event of a breach of the agreement,
and may be terminated unilaterally by CareFusion with 30 days’ prior written notice in the event that we do not meet certain milestones.
Pursuant to the agreement, we are required to pay CareFusion royalty payments of 5% of the net sales of a licensed product by the Company
and an annual fee of $50,000, which is creditable against the royalty payments for the respective year.
Pulmonox
Patents and Assets - Option to Acquire. On August 31, 2015, we entered into an agreement with Pulmonox (the “Option Agreement”)
whereby we acquired the option to purchase certain intellectual property assets, including Pulmonox’s rights in 17 issued U.S.
patents, including eight patents jointly owned with CareFusion which are directed to:
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devices
and methods for delivering NO formulations to a patient at steady and alternating concentrations (80-400 ppm), including intermittent
delivery of NO;
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●
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a
device and methods for treatment of surface infections; and
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use
of NO as a mucolytic agent and for treatment and disinfection of biofilms.
|
We
exercised the Option in January 2017, acquiring Pulmonox’s rights in the patents described above. Upon exercise of the Option,
we became obligated to make certain one-time development and sales milestone payments to Pulmonox, commencing with the date on which
we receive regulatory approval for the commercial sale of the first product candidate qualifying under the agreement. These milestone
payments are almost entirely sales-related and are capped at a total of $87 million across three separate and distinct indications that
fall under the agreement with the majority of them, approximately $83 million, being sales-related based on cumulative sales milestones
for each of the three products. In addition, the Company issued a fully vested warrant to purchase up to 178,570 shares of our common
stock at an exercise price of $4.80 per share for each share of common stock. On May 10, 2018, we issued to Pulmonox, an additional fully
vested warrant to purchase up to 29,763 shares of our common stock at an exercise price of $4.80 per share.
Patent
Applications. We have filed over 35 US and foreign patents and patent applications, including Patent Corporation Treaty (“PCT”)
patent applications.
A
PCT patent application is a filing under the Patent Cooperation Treaty to which the U.S. and a number of other countries are a party.
It provides a unified procedure for filing a single patent application to protect inventions in those countries. A search with respect
to the application is conducted by the International Searching Authority, accompanied by a written opinion regarding the patentability
of the invention. A PCT application does not itself result in the grant of a patent, and the grant of patent is a prerogative of each
national or regional authority where the PCT application is filed during national phase filings.
Government
Regulation
U.S.
Regulation. In the U.S., the FDA regulates drug and medical device
products under the Federal Food, Drug, and Cosmetic Act (“FD&C Act - The Act”), and its implementing regulations. Our
products have been designated as devices by the FDA and will be regulated by the Center for Devices and Radiological Health (CDRH). Given
that currently approved NO products and delivery systems were approved either separately (NO drug approval and NO delivery systems cleared
as devices) or as drug-device combinations in the United States, we expect our device to not only be reviewed by CDRH, but also have
input from the Center for Drug Evaluation and Research (“CDER”).
FDA
Premarket Clearance and Approval Requirements for Medical Devices. Unless an exemption applies, each medical device commercially
distributed in the United States requires either FDA clearance of a 510(k) premarket notification, approval of a de novo application,
or approval of a PMA application. Under the FFDCA, medical devices are classified into one of three classes—Class I, Class II or
Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control
needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety
and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with
the applicable portions of the Quality System Regulation (QSR) facility registration and product listing, reporting of adverse medical
events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s
General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special
controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.
While
most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required
to submit to the FDA a premarket notification under Section 510(k) of the FFDCA requesting permission to commercially distribute the
device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known
as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable
devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally
marketed device, are placed in Class III, requiring approval of a PMA. Some pre-amendment devices are unclassified, but are subject to
FDA’s premarket notification and clearance process in order to be commercially distributed. Our currently marketed product is a
Class II device subject to 510(k) clearance.
510(k)
Clearance Marketing Pathway. To obtain 510(k) clearance, a company must submit to the FDA a premarket notification submission
demonstrating that the proposed device is “substantially equivalent” to a predicate device already on the market. A predicate
device is a legally marketed device that is not subject to PMA, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments
device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was
found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to twelve
months, but often takes longer. The FDA may require additional information, including clinical data, to make a determination regarding
substantial equivalence. In addition, the FDA collects user fees for certain medical device submissions and annual fees for medical device
establishments.
If
the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance
to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously
cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA
requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process,
which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate
device.
After
a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would
constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification,
PMA approval. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA in
the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. If the FDA disagrees
with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified
device until 510(k) marketing clearance or PMA approval is obtained. Also, in these circumstances, the manufacturer may be subject to
significant regulatory fines or penalties.
PMA
Approval Pathway. Class III devices require approval of a PMA before they can be marketed, although some pre-amendment Class III
devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the
510(k) premarket notification process. In a PMA application, the manufacturer must demonstrate that the device is safe and effective,
and the PMA application must be supported by extensive data, including data from preclinical studies and human clinical trials. The PMA
application must also contain a full description of the device and its components, a full description of the methods, facilities, and
controls used for manufacturing, and proposed labeling. Following receipt of a PMA application, the FDA determines whether the application
is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days under the FFDCA
to complete its review of a PMA application, although in practice, the FDA’s review often takes significantly longer, and can take
up to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide
recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In
addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’
manufacturing facility or facilities to ensure compliance with the QSR. PMA devices are also subject to the payment of user fees.
The
FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA application constitute
valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). A PMA
may include post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions
on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported
the PMA or requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market
surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a
larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for
a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions
of approval can result in material adverse enforcement action, including withdrawal of the approval.
Certain
changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the
design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA
supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed
to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of
an advisory panel. Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes
a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new
generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change
in demonstrating a reasonable assurance of safety and effectiveness. None of our products are currently marketed pursuant to a PMA.
On
November 10, 2020 we submitted a PMA application to the FDA for the use of LungFit® PH in PPHN.
De-Novo
Pathway. Another pathway, known as de-novo down-classification also can be used for lower risk devices for which there is no existing
product code or predicate device. The Food and Drug Administration Modernization Act of 1997 established the de-novo down-classification
procedure as a new route to market for low to moderate risk medical devices that automatically require a PMA due to the absence of a
predicate device. This procedure allows a manufacturer whose novel device automatically requires a PMA to request down-classification
of its medical device (to allow clearance through the 510(k) pathway) on the basis that the device presents low or moderate risk, rather
than requiring the submission and approval of a PMA application. Manufacturers can request de-novo down-classification directly without
first submitting a 510(k) premarket notification to the FDA and receiving a “not substantially equivalent” determination.
Under this pathway, the FDA is required to classify the device within 120 days following receipt of the de-novo application. If the manufacturer
seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide
a reasonable assurance of the safety and effectiveness of the medical device. In addition, the FDA may reject the reclassification petition
if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low
to moderate risk or that general controls would be inadequate to control the risks and special controls cannot be developed.
Clinical
Trials. Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission. All
clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations
which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping,
reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk,”
to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become
effective prior to commencing human clinical trials. A significant risk device is one that presents a potential for serious risk to the
health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important
in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential
for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results,
showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically
become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA
determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical
trial to proceed under a conditional approval.
In
addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board (IRB) for each clinical
site. The IRB is responsible for the initial and continuing review of the IDE study, and may pose additional requirements for the conduct
of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number
of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to
the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval
from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators
obtain informed consent, and labeling and record-keeping requirements. Acceptance of an IDE application for review does not guarantee
that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not determine that the data
derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement
must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may
affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.
During
a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting
clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping
and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators
in the clinical study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational
plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements.
Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons,
including a belief that the risks to study subjects outweigh the anticipated benefits.
Post-market
Regulation. After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.
These include:
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establishment
registration and device listing with the FDA;
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QSR
requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation
and other quality assurance procedures during all aspects of the design and manufacturing process;
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labeling
regulations and FDA prohibitions against the promotion of investigational products, or the promotion of ‘‘off-label’’
uses of cleared or approved products;
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requirements
related to promotional activities;
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clearance
or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would
constitute a major change in intended use of one of our cleared devices, or approval of certain modifications to PMA-approved devices;
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medical
device reporting regulations which require that a manufacturer report to the FDA if a device it markets may have caused or contributed
to death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute
to a death or serious injury, if the malfunction were to recur.
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correction,
removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls
or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FFDCA that may present a
risk to health;
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●
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the
FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation
of governing laws and regulations; and
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post-market
surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide
additional safety and effectiveness data for the device.
|
The
manufacturing processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and
the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging,
distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance
of a device master file, device history file, and complaint files. These requirements impose certain procedural and documentation requirements
upon us and our third-party manufacturers related to the methods used in and the facilities and controls used for designing, manufacturing,
packaging, labeling, storing, medical devices. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by
the FDA. Following these inspections, the FDA may assert noncompliance with QSR requirements on a Form 483, which is a report of observations
from an inspection, or by way of “untitled letters” or “warning letters” that could cause us or any third-party
manufacturers to modify certain activities. A Form 483 notice, if issued at the conclusion of an FDA inspection, can list conditions
the FDA investigators believe may have violated QSR or other FDA requirements. We cannot be certain that we or our present or any future
third-party manufacturers or suppliers will be able to comply with QSR or other FDA regulatory requirements to the agency’s satisfaction.
Failure to comply with these obligations may lead to possible legal or regulatory enforcement action by the FDA.
The
FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to comply with applicable regulatory
requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:
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untitled
letters, warning letters, fines, injunctions, consent decrees and civil penalties;
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unanticipated
expenditures to address or defend such actions;
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customer
notifications or repair, replacement, refunds, recall, detention or seizure of our products;
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operating
restrictions, partial suspension or total shutdown of production;
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refusing
or delaying our requests for regulatory approvals or clearances of new products or modified products;
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withdrawing
a PMA that has already been granted;
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refusal
to grant export approval for our products; or
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criminal
prosecution.
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Advertising
and Promotion. The FDA and other regulatory agencies closely regulate the post-approval marketing and promotion of medical devices,
including standards and regulations for direct-to-consumer advertising, communications about unapproved uses, industry- sponsored scientific
and educational activities and promotional activities involving the internet. Devices may be marketed only for the approved or cleared
indications and in accordance with the provisions of the approved or cleared label.
Combination
Products. A combination product is the combination of two or more regulated components, i.e., drug/device, biologic/device, drug/biologic,
or drug/device/biologic, that are combined or mixed and produced as a single entity; packaged together in a single package or as a unit;
or a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended
for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended
use, indication, or effect.
To
determine which FDA center or centers will review a combination product candidate submission, companies may submit a request for assignment
to the FDA. Those requests may be handled formally or informally. In some cases, jurisdiction may be determined informally based on FDA
experience with similar products. However, informal jurisdictional determinations are not binding on the FDA. Companies also may submit
a formal Request for Designation to the FDA Office of Combination Products. The Office of Combination Products will review the request
and make its jurisdictional determination within 60 days of receiving a Request for Designation.
FDA
will determine which center or centers within the FDA will review the product candidate and under what legal authority the product candidate
will be reviewed. Depending on how the FDA views the product candidates that are developed, the FDA may have aspects of the product candidate
reviewed by CBER, CDRH, or CDER, though one center will be designated as the center with primary jurisdiction, based on the product candidate’s
primary mode of action. The FDA determines the primary mode of action based on the single mode of action that provides the most important
therapeutic action of the combination product candidate – the mode of action expected to make the greatest contribution to the
overall intended therapeutic effects of the combination product candidate. The review of such combination product candidates is often
complex and time consuming, as the FDA may select the combination product candidate to be reviewed and regulated by one or multiple of
the FDA centers identified above, which could affect the path to regulatory clearance or approval. Furthermore, the FDA may also require
submission of separate applications to multiple centers.
The
post-market requirements that apply to the cleared or approved product will largely be aligned with the agency center determined to have
primary jurisdiction over the product candidate and that provided marketing authorization, but manufacturers must also comply with certain
post-market requirements with respect to the constituent parts of combination products. In April 2019, FDA published a final guidance
document entitled Compliance Policy for Combination Product Post-Marketing Safety Reporting, which is intended to assist manufacturers
of combination products comply with reporting requirements applicable to such products.
After
issuing marketing authorizations, the FDA has discretion in determining post-approval compliance requirements for combination products
and could thus require, for example, compliance with certain current good manufacturing practices (“cGMP”) requirements for
drug components as well as QSR requirements for device components of a combination product. Other post-market requirements in the same
vein as those described above for medical devices and drugs/biologics will also apply, depending on the application type and center overseeing
regulation of the combination product, including:
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Other
record-keeping requirements;
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Post-market
adverse event and Medical Device Reporting requirements;
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Labeling
regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;
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Advertising
and promotion requirements;
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Restrictions
on sale, distribution or use of the product;
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Requirements
for recalls being conducted and recall reporting;
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An
order of repair, replacement or refund;
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Product
tracking requirements; and
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Post-market
surveillance or clinical trials.
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Healthcare
providers are permitted to prescribe approved devices for “off-label” uses—that is, uses not approved by the FDA and
therefore not described in the product’s labeling. These off-label uses are common across medical specialties. Physicians may believe
that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of
physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications
regarding off-label use. Thus, we may market our products, if approved by the FDA, only for their approved indications, but under certain
conditions may engage in non-promotional, balanced communication regarding off-label uses. Failure to comply with applicable FDA requirements
and restrictions in this area may subject us to adverse publicity and a variety of sanctions, which could harm our business and financial
condition.
Coverage
and Reimbursement. Coverage and reimbursement for medical devices in the U.S. is determined by third-party payors, including Medicare
and Medicaid, commercial health insurers, and managed care organizations. Each payor has a unique process for determining whether to
cover a device for a particular indication and how to set reimbursement rates for the device. A payor can decide to cover a device yet
not provide adequate reimbursement to ensure access to the device. New devices often face significant uncertainty about coverage and
reimbursement. Payors may require additional evidence, beyond the data required for FDA approval, to demonstrate that a device should
be covered for a particular indication or that it should be reimbursed at a higher rate than other technologies. In addition, health
care spending continues to be a concern for federal and state governments, as well as for commercial payors. Governments continue to
debate methods of controlling health care costs, including reductions in reimbursement or additional controls on utilization of new technologies
in Medicare and Medicaid, and commercial payors may similarly seek to limit spending on new devices. Restrictions on coverage and reimbursement
could harm our future revenues and ability to realize an appropriate return on our investment.
Orphan
Drug Designation and Exclusivity. Under the Orphan Drug Act, the FDA may grant orphan drug designation to products that are intended
to treat rare diseases or conditions (i.e., those affecting fewer than 200,000 individuals in the U.S.), or diseases or conditions that
affect more than 200,000 individuals in the U.S. but there is no reasonable expectation that the cost of developing and making the drug
product would be recovered from sales in the U.S. Although orphan drug designation does not convey any advantage in the regulatory review
and approval process, it can provide certain tax benefits and access to certain grants. Additionally, FDA user fees, which can be substantial,
are waived for products that obtain orphan drug designation. Further, if a product with orphan drug designation subsequently receives
FDA approval for the designated disease or condition, the product is generally granted seven years of orphan drug exclusivity, which
(with certain limited exceptions) blocks for seven years FDA approval of another product with the same active ingredient for the same
indication. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the
same drug for a different disease or condition.
Healthcare
Fraud and Abuse Laws. In addition to the FDA’s ongoing post-approval regulation of devices discussed above, manufacturers are
also subject to several other types of laws and regulations, subject to differing enforcement regimes. In recent years, marketing and
promotional activities regarding FDA-regulated products have come under intense scrutiny and have been the subject of enforcement action
brought by the Department of Justice and the Office of Inspector General of the Department of Health and Human Services, as well as state
authorities and even private individuals.
Healthcare
providers, physicians and third-party payors play a primary role in the recommendation and selection of medical devices for patients.
Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations.
Such restrictions under applicable federal and state healthcare laws and regulations include the following:
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The
federal health care program Anti-Kickback Statute (“AKS”) 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 in return for
purchasing, leasing, ordering or arranging for the purchase, lease or order of any good or service, for which payment may be made,
in whole or in part, under a federal healthcare program such as Medicare and Medicaid. This statute has been interpreted to apply
to arrangements between pharmaceutical or device manufacturers, on the one hand, and prescribers, purchasers and formulary managers
and others on the other. The term “remuneration” has been broadly interpreted to apply to anything of value including,
for example, gifts, cash payments, donations, waivers of payment, ownership interests, and providing any item, service, or compensation
for something other than fair market value. Liability under the AKS may be established without proving actual knowledge of the statute
or specific intent to violate it. Although there are a number of statutory exceptions and regulatory safe harbors to the AKS protecting
certain common business arrangements and activities from prosecution or regulatory sanctions, the exceptions and safe harbors are
drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or recommend medical device products, including
certain discounts, or engaging such individuals as consultants, advisors and speakers, may be subject to scrutiny if they do not
fit squarely within an exception or safe harbor. Moreover, there are no safe harbors for many common practices, such as educational
grants and reimbursement support programs. Violations are punishable by up to 10 years in prison, criminal fines, administrative
civil monetary penalties and exclusion from participation in federal healthcare programs. Any sales or marketing practices that involve
remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny under the AKS;
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the
federal civil False Claims Act (“FCA”) imposes liability on individuals or entities for, among other things, knowingly
presenting, or causing to be presented, false or fraudulent, claims for payment of government funds, knowingly making, using, or
causing to be made or used a false statement or record material to an obligation to pay money to the government, or knowingly concealing
or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. A claim including
items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. Actions
under the FCA may be brought by the government or as a qui tam action by a private individual in the name of the government, who
may also share in any monetary recovery. Qui tam actions are filed under seal and impose a mandatory duty on the U.S. Department
of Justice to investigate such allegations. Manufacturers have faced liability under the FCA for providing inaccurate billing or
coding information to customers or promoting a product off-label. FCA liability is potentially significant in the healthcare industry
because the statute provides for treble damages and significant mandatory penalties per false or fraudulent claim or statement for
violations, as well as exclusion from participation in federal healthcare programs;
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the
federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, and their respective implementing regulations (collectively, HIPA), imposes criminal and civil liability
for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program, including private third-party payors, or knowingly and willfully falsifying, concealing, or covering up a material fact
or making any materially false, fictitious, or fraudulent statement or representation, or using any false writing or document knowing
the same to contain any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or payment
for healthcare benefits, items, or services;
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the
federal Physician Payments Sunshine Act requires applicable manufacturers of devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually
to CMS information related to payments and other transfers of value to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will
be required to report information regarding payments and transfers of value provided (in 2021) to physician assistants, nurse practitioners,
clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.
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analogous
state and foreign 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.
Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance
programs; file periodic reports with the state, including reports on gifts and payments to individual health care providers; and/or
register their sales representatives. Some states prohibit certain sales and marketing practices, including the provision of gifts,
meals, or other items to health care providers.
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Additionally,
other laws such as the federal Lanham Act and similar state laws allow competitors and others to initiate litigation relating to advertising
claims. If the Company sells its device outside the United States, it must comply with the Foreign Corrupt Practices Act (“FCPA”)
and local laws of other countries. FCPA is a complex patchwork of laws can change rapidly with relatively short notice.
Environmental
Laws. Elements of our potential products may be classified as hazardous materials, subject to regulation by the Department of Transportation,
the International Air Transportation Association, the International Maritime Organization, the Environmental Protection Agency and the
Occupational Safety and Health Administration, which may impose various requirements pertaining to the way we manufacture, transport,
store, handle and dispose of our products.
European
Regulation of Medical Devices. In the European Economic Area (“EEA”), we expect our products to be regulated as a medical
device product falling within the scope of EU MDR.
In
the EEA, medical devices must currently comply with the General Safety and Performance Requirements laid down in Annex I to the EU MDR.
Compliance with these requirements is a prerequisite to be able to affix the CE mark on products, without which they cannot be marketed
or sold in the EEA. To demonstrate compliance with the General Safety and Performance Requirements of the EU MDR and obtain the right
to affix the CE mark, medical devices manufacturers must undergo a conformity assessment procedure, which varies according to the type
of medical device and its classification. Apart from low risk medical devices (Class I with no measuring function and which are not sterile),
in relation to which the manufacturer may issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products
with the General Safety and Performance Requirements, a conformity assessment procedure requires the intervention of a notified body,
which is an organization designated by a Competent Authority of an EEA country to conduct conformity assessments. Depending on the relevant
conformity assessment procedure, the notified body would audit and examine the technical documentation and the quality system for the
manufacture, design and final inspection of the medical devices. The notified body issues a CE Certificate of Conformity following successful
completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity
with the General Safety and Performance Requirements. This Certificate and the related conformity assessment process entitles the manufacturer
to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity. Notified bodies
must be accredited by the EEA countries’ accreditation bodies to conduct assessment procedures for medical devices in accordance
with the EU MDR. There are currently a relatively small number of notified bodies that have been accredited to conduct these assessments.
This may delay conformity assessment procedures in the future in the EU.
As
a general rule, demonstration of conformity of medical devices and their manufacturers with the General Safety and Performance Requirements
must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal
conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions
of use and that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits
of its intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and instructions
for use) are supported by suitable evidence. This assessment must be based on clinical data, which can be obtained from (1) clinical
studies conducted on the devices being assessed, (2) scientific literature from similar devices whose equivalence with the assessed device
can be demonstrated or (3) both clinical studies and scientific literature. The conduct of clinical studies in the EEA is governed by
detailed regulatory obligations. These may include the requirement of prior authorization by the Competent Authorities of the country
in which the study takes place and the requirement to obtain a positive opinion from a competent Ethics Committee. This process can be
expensive and time-consuming.
The
EU MDR repeals and replaces the EU Medical Devices Directive 93/42/EEC. Unlike directives, which must be implemented into the national
laws of the EEA countries, the regulations is directly applicable, i.e., without the need for adoption of EEA country laws implementing
them, in all countries and are intended to eliminate current differences in the regulation of medical devices among EEA countries. The
EU MDR, among other things, establishes a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical
devices and ensures a high level of safety and health while supporting innovation. The EU MDR entered into application on 26 May 2020,
and among others things:
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strengthens
the rules on placing devices on the market and reinforce surveillance once they are available;
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establishes
explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices
placed on the market;
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improves
the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
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sets
up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available
in the EU;
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strengthens
rules for the assessment of certain high-risk devices which may have to undergo an additional check by experts before they are placed
on the market.
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Continuing
Regulation. As in the U.S., manufacturers of medical devices
are subject to comprehensive regulatory oversight by notified bodies and the competent authorities of the EEA countries. This oversight
applies both before and after certification. It includes control of compliance with the EU MDR General Safety and Performance Requirements
and post-market surveillance.
In
the EEA, the advertising and promotion of our products will also be subject to EEA countries national laws implementing Directive 2006/114/EC
concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national
legislation of individual EEA countries governing the advertising and promotion of medical devices. EEA countries’ legislation
may also restrict or impose limitations on our ability to advertise our products directly to the general public. In addition, voluntary
EU and national Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose
limitations on our promotional activities with healthcare professionals. Violations of the rules governing the promotion of medical devices
in the EEA could be penalized by administrative measures, fines and imprisonment.
Data
Privacy Regulation. The collection and use of personal health data in the EEA is governed by the provisions of the Data Protection
Directive. This Directive imposes a number of requirements relating to the consent of the individuals to whom the personal data relates,
the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities
and the security and confidentiality of the personal data. The Data Protection Directive also imposes strict rules on the transfer of
personal data out of the EEA to the U.S. Failure to comply with the requirements of the Data Protection Directive and the related national
data protection laws of the EEA Member States may result in fines.
Orphan
Designation and Exclusivity. In the European Union, the Committee for Medicinal Products for Human Use grants orphan drug designation
to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically
debilitating conditions affecting not more than five in 10,000 persons in the European Union Community and for which no satisfactory
method of diagnosis, prevention or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally,
designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating
or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient
to justify the necessary investment in developing the medicinal product.
In
the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten
years of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if the orphan drug
designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance
of market exclusivity.
Orphan
drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any
advantage in, or shorten the duration of, the regulatory review and approval process.
Exceptional
Circumstances/Conditional Approval. Orphan medicinal product or products for unmet medical needs may be eligible for EU approval
under exceptional circumstances or with conditional approval. Approval under exceptional circumstances is applicable to orphan products
and is used when an applicant is unable to provide comprehensive data on the efficacy and safety under normal conditions of use because
the indication for which the product is intended is encountered so rarely that the applicant cannot reasonably be expected to provide
comprehensive evidence, when the present state of scientific knowledge does not allow comprehensive information to be provided, or when
it is medically unethical to collect such information. Conditional marketing authorization is applicable to orphan medicinal products,
medicinal products for seriously debilitating or life- threatening diseases or medicinal products to be used in emergency situations
in response to recognized public threats. Conditional marketing authorization can be granted on the basis of less complete data than
is normally required in order to meet unmet medical needs and in the interest of public health, provided the risk-benefit balance is
positive, it is likely that the applicant will be able to provide the comprehensive clinical data, and unmet medical needs will be fulfilled.
Conditional
marketing authorization is subject to certain specific obligations to be reviewed annually.
Other
Regulations. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur
significant costs to comply with such laws and regulations now or in the future.
Regulation
in Israel. In order to conduct clinical testing on humans in the State of Israel, special authorization must first be obtained from
the ethics committee and general manager of the institution in which the clinical studies are scheduled to be conducted, as required
under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli Public Health Regulations (Clinical Trials
in Human Subjects), as amended from time to time, and other applicable legislation. These regulations require authorization by the institutional
ethics committee and general manager as well as from the Israeli Ministry of Health, except in certain circumstances, and in the case
of genetic trials, special fertility trials and complex clinical trials, an additional authorization of the Ministry of Health’s
overseeing ethics committee. The institutional ethics committee must, among other things, evaluate the anticipated benefits that are
likely to be derived from the project to determine if it justifies the risks and inconvenience to be inflicted on the human subjects,
and the committee must ensure that adequate protection exists for the rights and safety of the participants as well as the accuracy of
the information gathered in the course of the clinical testing. Since we perform a portion of the clinical studies on certain of our
therapeutic candidates in Israel, we are required to obtain authorization from the ethics committee and general manager of each institution
in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry of Health.
Corporate
History
We
were incorporated on April 24, 2015. On June 25, 2019, our name was changed to Beyond Air, Inc. from AIT Therapeutics, Inc. We have the
following wholly-owned subsidiaries:
Beyond
Air Ltd. (“BA Ltd.”), incorporated in Israel on May 1, 2011.
Advanced
Inhalation Therapies (“AIT”), a wholly-owned subsidiary of BA Ltd., incorporated on August 29, 2014, in Delaware. AIT was
dissolved on March 1, 2021.
Beyond
Air Australia Pty Ltd., incorporated on December 17, 2019 in Australia.
Beyond
Air Ireland Limited, incorporated on March 5, 2020 in Ireland.
Recent
Developments
On
January 23, 2019, we entered into an agreement for commercial rights (the “Circassia Agreement”) with Circassia Limited and
its affiliates (collectively, “Circassia”) for PPHN and future related indications at concentrations of < 80 ppm
in the hospital setting in the United States and China. On December 18, 2019, the Company terminated the Circassia Agreement. Circassia
contended that the termination was wrongful.
On
May 25, 2021, we and Circassia Limited entered into a Settlement Agreement resolving all claims by and between both parties and mutually
terminating the Circassia agreement disclosed in Note 10. Pursuant to the terms of the Settlement Agreement, we agreed to pay Circassia
$10.5 million in three installments, the first being a payment of $2,500,000 to Circassia within fifteen (15) days following FDA approval
of the LungFit® PH (the “Initial Payment Due Date”). Thereafter, the Company shall pay $3.5 million
to Circassia on the first anniversary of the Initial Payment Due Date and $4.5 million on the second anniversary of the Initial Payment
Due Date. Additionally, beginning in year three post-approval, Circassia will receive a quarterly royalty payment equal to 5% of LungFit®
PH net sales in the US. This royalty will terminate once the aggregate payment reaches $6 million. This product candidate continues
to be under FDA review.
Emerging
Growth Company Status
We
are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act enacted on April 5, 2012, referred
to as the JOBS Act. For as long as we are an emerging growth company, 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, not
being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting,
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the
requirements of holding advisory “say-on-pay” and “say-when-on-pay” votes on executive compensation and shareholder
advisory votes on golden parachute compensation.
Under
the JOBS Act, we will remain an emerging growth company until the earliest of:
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March 31, 2022;
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the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion or more;
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the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and
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the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended,
referred to as the Exchange Act, (we would qualify as a large accelerated filer as of the first day of the first fiscal year after we
(i) have more than $700 million in aggregate market value of outstanding common equity held by our non-affiliates as of the last day
of our second fiscal quarter of our prior fiscal year and (ii) have been public for at least 12 months).
The
JOBS Act also provides that an emerging growth company may utilize the extended transition period provided for complying with new or
revised accounting standards. We have irrevocably elected to take advantage of this extended transition period. Because we will not be
required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for
other public companies, our financial statements may not be comparable to the financial statements of companies that comply with the
effective dates of those accounting standards.
Available
Information
We
file electronically with the Securities and Exchange Commission (the “SEC”) our annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act. We make available on our website
at www.beyondair.net free of charge, copies of these reports, as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Reports filed with the SEC may be viewed at www.sec.gov. The information in or accessible through the
SEC and our website are not incorporated into, and are not considered part of, this filing. Further, our references to the URLs for these
websites are intended to be inactive textual references only.
Human
Capital
As
of June 7, 2021, we had 45 total employees, all of whom were full time employees. None of our employees are represented by a labor
union and we consider our employee relations to be good.
Our
workforce is highly educated and diverse, which we believe is important for our continued success as a leading innovator in the medical
device market. We employ a number of strategies to best enable us to attract, retain, and engage our team members. Our human capital
resources objectives include, as applicable, identifying, recruiting, retaining, and incentivizing our management team and our clinical,
scientific and other employees and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain
and motivate personnel through the granting of stock-based and cash-based compensation awards, in order to align our interests and the
interests of our stockholders with those of our employees and consultants.
ITEM
1A. RISK FACTORS
Investing
in our common stock involves a high degree of risk. You should consider carefully the risks described below, together with the other
information included or incorporated by reference in this Annual Report. If any of the following risks occur, our business, financial
condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the
market price of our common stock could decline. Other events that we do not currently anticipate or that we currently deem immaterial
may also affect our business, prospects, financial condition and results of operations.
Risks
Related to Our Financial Position and Capital Requirements
We
have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
We are a clinical-stage company. We have no approved products and have generated no revenue to date and may never generate revenue or
achieve profitability.
Our
ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision.
These are not the only risks we face. These risks include, among others, that:
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we
are a development-stage medical device and biopharmaceutical company and have a limited operating history on which to assess our
business, have incurred significant losses since our inception and incurred a net cash used in operating activities for the year
ended March 31, 2021 of approximately $19.6M. As of March 31, 2021, we have an accumulated deficit of approximately $80.3
million and we anticipate to continue to incur significant losses for the foreseeable future;
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we
are unable to predict the extent of future losses or when we will become profitable based on the sale of any product, if at all.
Even if we succeed in developing and commercializing our product candidates, we may never generate revenue to sustain profitability;
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we
do not have an approved FDA product in the market, and we expect that we will need to raise additional funding before we can expect
to become profitable from sales of our products;
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we
are heavily dependent upon the success of our product candidates, which are in various stages of clinical development, and we cannot
provide any assurance that the FDA or other regulatory agencies will allow us to conduct further clinical trials;
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we
are in the process of developing our proprietary NO delivery system, and unexpected delays will adversely impact the timing of our
U.S.-based clinical trials and approvals;
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we
might be unable to develop product candidates that will achieve commercial success in a timely and cost-effective manner, or ever;
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our
competitors may develop or commercialize products faster or more successfully than us;
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because
some of the target patient populations of our product candidates are small, we must be able to successfully identify patients and
achieve a significant market share to maintain profitability and growth;
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our
reliance on third parties to help conduct our pre-clinical studies, clinical trials and commercial scale manufacturing;
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we
do not have any products certified or approved for sale by the FDA or any other regulatory agencies and notified bodies,
and we cannot provide any assurance that any of our product candidates will receive regulatory approval;
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if
we are unable to obtain and maintain effective intellectual property rights for our technologies, product candidates or any future
product candidates, we may not be able to compete effectively in our markets; and
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our
future success depends in part upon our ability to retain our executive and scientific teams, and to attract, retain and motivate
other qualified personnel.
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Because
of the numerous risks and uncertainties associated with drug development and commercialization, we are unable to accurately predict the
timing or amount of expenses or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to
perform studies in addition to those expected or if there are any delays in the initiation and completion of our clinical trials or the
development of any of our product candidates, our expenses could increase.
It
is highly likely that we will need to raise additional capital to meet our business requirements in the future, and such capital raising
may be costly or difficult to obtain, and could dilute current stockholders’ ownership interests.
Our
future capital requirements will depend on many factors, including the progress and results of our clinical trials, the timing and outcome
of regulatory review of our product candidates, commercial manufacturing success, the number and development requirements of other product
candidates that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution. Because
of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable
to reasonably estimate the amounts of additional capital outlays and operating expenditures that our business will require. It is likely
that we will need to raise additional funds through public or private debt or equity financings to meet various objectives including,
but not limited to:
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clinical
trials for our product candidates;
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researching
and developing new products;
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pursuing
growth opportunities, including more rapid expansion;
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acquiring
complementary businesses or technologies;
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making
capital improvements to improve our infrastructure;
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hiring
qualified management and key employees;
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responding
to competitive pressures;
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complying
with regulatory requirements; and
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maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership
in us and could also result in a decrease in the market price of our common stock. The terms of those securities issued by us in future
capital transactions may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants
or other derivative securities, which may have a further dilutive effect.
Furthermore,
any debt or equity financing that we may need may not be available on terms favorable to us, or at all.
Additionally,
we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees,
securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses
in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
If
we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business, and we
may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
Risks
Related to the Discovery and Development of Our Product Candidates
We
are heavily dependent on the success of our product candidates, which are in the early stages of clinical development. We cannot give
any assurance that any of our product candidates will receive certification or regulatory approval, which is necessary before
they can be commercialized.
To
date, we have invested substantially all of our efforts and financial resources to design and develop our product candidates, including
conducting clinical trials and providing general and administrative support for these operations. Our future success is dependent on
our ability to successfully develop, obtain regulatory certification or approval for, and then successfully commercialize one or more
product candidates. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize
a marketable product.
Two
of our product candidates are in the early stages of development and
will require additional clinical development (and in some cases additional preclinical development), management of nonclinical, clinical
and manufacturing activities, regulatory certification or approval, obtaining adequate manufacturing supply, building of a commercial
organization and significant marketing efforts before we generate any revenue from product sales. To date, we have conducted 3
pilot clinical trials involving 198 patients with bronchiolitis (mainly caused by RSV) and a pilot clinical trial in nine
patients with CF. In addition, Rambam healthcare campus in Israel conducted a compassionate treatment for two patients with CF who suffer
from NTM infections (specifically M. abscessus). All of these trials were conducted outside the U.S. and were not conducted
pursuant to an FDA IND. The results of these trials demonstrated improvements in various endpoints and clinical outcomes. The
trials were small, however, and it is likely that the FDA will view them as not significant because of their size and scope. In addition,
the delivery systems were different from the one that we intend to test and market, subject to FDA approval, in the U.S., further reducing
the likelihood that FDA would view these test results as adequate or sufficient to support marketing applications. Two pilot clinical
trials are ongoing, one in viral pneumonia and one in NTM lung infection. Both of these studies are using our LungFit®
system (PRO and GO, respectively) and are being conducted outside the United States. Once completed, if the data are favorable, these
trials would support our efforts towards obtaining FDA approval. We therefore intend to conduct larger clinical trials aiming for
statistically and clinically significant favorable results, or we will not be able to obtain regulatory certification nor approval
to market such product candidates. It may be years before a pivotal trial is initiated, if at all, for such product
candidates. Before a medical device clinical trial can be undertaken in the U.S., the sponsor of the trial must submit an
IDE application for a medical device and the FDA must permit the trial to go forward. We cannot assure that we will obtain such agency
acquiescence in a timely manner, or at all.
In
addition, we cannot be sure that we will be successful in completing the development of our NO Delivery System to the satisfaction of
the FDA, which could lead to material delays in our ability to commence U.S.-based clinical trials, if at all. We are not permitted to
market or promote any of our product candidates before we receive certification or regulatory approval from the FDA or comparable
foreign regulatory authorities and notified bodies, and we may never receive such certification or regulatory approval
for any of our product candidates.
We
as a company have submitted our first marketing application for approval of our LungFit® PH product
candidate to the FDA and approval is pending, but we can make no assurances as to what FDA shall decide or any other comparable
foreign regulatory authorities and notified bodies where we are seeking regulatory approval; although in 2014 the FDA granted
us orphan drug designation for the use of NO in the treatment of CF and in 2015, the EU also granted us orphan drug designation
for the use of NO in the treatment of CF. We are no longer pursuing the drug regulatory pathway, so the orphan drug designation
may have no application. We cannot be certain that any of our product candidates will be successful in clinical trials or receive
certification or regulatory approval. Further, our product candidates may not receive certification or regulatory approval
even if they are successful in clinical trials. If we do not receive certification or regulatory approvals for our product
candidates, we may not be able to continue our operations. Even if we do receive FDA approval for our LungFit® PH product
candidate, the indications for which we are initially seeking approval are very narrow and this, as a result, may limit their commercial
viability.
We
generally plan to seek certification or regulatory approval to commercialize our product candidates in the U.S., the EU and in
additional foreign countries. To obtain certification or regulatory approvals we must comply with the numerous and varying regulatory
requirements of such countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial
sales, pricing and distribution of our product candidates. Even if we are successful in obtaining marketing certification or regulatory
approval in one jurisdiction, we cannot ensure that we will obtain certification or regulatory approval in any other jurisdictions.
If we are unable to obtain clearance or approval for our product candidates in multiple jurisdictions, our revenue and results
of operations would be negatively affected.
The
success of our business may also depend upon our ability to identify, license or discover additional product candidates.
Although
a substantial amount of our effort will focus on the continued clinical testing, potential certification, regulatory approval and commercialization
of our existing product candidates, the success of our business may also depend upon our ability to identify, license or discover additional
product candidates. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development
for a number of reasons, including but not limited to the following:
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our
research or business development methodology or search criteria and process may be unsuccessful in identifying potential product
candidates;
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we
may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
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our
product candidates may not succeed in preclinical or clinical testing;
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our
potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the product
candidates unmarketable or unlikely to receive marketing approval;
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competitors
may develop alternatives that render our product candidates obsolete or less attractive;
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product
candidates we develop may be covered by third parties’ patents or other exclusive rights;
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the
market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;
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a
product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a
product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
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If
any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify,
license or discover additional product candidates, which would have a material adverse effect on our business and could potentially cause
us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources.
We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
The
certification or regulatory approval processes of the FDA and comparable foreign regulatory authorities and notified bodies are lengthy,
time consuming and inherently unpredictable. If we are ultimately unable to obtain certification or regulatory approval for our product
candidates, our business will be substantially harmed.
The
time required to obtain certification or regulatory approval by the FDA or notified bodies in Europe is
unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors. In addition,
certification or regulatory approval policies, regulations or the type and amount of clinical data necessary to gain certification or
regulatory approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions,
which may cause delays in the certification or regulatory approval or the decision not to certify or approve an application. We have
not obtained certification or regulatory approval for any product candidate, and it is possible that none of our existing product candidates
or any product candidates we may seek to develop in the future will ever obtain certification or regulatory approval.
The
process required by the FDA before a new medical device may be marketed in the U.S. generally involves the following:
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completion
of or reference to extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s
Good Laboratory Practice (“GLP”);
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submission
to the FDA of a pre-IDE application, which the FDA authorizes before we may begin conducting
human clinical trials, provided that the FDA does not object; the IDE must be updated annually;
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performance
of adequate and well-controlled human clinical trials to establish the safety and efficacy of the medical device candidate for each
proposed indication; and
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submission
to the FDA of a 510(k) or PMA, after completion of all pivotal clinical trials.
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An
IDE application is a request for authorization from the FDA to administer an investigational medical device to humans. We currently do
not have any IDEs in effect.
Clinical
trials involve the administration of the medical device to human subjects under the supervision of qualified investigators in accordance
with current Good Clinical Practices (“GCPs”) which include the requirement that all research subjects provide their informed
consent for participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted
to the FDA as part of the IDE. Additionally, approval must also be obtained from each clinical trial site’s Institutional Review
Board (“IRB”) before the trials may be initiated, and the IRB must monitor the study until completed and re-assess and approve
the study at least annually. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results
to public registries.
Clinical
trials for medical devices are usually conducted in two phases. Pilot clinical trials are normally conducted in small groups of patients
to assess safety, find the optimal dosing range and assess potential efficacy. After a successful pilot study or studies, the device
is administered to a population of patients large enough to meet the requirements for regulatory approval. This size of trial is usually
multi-center, controlled and potentially double-blind.
During
the course of a clinical trial, we are required to inform the FDA and the IRB about adverse events associated with our product candidate.
The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a
finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen
by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee,
or DSMB. This group reviews unblinded data from clinical trials and provides authorization for whether a trial may move forward at designated
check points based on access to certain data from the study. We may also suspend or terminate a clinical trial based on evolving business
objectives or competitive climates. Assuming successful completion of all required testing in accordance with all applicable regulatory
requirements, detailed investigational medical device information is submitted to the FDA in the form of an PMA requesting approval to
market the product for one or more indications. The application includes all relevant data available from pertinent preclinical and clinical
trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s
chemistry, manufacturing, controls and proposed labeling, among other things.
Once
the PMA submission has been accepted for filing, the FDA’s goal is to review applications within six months of filing. However,
the review process is often significantly extended by FDA requests for additional information or clarification as well as pandemic related
delays. 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.
An
IDE is a request for authorization from the FDA to administer an investigational medical device to humans. We currently do not have any
IDEs in effect.
Applications
for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the
FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;
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we
may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s risk-benefit
ratio for its proposed indication is acceptable;
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the
FDA may determine that the population studied in the clinical program was not sufficiently broad or representative to assure safety
in the full population for which we seek approval;
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the
FDA may disagree with our interpretation of data from preclinical studies or clinical studies;
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the
data collected from clinical studies of our product candidates may not be sufficient to support the submission of a PMA in the U.S.
or elsewhere;
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the
FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
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the
approval policies or regulations of the FDA or comparable foreign regulatory authorities and notified bodies may significantly
change in a manner rendering our clinical data insufficient for certification or approval; and
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lengthy certification or regulatory approval process, as well as the unpredictability of the results of clinical studies, may
result in our failing to obtain certification or regulatory approval to market any of our product candidates, which would significantly
harm our business, results of operations and prospects.
Our
business and eventual sale of our product candidates are subject to extensive regulatory requirements, including compliance with labelling,
manufacturing and reporting controls. If we fail or are unable to timely obtain the necessary 510(k) clearances, de-novo authorizations,
or premarket approval, or PMA, approvals for new products, or equivalent steps in third countries including the EEA, our ability to generate
revenue could be materially harmed.
Our
product candidates are classified as medical devices and are subject to extensive regulation in the United States by the FDA and other
federal, state and local authorities and by comparable foreign regulatory authorities. The FDA can delay, limit or deny 510(k) clearance
or PMA approval of a device for many reasons, including:
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we may not be able to demonstrate to the FDA’s satisfaction that our systems are safe and effective for its intended use;
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the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;
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the manufacturing process or facilities we use or contract to use may not meet applicable requirements; and
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disruptions at the FDA caused by funding shortages or global health concerns, including the COVID-19 pandemic.
The
FDA may refuse our requests for 510(k) clearance, de-novo or PMA of new products, new intended uses or modifications to existing products.
From
time to time, legislation is drafted and introduced in the United States that could significantly change the statutory provisions governing
any regulatory approval or clearance that we receive in the United States. In addition, the FDA may change its clearance and approval
policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance
of our test kits under development or impact our ability to modify our currently approved or cleared test kits on a timely basis.
Our
products are also subject to approval, certification and regulation by foreign regulatory and safety agencies. For example, the EU has
adopted the EU MDR, which imposes stricter requirements for the marketing and sale of medical devices, including in the area of clinical
evaluation requirements, quality systems and post-market surveillance. Complying with the requirements of the EU MDR may require us to
incur significant expenditures. Failure to meet these requirements could adversely impact our business in the EEA and other regions that
tie their product registrations to the EU requirements.
Once
commercialized, modifications to our marketed products may require new 510(k) clearances or approval of PMA supplements, or equivalent
steps in third counties including the EEA, or may require us to cease marketing or recall the modified products until certifications,
clearances or regulatory approvals are obtained.
Modifications
to any of our products once they are commercialized may require new regulatory approvals or clearances, including 510(k) clearances or
approval of PMA supplements, or require us to recall or cease marketing the modified systems until these clearances or approvals are
obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires
a new approval, supplement or clearance. A manufacturer may determine that a modification could not affect safety or efficacy and does
not represent a major change in its intended use, so that no new clearance or approval is necessary. However, the FDA can review a manufacturer’s
decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval of a PMA Supplement is required.
We may make modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees
and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing our products as modified,
which could require us to redesign our products and/or seek new marketing authorizations and harm our operating results. In these circumstances,
we may be subject to significant enforcement actions.
For
example, if a manufacturer determines that a modification to a PMA approved device could affect its safety or effectiveness or would
constitute a major change in its intended use, then the manufacturer must file for a new a new PMA or approval of a PMA supplement. Where
we determine that modifications to our products require a new PMA approval, we may not be able to obtain those additional approvals for
the modifications or additional indications in a timely manner, or at all. Obtaining new approvals can be a time-consuming process, and
delays in obtaining required future approvals would adversely affect our ability to introduce new or enhanced products in a timely manner,
which in turn would harm our future growth.
For
those products sold in the EEA, we must notify our EU notified body if significant changes are made to the products or if there are substantial
changes to our quality assurance systems affecting those products. Obtaining certification can be a time-consuming process, and delays
in obtaining required future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely
manner, which in turn would harm our future growth.
Medical
device development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive
of future study results.
Clinical
testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during
the clinical study process. The results of preclinical studies and early clinical studies of our product candidates may not be predictive
of the results of later-stage clinical studies. Product candidates that have shown promising results in early-stage clinical studies
may still suffer significant setbacks in subsequent advanced clinical studies. There is a high failure rate for medical devices proceeding
through clinical studies, and product candidates in later stages of clinical studies may fail to show the desired safety and efficacy
traits despite having progressed satisfactorily through preclinical studies and initial clinical studies. A number of companies in the
medical device and biopharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy
or adverse safety profiles, notwithstanding promising results in earlier studies. Moreover, preclinical and clinical data are often susceptible
to varying interpretations and analyses. We do not know whether any pivotal studies we may conduct will demonstrate consistent or adequate
efficacy and safety sufficient to obtain certification or regulatory approval to market our product candidates. Nor do we know
whether the FDA will permit us to proceed directly to pivotal trials without performing pilot trials in the U.S. using the same delivery
system that we will seek approval by the agency.
If
we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or if we experience unanticipated
problems with our products, these products could be subject to restrictions or withdrawal from the market.
Once
we obtain certification or marketing authorization for our product candidates, any product for which we obtain certification, clearance
or approval, and the manufacturing processes, post-market surveillance, post-approval clinical data and promotional activities for such
product, will be subject to continued regulatory review, oversight, requirements, and periodic inspections by the FDA and other domestic
and foreign regulatory and notified bodies. We must comply with equivalent standards in third countries.
In
particular, we and our suppliers are required to comply with FDA’s QSR in the U.S. and other regulations enforced outside the United
States which cover the manufacture of our products and the methods and documentation of the design, testing, production, control, quality
assurance, labeling, packaging, storage and shipping of medical devices. Regulatory bodies, such as the FDA, and notified bodies enforce
the QSR in the U.S. and other regulations through periodic inspections. The failure by us or one of our suppliers to comply with applicable
statutes and regulations administered by the FDA, or the failure to timely and adequately respond to any adverse inspectional observations
or product safety issues, could result in, among other things, any of the following enforcement actions:
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untitled
letters, warning letters, fines, injunctions, consent decrees and civil penalties;
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unanticipated
expenditures to address or defend such actions
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customer
notifications for repair, replacement, refunds;
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recall,
detention or seizure of our products;
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operating
restrictions or partial suspension or total shutdown of production;
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refusing
or delaying our requests for 510(k) clearance or PMA approval of new products or modified products;
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operating
restrictions;
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withdrawal
of 510(k) clearances on PMA approvals that have already been granted;
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refusal
to grant export approval for our products; or
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criminal
prosecution.
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If
any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer and may prevent
us from generating revenue. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with
all applicable regulatory requirements which could result in our failure to produce our products on a timely basis and in the required
quantities, if at all.
In
addition, we are required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products,
and we must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to
our products. For example, the FDA has issued to us a post-market surveillance order under Section 522 of the FDCA which requires that
we conduct a human factors study, as well as conduct a detailed analysis of adverse events and complaints from home users. Later discovery
of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity
or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in changes to labeling,
restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls,
a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory
approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business,
operating results and prospects.
In
addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products
in the EEA. We must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related
to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse
events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements may result in
changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary
or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines,
suspension of regulatory clearances or approvals, product seizures, injunctions or the imposition of civil or criminal penalties which
would adversely affect our business, operating results and prospects.
Our
products may cause or contribute to adverse medical events or be subject to failures or malfunctions that we are required to report to
the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and
results of operations. The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at
the direction of the FDA or another governmental authority, could have a negative impact on us.
Once
commercialized, we will be subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require
us to report to the FDA when we receive or become aware of information that reasonably suggests that one or more of our products may
have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause
or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse
event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe.
We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse
event or if it is an adverse event that is unexpected or removed in time from the use of the product. If we fail to comply with our reporting
obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition
of civil monetary penalties, revocation of our device clearance or approval, seizure of our products or delay in clearance or approval
of future products.
The
FDA and comparable foreign regulatory authorities have the authority to require the recall of commercialized products in the event of
material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health.
The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause
serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated
or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing
defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.
Product defects or other errors may occur in the future.
Depending
on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we
will need to obtain new clearances or approvals for the device before we may market or distribute the corrected device. Seeking such
clearances or approvals may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address
problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure,
injunctions, administrative penalties or civil or criminal fines.
Companies
are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. We may initiate voluntary
withdrawals or corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees
with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future
recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively
affect our sales. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require
the dedication of our time and capital, will distract management from operating our business and may harm our reputation and financial
results.
All
manufacturers placing medical devices on the market in the EEA are legally bound to report to the relevant competent authorities (a)
any serious incident involving devices made available on the EU market, except expected side-effects which are clearly documented in
the product information and quantified in the technical documentation and are subject to trend reporting, and (b) any field safety corrective
action in respect of devices made available on the EU market, including any field safety corrective action undertaken in a third country
in relation to a device which is also legally made available on the EU market, if the reason for the field safety corrective action is
not limited to the device made available in the third country. Reports should be submitted through the electronic system set up and managed
by the EU commission in collaboration with EEA countries. Report of serious incidents will be automatically transmitted to the competent
authority of the EEA country in which the incident occurred and reports on field safety corrections actions will be automatically transmitted
to the competent authority of the EEA country in which the field safety corrective action is being or is to be undertaken and the EEA
country in which the manufacturer has its registered place of business.
Under
the EU MDR, a ’serious incident’ means any incident that directly or indirectly led, might have led or might lead to any
of the following: (a) the death of a patient, user or other person; (b) the temporary or permanent serious deterioration of a patient’s,
user’s or other person’s state of health; or (c) a serious public health threat. A ‘field safety corrective action’
means corrective action taken by a manufacturer for technical or medical reasons to prevent or reduce the risk of a serious incident
in relation to a device made available on the market.
Malfunction
of our products could result in future voluntary corrective actions, such as recalls, including corrections, or customer notifications,
or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the malfunctions adequately
or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected products, initiate voluntary
recalls, and redesign the products. Regulatory authorities may also take actions against us, such as ordering recalls, imposing fines,
or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and
capital, distract management from operating our business, and may harm our reputation and financial results.
Our
product candidates may in the future be subject to product recalls that could harm our reputation, business and financial results.
Medical
devices can experience performance problems in the field that require review and possible corrective action. The occurrence of component
failures, manufacturing errors, software errors, design defects or labeling inadequacies affecting a medical device could lead to a government-mandated
or voluntary recall by the device manufacturer, in particular when such deficiencies may endanger health. The FDA requires that certain
classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Companies are required to maintain
certain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the
future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require us
to report those actions as recalls. Product recalls may divert management attention and financial resources, expose us to product liability
or other claims, harm our reputation with customers and adversely impact our business, financial condition and results of operations.
We
may be subject to regulatory or enforcement actions if we engage in improper marketing or promotion of our product candidates.
Our
educational and promotional activities and training methods must comply with FDA and other applicable laws, including the prohibition
of the promotion of a medical device for a use that has not been cleared or approved by the FDA. Use of a device outside of its cleared
or approved indications is known as “off-label” use. Physicians may use our products off-label in their professional medical
judgment, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However,
if the FDA determines that our educational and promotional activities or training constitutes promotion of an off-label use, it could
request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance
of warning letters, untitled letters, fines, penalties, injunctions, or seizures, any of which could have an adverse impact on our reputation
and financial results.
It
is also possible that other federal, state or foreign enforcement authorities might take action if they consider our educational and
promotional activities or training methods to constitute promotion of an off-label use, which could result in significant fines or penalties
under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged,
and adoption of the products could be impaired. Although our policy is to refrain from statements that could be considered off-label
promotion of our products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion.
It is also possible that other federal, state or foreign enforcement authorities might take action, including, but not limited to, through
a whistleblower action under the FCA, if they consider our business activities constitute promotion of an off-label use, which could
result in significant penalties, including, but not limited to, criminal, civil or administrative penalties, treble damages, fines, disgorgement,
exclusion from participation in government healthcare programs, reporting requirements and compliance oversight if we become subject
to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment
or restructuring of our operations. In addition, the off-label use of our products may increase the risk of product liability claims.
Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards
against us, and harm our reputation.
The
advertising and promotion of our products in the EEA is subject to EEA countries’ national laws implementing Directive 2006/114/EC
concerning misleading and comparative advertising, and Directive 2005/29/EC on unfair commercial practices, as well as other national
legislation of individual EEA country governing the advertising and promotion of medical devices. EEA country legislation may also restrict
or impose limitations on our ability to advertise our products directly to the general public. In addition, voluntary EU and national
Codes of Conduct provide guidelines on the advertising and promotion of our products to the general public and may impose limitations
on our promotional activities with healthcare professionals.
Legislative
or regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance or approval of any future products
and to manufacture, market and distribute our products after clearance or approval is obtained.
From
time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the
regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, the FDA may change its
clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent
or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products
on a timely basis. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen
review times of planned or future products. It is impossible to predict whether legislative changes will be enacted or FDA regulations,
guidance or interpretations changed, and what the impact of such changes, if any, may be.
FDA
regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products.
Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review
times of any future products or make it more difficult to obtain clearance or approval for, manufacture, market or distribute our products.
We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted
or adopted may have on our business in the future. Such changes could, among other things, require: additional testing prior to obtaining
clearance or approval; changes to manufacturing methods; recall, replacement or discontinuance of our products; or additional record
keeping.
The
FDA’s and other regulatory authorities’ policies may change and additional government regulations may be promulgated that
could prevent, limit or delay regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature or
extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.
For example, the recent change in administration may impact our business and industry. Any change in the laws or regulations that govern
the clearance and approval processes relating to our current, planned and future products could make it more difficult and costly to
obtain clearance or approval for new products or to produce, market and distribute existing products. Significant delays in receiving
clearance or approval or the failure to receive clearance or approval for any new products would have an adverse effect on our ability
to expand our business. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or if we are not able to maintain regulatory compliance, we may lose any marketing clearance that we may have obtained and
we may not achieve or sustain profitability.
In
addition, on May 25, 2017, the new EU MDR entered into force for medical devices marketed in the EEA. Implementation of the EU MDR was
delayed by one year due to the COVID-19 pandemic. Following its entry into application on May 26,2021, the EU MDR introduced substantial
changes to the obligations with which medical device manufacturers must comply in the EEA. High risk medical devices are subject to additional
scrutiny during the conformity assessment procedure. Specifically, the EU MDR repeals and replaces the EU Medical Devices Directive.
Unlike directives, which must be implemented into the national laws of the European Economic Area (EEA) Member States, the regulations
is directly applicable, i.e., without the need for adoption of EEA country laws implementing them, in all EEA countries and are intended
to eliminate current differences in regulation of medical devices among EEA countries. The EU MDR, among other things, is intended to
establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices to ensure a high
level of safety and health while supporting innovation. The EU MDR entered into application on May 26, 2021 and among other things:
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strengthens
the rules on placing devices on the market and reinforce surveillance once they are available;
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establishes
explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices
placed on the market;
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improves
the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
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sets up
a central database to provide patients, healthcare professionals and the public with comprehensive information on products available
in the EEA; and
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strengthens
rules for the assessment of certain high-risk devices which may have to undergo an additional check by experts before they are placed
on the market.
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The
EU MDR imposes a number of new requirements on manufacturers of medical devices. Notified bodies need to be accredited by the EU Member
States’ accreditation bodies to conduct assessment procedures for medical devices in accordance with the Regulation. There are
currently a relatively small number of notified bodies that have been accredited to conduct these assessments. This may delay conformity
assessment procedures in the future in the EU. This may impact our activities in the EEA and the UK, the renewal of our existing CE Certificates
of Conformity and conformity assessment related to future bodies.
Further,
the EU MDR imposes increased compliance obligations for us to access the EEA market. Our failure to comply with applicable foreign regulatory
requirements, including those administered by authorities of the EEA countries, could result in enforcement actions against us, including
refusal, suspension, variation, or withdrawal of our CE Certificates of Conformity by our EU notified body, which could impair our ability
to market products in the EEA in the future. Any changes to the membership of the EU, such as the recent departure of the United Kingdom
(Brexit), may impact the regulatory requirements for the impacted countries and impair our business operations and our ability to market
products in such countries.
Brexit,
has created significant uncertainty concerning the future relationship between the UK and the EU. On 24 December 2020, the EU and UK
reached an agreement in principle on the framework for their future relationship, the EU-UK Trade and Cooperation Agreement. The Agreement
primarily focuses on ensuring free trade between the EU and the UK in relation to goods. The Agreement does not however, specifically
address medical devices. The Agreement seeks to ensure that the parties ensure “regulatory cooperation”. Among the changes
that will now occur are that Great Britain (England, Scotland and Wales) will be treated as a third country. Northern Ireland will, with
regard to EU regulations, continue to follow the EU regulatory rules. In light of the fact that the CE marking process is set out in
EU law, which no longer applies in the UK, the UK has devised a new route to market culminating in a UK Conformity Assessed (UKCA) mark
to replace the CE mark. Northern Ireland will, however, continue to be covered by the regulations governing CE marks. As part of the
Agreement, the EU and the UK have agreed to continue to recognize declarations of conformity based on a self-assessment in the other
territory. Given the lack of comparable precedent to Brexit, it is unclear what the financial, regulatory, and legal implications of
Brexit will be and how it will affect us. However, potentially changing regulatory schemes and tariffs engendered by Brexit may add additional
complexity, cost and delays in marketing or selling our products in the United Kingdom.
We
are working on NTM lung infection which is very rare.
NTM
lung infection is a very rare disease and only a small number of people suffer from this condition. As a result of these small numbers,
we may not be able to complete the study related to NTM or, even if approved, the device for that indication may never be profitable.
We
are working on bronchiolitis in infants that usually is caused by the RSV virus.
RSV
is a seasonal virus (only in the winter). In our trial, we are heavily dependent on the occurrence and the severity of this virus. Treating
for RSV is highly reliant on the weather conditions in winter. The weather in the winter is not predictable. For example, if the winter
is warm or short, or the RSV infection was not severe enough when we conducted our trial, or the length of stay in the hospital at the
year that trial was conducted was different from previous seasons, then we might miss the season or the results can be significantly
different between two seasons or between different countries or even between different sites.
We
are working on PPHN which is a highly competitive market and certification or regulatory approval may not be easily obtained.
A
delivery system with a generator of NO has never been approved anywhere in the world and this may cause significant delays in the approval
process.
Clinical
trials may be necessary to support future product submissions to the FDA. The clinical trial process is lengthy and expensive with uncertain
outcomes, and often requires the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.
Delays or failures in our clinical trials will prevent us from commercializing any modified or new products and will adversely affect
our business, operating results and prospects.
Initiating
and completing clinical trials necessary to support any future PMAs, and additional safety and efficacy data beyond that typically required
for a 510(k) clearance, for our possible future product candidates, will be time-consuming and expensive and the outcome uncertain. Moreover,
the results of early clinical trials are not necessarily predictive of future results, and any product we advance into clinical trials
may not have favorable results in later clinical trials. The results of preclinical studies and clinical trials of our products conducted
to date and ongoing or future studies and trials of our current, planned or future products may not be predictive of the results of later
clinical trials, and interim results of a clinical trial do not necessarily predict final results. Our interpretation of data and results
from our clinical trials do not ensure that we will achieve similar results in future clinical trials. In addition, preclinical and clinical
data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily
in preclinical studies and earlier clinical trials have nonetheless failed to replicate results in later clinical trials. Products in
later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies
and earlier clinical trials. Failure can occur at any stage of clinical testing. Our clinical studies may produce negative or inconclusive
results, and we may decide, or regulators may require us, to conduct additional clinical and non-clinical testing in addition to those
we have planned.
The
initiation and completion of any of clinical studies may be prevented, delayed, or halted for numerous reasons. We may experience delays
in our ongoing clinical trials for a number of reasons, which could adversely affect the costs, timing or successful completion of our
clinical trials, including related to the following:
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we
may be required to submit an IDE application to the FDA, which must become effective prior to commencing certain human clinical trials
of medical devices, and the FDA may reject our IDE application and notify us that we may not begin clinical trials;
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regulators
and other comparable foreign regulatory authorities may disagree as to the design or implementation of our clinical trials;
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regulators
and/or an IRB, or other reviewing bodies may not authorize us or our investigators to commence a clinical trial, or to conduct or
continue a clinical trial at a prospective or specific trial site;
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we
may not reach 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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clinical
trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical
trials or abandon product development programs;
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the
number of subjects or patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials
may be insufficient or slower than we anticipate, and the number of clinical trials being conducted at any given time may be high
and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher
rate than we anticipate;
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our
third-party contractors, including those manufacturing products or conducting clinical trials on our behalf, may fail to comply with
regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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we
might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to
unacceptable health risks;
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we
may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance,
which we may be required to submit to an IRB and/or regulatory authorities for re-examination;
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regulators,
IRBs, or other parties may require or recommend that we or our investigators suspend or terminate clinical research for various reasons,
including safety signals or noncompliance with regulatory requirements;
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the
cost of clinical trials may be greater than we anticipate;
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clinical
sites may not adhere to the clinical protocol or may drop out of a clinical trial;
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we
may be unable to recruit a sufficient number of clinical trial sites;
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regulators,
IRBs, or other reviewing bodies may fail to approve or subsequently find fault with our manufacturing processes or facilities of
third-party manufacturers with which we enter into agreement for clinical and commercial supplies, the supply of devices or other
materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable cost, or we may
experience interruptions in supply;
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approval
policies or regulations of the FDA or applicable foreign regulatory agencies may change in a manner rendering our clinical data insufficient
for approval;
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our
current or future products may have undesirable side effects or other unexpected characteristics; and
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impacts
of regional or global public health crises including the ongoing COVID-19 pandemic could adversely affect any clinical trials we
are conducting or plan to conduct, including delays or difficulties in enrolling or onboarding patients, initiating clinical sites,
or obtaining the requisite certification or regulatory approvals, interruption of key clinical trial activities, or supply chain
disruptions that delay or make it more difficult or costly to obtain the supplies and materials we need for clinical trials.
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Any
of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of certification or regulatory
approval of our product candidates.
Clinical
trials must be conducted in accordance with the laws and regulations of the FDA and other applicable regulatory authorities’ legal
requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and IRBs at the medical institutions
where the clinical trials are conducted. Conducting successful clinical studies will require the enrollment of large numbers of patients,
and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation
and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness
of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical
trial investigators, support staff, and proximity of patients to clinical sites and able to comply with the eligibility and exclusion
criteria for participation in the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in our
clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety
and effectiveness of our products or if they determine that the treatments received under the trial protocols are not attractive or involve
unacceptable risks or discomforts.
We
depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with GCP requirements.
To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards
or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased
costs, program delays or both. In addition, clinical trials that are conducted in countries outside the United States may subject us
to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S.
CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis,
screening and medical care.
Development
of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such
protocols to support clearance and approval. Further, the FDA may require us to submit data on a greater number of patients than we originally
anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical
trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs
and delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. In addition,
despite considerable time and expense invested in our clinical trials, the FDA may not consider our data adequate to demonstrate safety
and efficacy. Such increased costs and delays or failures could adversely affect our business, operating results and prospects.
Even
if our products are approved or cleared in the United States and CE marked in the EEA, comparable regulatory authorities of additional
foreign countries must also approve the manufacturing and marketing of our products in those countries. Approval and clearance procedures
vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the
United States or the EEA, including additional preclinical studies or clinical trials. Any of these occurrences may harm our business,
financial condition and prospects significantly.
In
the EEA, we consider that our products would be classified as a medical device. However, competent regulatory authorities in EEA countries
or notified bodies could disagree and consider our products to be a drug-delivery combination product composed of a medical device and
a medicinal product. In the EEA, a drug-delivery systems can fall within the scope of the medical device legislation or the pharmaceutical
legislation depending on their combination with the relevant medicinal substance.
If
our device is considered as being intended to administer a medicinal product and our device and the medicinal product are placed on the
market in such a way that they form a single integral product which is intended exclusively for use in the given combination and which
is not reusable, that single integral product shall be governed by Directive 2001/83/EC and be subject to a marketing authorization.
The medical device part of the drug-delivery combination product would not need to be CE marked. However, the relevant general safety
and performance requirements set out in Annex I to the EU MDR would apply as far as the safety and performance of the device part of
the single integral product are concerned. As a result, we would need to pursue a different regulatory pathways for placing our product
on the EEA market which may lead to additional costs and time.
We
may find it difficult to enroll patients in our clinical studies. Difficulty in enrolling patients could delay or prevent clinical studies
of our product candidates.
Identifying
and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical
studies depends in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience
delays in our clinical studies if we encounter difficulties in enrollment.
Some
of the conditions for which we plan to evaluate our current product candidates are for rare diseases. For example, we estimate that 15,000
patients suffer from refractory NTM lung infection in the U.S. Accordingly, there is a limited patient pool from which to draw
for clinical studies. Further, the eligibility criteria of our clinical studies will further limit the pool of available study participants
as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough
or not too advanced to include them in a study.
Additionally,
the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients
to complete our clinical studies because of the perceived risks and benefits of the product candidate under study, particularly the toxicity
of NO in certain doses, the availability and efficacy of competing therapies and clinical studies, the proximity and availability of
clinical study sites for prospective patients and the patient referral practices of physicians. If patients are unwilling to participate
in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining certification or regulatory
approval of potential products will be delayed.
If
we experience delays in the completion or termination of any clinical study of our product candidates, the commercial prospects of our
product candidates will be harmed, and our ability to generate product revenue from any of these product candidates could be delayed
or prevented. In addition, any delays in completing our clinical studies will increase our costs, slow down our product candidate development
and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our
business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement
or completion of clinical studies may also ultimately lead to the denial of certification or regulatory approval of our product
candidates.
We
may encounter substantial delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable
regulatory authorities.
Before
obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies
to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming and uncertain
as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. Our clinical
studies involve infants, children, and adults and, before we are permitted to enroll them in clinical trials, we must demonstrate that
although the research may pose a risk to the subjects, there is a prospect of direct benefit to each patient. We must do so to the satisfaction
of each research site’s IRB. If we fail to adequately demonstrate this to the satisfaction of the relevant IRB, it will decline
to approve the research, which could have significant adverse consequences for the Company.
A
failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events
that may prevent successful or timely completion of clinical development include but are not limited to:
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inability
to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical studies;
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delays
in reaching a consensus with regulatory agencies on study design;
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delays
in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical study
sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study
sites;
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delays
in obtaining required IRB approval at each clinical study site;
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imposition
of a clinical hold by regulatory agencies, after review of an IDE application, or equivalent application, or an inspection of our
clinical study operations or study sites;
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delays
in recruiting suitable patients to participate in our clinical studies;
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difficulty
collaborating with patient groups and investigators;
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failure
by our CROs, other third parties or us to adhere to clinical study requirements;
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failure
to perform in accordance with the FDA’s GPC requirements, or applicable regulatory guidelines in other countries;
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delays
in having patients complete participation in a study or return for post-treatment follow-up;
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occurrence
of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
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changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols;
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the
cost of clinical studies of our product candidates being greater than we anticipate;
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clinical
studies of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring
us, to conduct additional clinical studies or abandon product development programs; and
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delays
in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for
use in clinical studies or the inability to do any of the foregoing.
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Any
inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability
to generate revenue. We may also be required to conduct additional safety, efficacy and comparability studies before we will be allowed
to start clinical studies. Clinical study delays could also shorten any periods during which our products have patent protection and
may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our
product candidates and may harm our business and results of operations.
Our
product candidates may cause undesirable side effects or have other properties that could delay or prevent their certification or
regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing
approval, if any.
Undesirable
side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical studies and
could result in a more restrictive marketing label or the delay or denial of certification or regulatory approval by the FDA or
other comparable foreign authorities. There is currently limited data regarding possible side effects for an antimicrobial dosage of
NO treatments, such as our product candidates. Potential side effects of NO treatments may include high MetHb, NO2
toxicity, nose bleeding and low blood pressure. Results of our studies may identify unacceptable severity and prevalence of these or
other side effects. In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities
or notified bodies could order us to cease further development of or deny approval of our product candidates for any or all targeted
indications.
NO-related
side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product
liability claims
Additionally,
if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused
by such products, a number of potentially significant negative consequences could result, including but not limited to:
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regulatory
authorities may withdraw approvals of such product;
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regulatory
authorities may require additional warnings on the label;
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we
could be sued and held liable for harm caused to patients; and
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our
reputation may suffer.
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Any
of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and
could significantly harm our business, results of operations and prospects.
Even
if we obtain certification or regulatory approval for our product candidates, we will still face extensive, ongoing regulatory
requirements and review, and our products may face future development and regulatory difficulties.
The
holder of an approved PMA or cleared 510(k) also is subject to obligations to monitor and report adverse events and instances of the
failure of a product to meet the specifications in the marketing application. Application holders must submit new or supplemental applications
and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Legal requirements have
also been enacted to require disclosure of clinical trial results on publicly available databases.
In
addition, manufacturers of FDA regulated products and their facilities are subject to continual review and periodic inspections by the
FDA and other regulatory authorities for compliance with the FDA’s QSR and, as applicable, cGMP regulations. Our relationships
with healthcare providers, physicians and third-party payors must comply with FDA laws and regulations, the AKS, the FCA, HIPAA, various
transparency laws, and similar state and foreign laws. GMPs regulations. If we or a regulatory agency discovers previously unknown problems
with a product, such as Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation
Act of 1990 and the Veterans Healthcare Act of 1992. If products are made available to authorized users of the Federal Supply Schedule
of the General Services Administration and to low income patients of certain hospitals, additional laws and requirements apply. Our activities
are also potentially subject to federal and state consumer protection and unfair competition laws. If we or our third-party collaborators
fail to comply with applicable regulatory requirements, a regulatory agency may take any of the following actions:
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conduct
an investigation into our practices and any alleged violation of law;
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issue
warning letters or untitled letters asserting that we are in violation of the law;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw certification or regulatory approval;
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require
that we suspend or terminate any ongoing clinical trials;
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refuse
to approve pending applications or supplements to applications filed by us;
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suspend
or impose restrictions on operations, including costly new manufacturing requirements;
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seize
or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or
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exclude
us from providing our products to those participating in government health care programs, such as Medicare and Medicaid, and refuse
to allow us to enter into supply contracts, including government contracts.
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The
occurrence of any of the foregoing events or penalties may force us to expend significant amounts of time and money and may significantly
inhibit our ability to bring to market or continue to market our products and generate revenue. Similar regulations apply in foreign
jurisdictions.
Risks
Related to our Reliance on Third Parties
We
rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us. If these third parties do not successfully
carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain certification
or regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We
have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical
programs. We rely on these parties for execution of our preclinical and clinical studies, and we directly control only certain aspects
of their activities, although from a regulatory perspective we are responsible for their actions. We are responsible for ensuring that
each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance
on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with GCP,
QSR and GLP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European
Economic Area (“EEA”), and comparable foreign regulatory authorities for all of our product candidates in clinical development.
Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites
and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the clinical data generated in
our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform
additional clinical studies before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory
authority, such regulatory authority will determine that any of our clinical studies comply with GCP regulations. In addition, our clinical
studies must be conducted with products that are produced under QSR regulations. Our failure to comply with these regulations may require
us to repeat clinical studies, which would delay the certification or regulatory approval process, or have other adverse consequences.
If
any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or
do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our
agreements with such CROs, we cannot control whether they devote sufficient time and resources to our on-going clinical, nonclinical
and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if
they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to
our clinical protocols, regulatory requirements or for other reasons, our clinical studies may be extended, delayed or terminated and
we may not be able to obtain certification or regulatory approval for or successfully commercialize our product candidates. CROs
may also generate higher costs than anticipated. As a consequence, our results of operations and the commercial prospects for our product
candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
Switching
or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition
period when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical
development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter
similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business,
financial condition and prospects.
We
will rely on third parties to manufacture our NO generator and delivery system. Our business could be harmed if those third parties fail
to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.
We
do not currently have the infrastructure or capability internally to manufacture the components of our NO generator and delivery system,
and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We plan
to rely on third parties for such supplies. There are a limited number of manufacturers who have the ability to produce our delivery
system, and there may be a need to identify alternate manufacturers to prevent a possible disruption of our clinical studies. Any significant
delay or discontinuity in the supply of these components could considerably delay completion of our clinical studies, product testing
and potential regulatory approval of our product candidates, which could harm our business and results of operations.
We
and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates.
The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
All
entities involved in the preparation of medical devices for clinical studies or commercial sale, including our existing contract manufacturers
for our product candidates, are subject to extensive regulation. Components of a finished medical device product approved for commercial
sale or used in late-stage clinical studies must be manufactured in accordance with QSR. These regulations govern manufacturing processes
and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of
investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants
or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing.
We, our collaborators or our contract manufacturers must supply all necessary documentation in support of any marketing application on
a timely basis and must adhere to GLP and QSR regulations enforced by the FDA and other regulatory agencies through their facilities
inspection program. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval
inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our
other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved
with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with
the regulations applicable to the activities being conducted. We do not control the manufacturing process of, and are completely dependent
on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval
plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected
to the satisfaction of the regulatory authority, if ever.
The
regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our collaborators
and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation
of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory
authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include
the temporary or permanent suspension of a clinical study or commercial sales, or the temporary or permanent closure of a facility. Any
such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. If we, our collaborators,
or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authorities can
impose regulatory sanctions including, among other things, refuse to approve a pending application for a new drug product, withdrawal
of an approval, suspend production, suspend clinical studies, require a recall or suspension of production. As a result, our business,
financial condition and results of operations may be materially harmed.
Additionally,
if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through a PMA Supplement
or Marketing Authorization Application amendment, or equivalent foreign regulatory filing, which could result in further delays.
The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching
manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These
factors could cause us to incur higher costs and could cause the delay or termination of clinical studies, regulatory submissions, required
approvals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we
are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies
may be delayed or we could lose potential revenue.
If
we encounter issues with our contract manufacturers or suppliers, we may need to qualify alternative manufacturers or suppliers, which
could impair our ability to sufficiently and timely manufacture and supply LungFit® PH.
We
currently depend on contract manufacturers and suppliers for LungFit® PH and its components. Although we could obtain
each of these components from other third-party suppliers, we would need to qualify and obtain FDA approval for another contract manufacturer
or supplier as an alternative source for each such component, which could be costly and cause significant delays. Each of our current
commercial manufacturing and supply agreements include limitations on our ability to utilize alternative manufacturers or suppliers for
these components above certain specified thresholds during the terms of the agreements, which impairs our ability to fully implement
any future manufacturing strategies to prevent supply shortages or quality issues.
In
addition, some of our suppliers and contract manufacturers, including Spartronics and Medisize conduct their manufacturing operations
for us at a single facility. Unless and until we qualify additional facilities, we may face limitations in our ability to respond to
manufacturing and supply issues. For example, if regulatory, manufacturing or other problems require one of these manufacturers or suppliers
to discontinue production at their respective facility, or if the equipment used for the production of LungFit® PH in
these facilities is significantly damaged or destroyed by fire, flood, earthquake, power loss or similar events, the ability of such
manufacturer or supplier to provide components needed for LungFit® PH, or to manufacture LungFit® PH may
be significantly impaired. In the event that these parties suffer a temporary or protracted loss of its facility or equipment, we would
still be required to obtain FDA approval to qualify a new manufacturer or supplier, as applicable, as an alternate manufacturer or source
for the respective component before any components manufactured by such manufacturer or by such supplier could be sold or used.
Any
production shortfall that impairs the supply of LungFit® PH or any of these components could have a material adverse effect
on our business, financial condition and results of operations and adversely affect our ability to satisfy demand for LungFit®
PH, which could adversely affect our product sales and operating results materially.
We
depend on third-party manufacturers, including sole source suppliers, to manufacture LungFit® PH and our product candidates
and the materials we require for our clinical trials. We may not be able to maintain these relationships and could experience supply
disruptions outside of our control.
We
rely on a network of third-party manufacturers to manufacture and supply LungFit® PH for commercial sale and post-approval
clinical trials, and our drug candidates for clinical trials and any commercial sales if they are approved. As a result of our reliance
on these third-party manufacturers and suppliers, including sole source suppliers of certain components of LungFit® PH
and our product candidates, we could be subject to significant supply disruptions. Our supply chain for sourcing raw materials and manufacturing
drug product ready for distribution is a multi-step endeavor. Third-party contract manufacturers supply us with raw materials, and contract
manufacturers in the United States convert these raw materials into drug substance and convert the drug substance into final dosage form.
Establishing and managing this supply chain requires a significant financial commitment and the creation and maintenance of numerous
third-party contractual relationships. Although we attempt to effectively manage the business relationships
with companies in our supply chain, we do not have control over their operations.
We
require a supply of LungFit® PH for sale in the United States, and we will require a supply of LungFit®
PH for sale in international markets if we obtain marketing approvals outside of the United States. We currently rely, and expect to
continue to rely, on sole source third-party manufacturers to produce starting materials, drug substance, and final drug product, and
to package and label LungFit® PH and our product candidates. While we have identified and expect to qualify and engage
back-up third party manufacturers as additional or alternative suppliers for the commercial supply of LungFit® PH, we
currently do not have such arrangements in place. Moreover, some of these alternative manufacturers will have to be approved by the FDA
before we can use them for manufacturing LungFit® ® PH. It is also possible that supplies of materials that cannot
be second-sourced can be managed with inventory planning. There can be no assurance, however, that failure of any of our original sole
source third party manufacturers to meet our commercial demands for LungFit® PH in a timely manner, or our failure to
engage qualified additional or back-up suppliers for the commercial supply of LungFit® PH, would not have a material adverse
effect on commercialization of LungFit™ and our business.
Supply
disruptions may result from a number of factors, including shortages in product raw materials, labor or technical difficulties, regulatory
inspections or restrictions, shipping or customs delays or any other performance failure by any third-party manufacturer on which we
rely. Any supply disruptions could disrupt sales of LungFit® PH and/or the timing of our clinical trials, which could
have a material adverse impact on our business. Furthermore, we may be required to modify our production methods to permit us to economically
manufacture our drugs for sale and our drug candidates for clinical trials. These modifications may require us to re-evaluate our resources
and the resources of our third-party manufacturers, which could result in abrupt changes in our production methods and supplies.
In
the course of providing its services, a contract manufacturer may develop process technology related to the manufacture of our products
or drug candidates that the manufacturer owns, either independently or jointly with us. This would increase our reliance on that manufacturer
or require us to obtain a license from that manufacturer in order to have LungFit® PH or our drug candidates manufactured
by other suppliers utilizing the same process.
The
failure of our third party manufacturers to meet our commercial demands for LungFit® PH in a timely manner, or our failure
to engage qualified additional or back-up suppliers for the commercial supply of LungFit® PH, would have a material adverse
effect on our business, results of operations and financial position.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them
or that our trade secrets will be misappropriated or disclosed.
Because
we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek
to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements,
collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and
consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third
parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working
with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become
known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these
agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery
of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect
on our business.
Risks
Related to Commercialization of Our Product Candidates
If
the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected, and
our business may suffer.
Our
projections of both the number of people who have our target diseases, as well as the subset of people with these diseases who have the
potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived
from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research and may prove
to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may
turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot
accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population
for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may
become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.
We
face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize
therapies that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability
to successfully commercialize our product candidates.
The
biotechnology, pharmaceutical and medical device industries are highly competitive. There are many pharmaceutical companies, biotechnology
companies, medical device companies, public and private universities and research organizations actively engaged in the research and
development of products that may be similar to our product candidates. We are aware of several companies currently developing and selling
NO therapies for various indications such as pulmonary hypertension. For example, Mallinckrodt commercializes INOMAX®
(nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the U.S., Canada, Australia, Mexico
and Japan. Praxair markets a generic version of the Mallinckrodt offering with their delivery system called NOxBOX®, acquired
from Bedfont, in the United States. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar
product in Europe, called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment
of pulmonary hypertension that occurs during or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery system called
NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO formulations.
Bellerophon Therapeutics is developing NO-based products for pulmonary arterial hypertension and pulmonary hypertension associated
with chronic obstructive pulmonary disease. VERO Biotech LLC (formerly known as Geno LLC) received FDA approval for their delivery system
GENOSYL DS for PPHN in 2019. In addition, other companies may be developing generic NO formulation delivery systems for various dosages.
Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market a NO gas product
for use in membrane diffusing capacity testing in pulmonary function laboratories in the U.S. Novoteris, LLC previously received orphan
drug designation from the FDA and the European Medicines Agency (“EMA”) for the use of inhaled NO-based treatments in treating
CF.
In
addition to NO treatments currently available or under development, we also face competition from non-NO-based drugs and therapies. For
example, the successful development of immunizations for bronchiolitis may render useless any product we develop for that indication.
Also, antibiotic treatments for infections associated with CF and other underlying lung conditions may be preferred over any product
that we develop. Even if we successfully develop our product candidates, and obtain approval for them, other treatments may be preferred
and we may not be successful in commercializing our product candidates.
Many
of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff
and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the medical device, biotechnology and
pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain
certification or regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their
products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies
and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing
on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier
patent protection, certification or regulatory approval, product commercialization and market penetration than we do. Additionally,
technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful
in marketing our product candidates against competitors.
We
currently have a limited marketing and sales organization. If we are unable to fully establish sales and marketing capabilities or enter
into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.
Although
our employees may have sold other similar products in the past while employed at other companies, we as a company have no experience
selling and marketing our product candidates and we currently have a limited marketing or sales organization. To successfully commercialize
any products that may result from our development programs, we will need to further develop these capabilities, either on our own or
with others. If our product candidates receive certification or regulatory approval, we intend to establish a more complete sales
and marketing organization with technical expertise to commercialize our product candidates in the United States, which will be expensive,
difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities
would adversely impact the commercialization of our products.
Further,
given our lack of prior experience in marketing and selling medical device products, our initial estimate of the size of the required
sales force may be materially more or less than the size of the sales force actually required to effectively commercialize our product
candidates. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization
of our product candidates, or we may incur excess costs as a result of hiring more sales representatives than necessary. With
respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution
capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do not commit
sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities
on our own, we will be unable to generate sufficient product revenue to sustain our business. We may be competing with companies that
currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to
perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
The
commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients,
third-party payors and others in the medical community.
Even
with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates
will depend in part on the medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective
and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others
in the medical community. The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend
on a number of factors, including:
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safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;
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the
prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
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the
clinical indications for which approval is granted;
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relative
convenience and ease of administration;
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the
cost of treatment, particularly in relation to competing treatments;
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the
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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strength of marketing and distribution support and timing of market introduction of competitive products;
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publicity
concerning our products or competing products and treatments; and
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sufficient
third-party insurance coverage and reimbursement.
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Even
if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the
product will not be fully known until after it is launched. Our efforts to educate the medical community and third-party payors on the
benefits of the product candidates may require significant resources and may never be successful. If our product candidates are approved
but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others in the medical community,
we will not be able to generate sufficient revenue to become or remain profitable.
The
insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage
and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
The
pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure.
Our per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieve profitability. Accordingly,
the availability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be
able to afford expensive treatments such as ours, assuming approval. Sales of our product candidates will depend substantially, both
domestically and abroad, on the extent to which the costs of our product candidates will be paid for by health maintenance, managed care,
pharmacy benefit and similar healthcare management organizations, or reimbursed by government authorities, private health insurers and
other third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be able
to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high
enough to allow us to establish or maintain pricing sufficient to realize a return on our investment.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the U.S., the principal
decisions about coverage and reimbursement for new medical devices are typically made by the Centers for Medicare & Medicaid Services
(“CMS”), an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new
device will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by
CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for products such as ours.
Outside
the U.S., international operations are generally subject to extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure
on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control
mechanisms as part of national health systems. In general, the prices of medical devices under such systems are substantially lower than
in the U.S. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional
foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates.
Accordingly, in markets outside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient
to generate commercially reasonable revenue and profits.
Moreover,
increasing efforts by governmental and third-party payors in the U.S. and abroad to cap or reduce healthcare costs may cause such organizations
to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate
payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has
become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Cybersecurity
risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware, software, and Internet applications
and related tools and functions could result in harm to our business and/or subject us to costs, fines or lawsuits.
We
rely on sophisticated information technology systems and network infrastructure to operate and manage our business. We also maintain
personally identifiable information (PII) about our employees, and given the nature of our business, we have access to protected health
information (PHI). Our business therefore depends on the continuous, effective, reliable, and secure operation of our computer hardware,
software, networks, Internet servers, and related infrastructure. To the extent that our hardware or software malfunctions or access
to our data by internal personnel, suppliers or customers through the Internet is interrupted or compromised, our business could suffer.
The
integrity and protection of our customer, personnel, financial, research and development, and other confidential data is critical to
our business, and our customers and employees have a high expectation that we will adequately protect their personal information. The
regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve and a number
of states have adopted laws and regulations that may affect our privacy and data security practices regarding the use, disclosure and
protection of PII. For example, California recently enacted legislation, the California Consumer Privacy Act, that, among other things,
creates new individual privacy rights and imposes increased obligations on companies handling PII.
Although
our computer and communications hardware is protected through physical and software safeguards, it is still vulnerable to system malfunction,
computer viruses, malware and ransomware, and other cybersecurity threats such as phishing and social engineering attacks. These events
could lead to the unauthorized access of our information technology systems and result in financial loss and the misappropriation or
unauthorized disclosure of confidential information belonging to us, our employees, partners, customers, or our suppliers. The techniques
used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote
areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures.
If our information technology systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, incur
financial losses, suffer reputational damage, and lose trade secrets or other confidential information, each of which could significantly
harm our business.
Healthcare
legislative or regulatory reform measures, including government restrictions on pricing and reimbursement, may have a negative impact
on our business and results of operations.
In
the U.S., there have been and continue to be a number of legislative and regulatory changes and proposed changes to
contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act (“ACA”)
was enacted, which, among other things, substantially changes the way health care is financed by both governmental
and private insurers, and significantly impacts the U.S. medical device industry. Some of the provisions of
the ACA have been subject to judicial challenges as well as efforts to repeal, replace, or otherwise modify them or alter their
interpretation or implementation. For example, the Tax Cuts and Jobs Act of 2017 (“Tax Act”), includes a provision
that eliminated the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying
health coverage for all or part of a year, commonly referred to as the “individual mandate,” effective January 1, 2019. Currently,
the Supreme Court is considering whether the ACA’s individual mandate, post-repeal of its associated tax penalty, is unconstitutional,
and, if so, whether the remaining provisions of the ACA are inseverable from the mandate. A ruling is expected by mid-2021 and
could produce any of a number of results, including invalidation of the ACA in its entirety if there is a finding of inseverability.
It is unclear how the ultimate decision in this case, or other efforts to repeal, replace or otherwise modify, or invalidate,
the ACA or its implementing regulations, or portions thereof, will affect our business. Additional legislative changes, regulatory
changes and judicial challenges related to the ACA remain possible. We cannot predict what effect further changes related to the ACA,
including under the Biden administration, would have on our business.
Additionally,
there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost
of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal
and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing
and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the
now-departed Trump administration proposed numerous prescription drug cost control measures. Similarly, the new Biden administration
has made lowering prescription drug and medical device prices one of its priorities. The Biden administration has not yet proposed any
specific plans, but we expect that these will be forthcoming in the near term. At the state level, legislatures are increasingly passing
legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures,
and, in some cases, designed to encourage importation from other countries and bulk purchasing. Other examples of proposed changes include,
but are not limited to, expanding post-approval requirements, changing the Orphan Drug Act, and restricting sales and promotional activities
for pharmaceutical products.
We
cannot be sure whether additional legislative changes will be enacted, or whether government regulations, guidance or interpretations
will be changed, or what the impact of such changes would be on the marketing approvals, sales, pricing, or reimbursement of our drug
candidates or products, if any, may be. We expect that these and other healthcare reform measures that may be adopted in the future,
may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved drug.
Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private
payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue,
attain profitability, or commercialize our drugs.
We
are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws
could have a material adverse effect on our results of operations and financial conditions.
We
are subject to additional health care regulation and enforcement by the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include the following:
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the
federal health care program Anti-Kickback Statute, prohibits, among other things, persons from knowingly and willfully soliciting,
receiving, offering, 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, lease, or order or arranging for the purchase, lease or order of any good or service, for
which payment may be made, in whole or in part, under federal health care programs such as Medicare and Medicaid. This
statute has been interpreted to apply to arrangements between pharmaceutical or device manufacturers, on the one hand, and prescribers,
purchasers and formulary managers and others on the other. The term “remuneration” has been broadly interpreted to apply
to anything of value including, for example, gifts, cash payments, donations, waivers of payment, ownership interests, and providing
any item, service, or compensation for something other than fair market value. Liability under the AKS may be established without
proving actual knowledge of the statute or specific intent to violate it. Although there are a number of statutory exceptions and
regulatory safe harbors to the AKS protecting certain common business arrangements and activities from prosecution or regulatory
sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to those who prescribe,
purchase, or recommend medical device products, including certain discounts, or engaging such individuals as consultants, advisors
and speakers, may be subject to scrutiny if they do not fit squarely within an exception or safe harbor. Moreover, there
are no safe harbors for many common practices, such as educational grants and reimbursement support programs;
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the
federal civil False Claims Act that prohibits, among other things, individuals or entities from knowingly presenting, or causing
to be presented, false or fraudulent, claims for payment of government funds, knowingly making, using or causing to be made or used
a false statement or record material to an obligation to pay money to the government, or knowingly concealing or knowingly and improperly
avoiding, decreasing or concealing an obligation to pay money to the federal government. A claim including items or services resulting
from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. Actions under the FCA may be brought
by the government or as a qui tam action by a private individual in the name of the government, who may also share in any monetary
recovery. Qui tam actions are filed under seal and impose a mandatory duty on the U.S. Department of Justice to investigate such
allegations. Manufacturers have faced liability under the FCA for providing inaccurate billing or coding information to customers
or promoting a product off-label. FCA liability is potentially significant in the healthcare industry because the statute
provides for treble damages and significant mandatory penalties per false or fraudulent claim or statement for violations, as well
as exclusion from participation in federal healthcare programs;
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HIPA
imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud any healthcare benefit program, including private third-party payors, or knowingly and willfully falsifying, concealing,
or covering up a material fact or making any materially false, fictitious, or fraudulent statement or representation, or using any
false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry, in connection
with the delivery of or payment for healthcare benefits, items, or services;
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the
federal Physician Payments Sunshine Act requires applicable manufacturers of devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually
to CMS information related to payments and other transfers of value to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers
also will be required to report information regarding payments and transfers of value provided (in 2021) to physician assistants,
nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives; and
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analogous
state and foreign 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.
Several states have enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance
programs; file periodic reports with the state, including reports on gifts and payments to individual health care providers; and/or
register their sales representatives. Some states prohibit certain sales and marketing practices, including the provision of gifts,
meals, or other items to health care providers.
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Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. Because of the breadth of these laws and the narrowness
of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge
under one or more of such laws. The scope and enforcement of these laws is uncertain and subject to change in the current environment
of health care reform. We cannot predict the impact on our business of any changes in these laws. Federal or state regulatory authorities
may challenge our current or future activities under these laws. Any such challenge, even if we are able to successfully defend against
it, could have a material adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal
regulatory review of us, regardless of the outcome, would be costly and time-consuming. If our operations are found to be in violation
of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including
civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid,
imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business
and our results of operations.
The
use of any of our products could result in product liability or similar claims that could be expensive, damage our reputation and harm
our business.
Our
business exposes us to an inherent risk of potential product liability or similar claims. The medical device industry has historically
been litigious, and we face financial exposure to product liability or similar claims if the use of any of our products were to cause
or contribute to injury or death. There is also the possibility that defects in the design or manufacture of any of our products might
necessitate a product recall. Although we plan to maintain product liability insurance, the coverage limits of these policies may not
be adequate to cover future claims. In the future, we may be unable to maintain product liability insurance on acceptable terms or at
reasonable costs and such insurance may not provide us with adequate coverage against potential liabilities. A product liability claim,
regardless of merit or ultimate outcome, or any product recall could result in substantial costs to us, damage to our reputation, customer
dissatisfaction and frustration and a substantial diversion of management attention. A successful claim brought against us in excess
of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.
If
we fail to comply with applicable privacy, data protection and data security laws and regulations, we could face substantial penalties,
liability and adverse publicity and our business, operations and financial condition could be adversely affected.
We
are subject to various laws and regulations globally regarding privacy and data protection, including laws and regulations relating to
the collection, storage, handling, use, disclosure, transfer and security of personal data. The restrictions under applicable privacy,
data protection and data security laws and regulations that may affect our ability to operate include but are not limited to:
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HIPAA governs the use, disclosure, and
security of protected health information by HIPAA “covered entities” and their “business associates.” Covered
entities are health plans, health care clearinghouses and health care providers that engage in specific types of electronic transactions.
A business associate is any person or entity (other than members of a covered entity’s workforce) that performs a service on
behalf of a covered entity involving the use or disclosure of protected health information. Most healthcare providers who prescribe
our products and from whom we obtain patient health information are subject to privacy and security requirements under HIPAA, as
are we in certain circumstances. HHS (through the Office for Civil Rights) has direct enforcement authority against covered entities
and business associates with regard to compliance with HIPAA regulations. We also could be subject to criminal penalties if we knowingly
obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA
or for aiding and abetting and/or conspiring to commit a violation of HIPAA. We are unable to predict whether our actions could be
subject to prosecution in the event of an impermissible disclosure of health information to us;
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numerous U.S. federal and state laws
and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer
protection laws, govern the collection, use, disclosure and protection of personal information. These laws may impose a number of
compliance obligations on us, including requiring that we obtain consent before we collect, use, or disclose personal information,
implement certain security protections to safeguard personal information, and notify individuals or regulators in the event of a
breach;
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other countries also have, or are developing,
laws governing the collection, use, disclosure and protection of personal information. The GDPR, for example, is an EU-wide regulation
that imposes restrictions on the processing (e.g., collection, use, disclosure) of personal data and that also imposes strict restrictions
on the transfer of personal data out of the EU to the US; and
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the legislative and regulatory landscape
for privacy and data security continues to evolve, and there has been an increasing amount of focus on privacy and data security
issues with the potential to affect our business. For example, the CCPA contains new disclosure obligations for businesses that collect
personal information about California residents and affords those individuals new rights relating to their personal information that
may affect our ability to use personal information. Other states, including Virginia, and the federal government, have considered
and/or enacted similar privacy laws that could impose new obligations or limitations in areas affecting our business.
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These
privacy and data security laws and regulations could increase our cost of doing business, and failure to comply with these laws and regulations
could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity
and could materially and negatively affect our operating results and business. Although compliance programs can mitigate the risk of
investigation and prosecution for violations of these laws and regulations, the risks cannot be entirely eliminated. Any action against
us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses
and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable
federal, state, and foreign privacy and data security laws and regulations may prove costly.
Risks
Related to Our Intellectual Property
If
we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not
be able to compete effectively in our markets.
We
rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related
to our technologies and product candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain
intellectual property protection in the U.S. and in other countries with respect to our proprietary technology and products.
We
have sought to protect our proprietary position by filing patent applications in the U.S. and abroad related to our novel technologies
and products that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute
all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects
of our research and development output before it is too late to obtain patent protection.
The
patent position of medical device, biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal
and factual questions for which legal principles remain unsolved. The patent applications that we own or in-license may fail to result
in issued patents with claims that cover our product candidates in the U.S. or in other foreign countries. There is no assurance that
all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent
a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product
candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found
unenforceable or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect
our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Any of
these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
We
have filed several patent applications directed to various aspects of our product candidates. We cannot offer any assurances about which,
if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will
be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent
issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further,
if we encounter delays in certification or regulatory approvals, the period of time during which we could market a product candidate
under patent protection could be reduced. In addition, some or all of our patent applications may not result in issued patents.
If
we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively and our business
and results of operations would be harmed.
Intellectual
property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required
to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses
could be costly or not available on commercially reasonable terms.
Given
the number of companies developing various types of NO devices, it is difficult to conclusively assess our freedom to operate without
infringing on third party rights. There are numerous companies that have pending patent applications and issued patents in the field
of therapeutic NO delivery. Our competitive position may suffer if patents issued to third parties or other third-party intellectual
property rights cover our products or elements thereof, or our manufacture or uses relevant to our development plans. In such cases,
we may not be in a position to develop or commercialize products or our product candidates unless we successfully pursue litigation to
nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual
property right holder, if available on commercially reasonable terms. There may be pending patent applications of which we are not aware,
that if they result in issued patents, could be alleged to be infringed by our product candidates. If such an infringement claim should
be brought and be successful, we may be required to pay substantial damages, be forced to abandon our product candidates or seek a license
from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
It
is also possible that we have failed to identify relevant third-party patents or applications. Patent applications in the U.S. and elsewhere
are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly
referred to as the priority date. Therefore, patent applications covering our product candidate or platform technology could have been
filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations,
be later amended in a manner that could cover our platform technologies, our product candidate or the use of our product candidate. Third
party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be
able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms
acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented
from or experience substantial delays in pursuing the development of and/or marketing our product candidate. If we fail in any such dispute,
in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our product candidate
that is held to be infringing. We might, if possible, also be forced to redesign our product candidate so that we no longer infringe
the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert
substantial financial and management resources that we would otherwise be able to devote to our business.
Patent
terms are limited and we may not be able to effectively protect our products and business.
Patents
have a limited lifespan. In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Although various extensions
may be available, the life of a patent, and the protection it affords, is limited.
In
addition, upon issuance in the U.S., the patent term may be extended based on certain delays caused by the applicant(s) or the U.S. Patent
and Trademark Office (“USPTO”). Even if we obtain effective patent rights for our product candidates, we may not have sufficient
patent terms or regulatory exclusivity to protect our products, and our business and results of operations would be adversely affected.
Patent
policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents.
Changes
in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of our patents
or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws
of the U.S. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications
in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore
cannot be certain that we or our licensor were the first to make the invention claimed in our owned and licensed patents or pending applications,
or that we or our licensor were the first to file for patent protection of such inventions. Assuming the other requirements for patentability
are met, in the U.S. prior to March 15, 2013, the first to invent the claimed invention is entitled to the patent, while outside the
U.S., the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act
(“Leahy-Smith Act”), enacted on September 16, 2011, the U.S. has moved to a first to file system. The Leahy-Smith Act also
includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation.
The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address
these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and
would need to be reviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding
the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse
effect on our business and financial condition.
If
we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able
to compete effectively in our markets.
In
addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary
know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements
of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not
covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes,
in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek
to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical
and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems,
agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets
may otherwise become known or be independently discovered by competitors.
All
of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology
enter into confidentiality agreements and we expect they will assign all rights in their inventions to us pursuant to the terms of such
agreements; however, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and
other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets
or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade
secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken
to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the
trade secret.
Third-party
claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our
commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There have been
many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries,
including with respect to NO delivery systems and formulations, including patent infringement lawsuits, interferences, oppositions and
reexamination proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending
patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the biotechnology
and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims
of infringement of the patent rights of third parties.
Third
parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture
of our product candidates. We do not know whether there are any third-party patents that would impair our ability to commercialize these
product candidates. We also cannot be sure that we have identified each and every patent and pending patent application in the U.S. and
abroad that is relevant or necessary to the commercialization of our product candidates. Because patent applications can take many years
to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may
infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.
If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates,
any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block
our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents
expire or are finally determined to be invalid or unenforceable.
Similarly,
if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture
or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product
candidate unless we obtained a license or until such patent expires or is finally determined to be invalid or unenforceable. In either
case, such a license may not be available on commercially reasonable terms or at all.
Parties
making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop
and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial
litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of
infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement,
pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require
substantial time and monetary expenditure.
We
may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We
currently own and have in-licensed rights to intellectual property through licenses from third parties and under patents that we own,
to develop our product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of
our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our product
candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by
others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property
rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual
property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire
third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage
over us due to their size, cash resources and greater clinical development and commercialization capabilities.
For
example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development underwritten
agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s
rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the
specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property
rights to other parties, potentially blocking our ability to pursue our program.
In
addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to
license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
If we are unable to successfully obtain rights to required third-party intellectual property rights, we may have to abandon development
of that program and our business and financial condition could suffer.
If
we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties
or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important
to our business.
We
are currently a party to intellectual property license agreements that are important to our business, and we may enter into additional
license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various
diligence, milestone payment, royalty and other obligations on us.
Licensing
of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes
may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
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scope of rights granted under the license agreement and other interpretation-related issues;
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the
extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing
agreement;
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the
sublicensing of patent and other rights;
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our
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the
ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and
our collaborators; and
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the
priority of invention of patented technology.
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If
disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We
may be involved in lawsuits or post-grant proceedings to protect or enforce our patents or the patents of our licensor, which could be
expensive, time consuming and unsuccessful.
Competitors
may infringe the patents of our licensor. If our licensing partner were to initiate legal proceedings against a third party to enforce
a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid
and/or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity and/or unenforceability are commonplace.
Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty,
obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution
of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following
legal assertions of invalidity and unenforceability is unpredictable.
Pending
patent applications may be subject to third-party pre-issuance submission of prior art to the USPTO, and any patents issuing thereon
may become involved in derivation, reexamination, inter parties review, post grant review, interference proceedings or other patent
office proceedings in the U.S. challenging our patent rights.
Proceedings
provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect
to our patents or patent applications or those of our licensor. An unfavorable outcome could require us to cease using the related technology
or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer
us a license on commercially reasonable terms. Our defense of litigation or proceedings may fail and, even if successful, may result
in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could
have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs,
license necessary technology from third parties or enter into development partnerships that would help us bring our product candidates
to market.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements
of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these
results to be negative, it could have a material adverse effect on the price of our common
stock.
We
may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information
of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We
employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors
or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information,
of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If
we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel,
which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees.
We
may be subject to claims challenging the inventorship of our patents and other intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with
respect to our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise
from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary
to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any
such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of,
or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we
are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management
and other employees. To the extent that our employees have not effectively waived the right to compensation with respect to inventions
that they helped create, they may be able to assert claims for compensation with respect to our future revenue may be successful. As
a result, we may receive less revenue from future products if such claims are successful which in turn could impact our future profitability.
Changes
in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As
is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity. Therefore, obtaining
and enforcing biotechnology patents is costly, time consuming and inherently uncertain. In addition, the U.S. has recently enacted and
is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent
protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing
uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect
to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws
and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce
our existing patents and patents that we might obtain in the future.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws of
some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S.
Competitors
may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export
otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These
products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent
them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets
and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for
us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings
to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts
and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits
that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Risks
Related to Our Business Operations
We
manage our business through a small number of employees and key consultants.
As
of March 31, 2021, we had a total of 41 full-time employees and a number of dedicated consultants, of whom work for us on a part-time
basis. In addition, any of our employees and consultants may leave our company at any time, subject to certain notice periods. The loss
of the services of any of our executive officers or any key employees or consultants would adversely affect our ability to execute our
business plan and harm our operating results.
We
do not currently carry “key person” insurance on the lives of members of management.
We
will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which
could disrupt our operations.
As
our development and commercialization plans and strategies develop and because we are so leanly staffed, we will need additional managerial,
operational, sales, marketing, financial, legal and other resources. The competition for qualified personnel in the pharmaceutical
life sciences field is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary
for the development of our business or to recruit suitable replacement personnel.
Our
management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial
amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may
result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity
among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from
other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth,
our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to
implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively
will depend, in part, on our ability to effectively manage any future growth.
International
expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing
business outside of the U.S., European Union or Israel.
Other
than our operations that are located in the European Union and Israel (as further described below), we currently have limited international
operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval
of our product candidates. We plan to maintain non-commercial infrastructure and conduct physician and patient association outreach activities,
as well as clinical trials, outside of the U.S., European Union and Israel. Doing business internationally involves a number of
risks, including but not limited to:
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multiple,
conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws,
regulatory requirements and other governmental certifications, approvals, permits and licenses;
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failure
by us to obtain certification or regulatory approvals for the use of our products in various countries;
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additional
potentially relevant third-party patent rights;
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complexities
and difficulties in obtaining protection and enforcing our intellectual property;
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difficulties
in staffing and managing foreign operations;
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complexities
associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
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limits
on our ability to penetrate international markets;
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financial
risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises
on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
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natural
disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment
of trade and other business restrictions;
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certain
expenses including, among others, expenses for travel, translation and insurance; and
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regulatory
and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the
purview of the FCPA, its books and records provisions or its anti-bribery provisions.
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Any
of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
We
face business disruption and related risks resulting from the COVID-19 pandemic, which could have a material adverse effect on our business
plan.
The
development of our product candidates could be further disrupted and adversely affected by the ongoing COVID-19 pandemic. The spread
of SARS CoV-2 resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic on March 11, 2020. The
Company has assessed the impact COVID-19 may have on the Company’s business plans and its ability to conduct the preclinical studies
and clinical trials as well as on the Company’s reliance on third-party manufacturing and our supply chain. The Company experienced
significant delays in the supply chain for LungFit® PH due to the redundancy in parts and suppliers with ventilator manufacturing
which has since been remedied. However, there can be no assurance that the Company will be able to further avoid part or all of any impact
from COVID-19 or its consequences. The extent to which the COVID-19 pandemic and global efforts to contain its spread may impact the
Company’s operations will depend on future developments.
We
are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches
and data leakage.
We
rely to a large extent upon sophisticated information technology systems to operate our businesses, some of which are managed, hosted
provided and/or used for third-parties or their vendors. We collect, store and transmit large amounts of confidential information (including
personal information and pseudonymized information), and we deploy and operate an array of technical and procedural controls to maintain
the confidentiality and integrity of such confidential information. A significant breakdown, invasion, corruption, destruction, interruption,
or unavailability of critical information technology systems or infrastructure, by our workforce, others with authorized access to our
systems or unauthorized persons could negatively impact operations. Hardware, software, or applications we develop or obtain from third
parties may contain defects in design or manufacture or other supply chain problems that could unexpectedly compromise our information
and network security.
The
ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination
or intentional destruction of confidential information stored in our or our third-party providers’ systems, portable media or storage
devices. We could also experience a business interruption, theft of confidential information or reputational damage from industrial espionage
attacks, malware or other cyber-attacks (including ransomware), which may compromise our system infrastructure or lead to data leakage,
either internally or at our third-party providers. While we have invested in the protection of data and information technology, there
can be no assurance that our efforts will prevent service interruptions or security breaches. Any such interruption or breach of our
systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or
intellectual property, and could result in financial, legal, business and reputational harm to us. In addition, as the regulatory environment
related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing
requirements applicable to our business, compliance with those requirements could also result in additional costs.
Risks
Related to the Ownership of our Common Stock
Our
amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or employees.
Our
certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for (A) any derivative
action or proceeding brought on behalf of us; (B) any action asserting a claim of breach of a fiduciary duty owed by any of our directors,
officers or other employees to us or our stockholders; (C) any action asserting a claim against us arising pursuant to any provision
of the Delaware General Corporation Law, our Amended and Restated Certificate of Incorporation or our Bylaws; or (D) any action asserting
a claim against us governed by the internal affairs doctrine. Section 27 of the Exchange Act creates exclusive federal jurisdiction over
all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result,
the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other
claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction
for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the
Securities Act or any other claim for which the federal and state courts have concurrent jurisdiction.
The
choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and
other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to
be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions,
which could adversely affect our business and financial condition.
Recent
trading in our common stock has been volatile and may continue to be volatile in the future.
The
stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology and
specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been highly volatile
and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance of particular
companies.
The
following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of
our common stock:
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announcements of technological innovations or new products by us or our competitors;
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announcement of FDA approval, disapproval or delay of approval of our product candidates or other product-related actions;
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developments involving our discovery efforts and clinical studies;
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developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation
against us or our potential licensees;
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developments involving our efforts to commercialize our products, including developments impacting the timing of commercialization;
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announcements concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;
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public concerns as to the safety or efficacy of our product candidates or our competitors’ products;
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changes in government regulation of the pharmaceutical or medical industry;
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changes in the reimbursement policies of third party insurance companies or government agencies;
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actual or anticipated fluctuations in our operating results;
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changes in financial estimates or recommendations by securities analysts;
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developments involving corporate collaborators, if any;
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changes in accounting principles; and
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the loss of any of our key scientific or management personnel. In the past, securities class action litigation has often been brought
against companies that experience volatility in the market price of their securities. Whether or not meritorious, litigation brought
against us could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect
our business, operating results and financial condition.
We
cannot assure you that our stock price and volume will remain at current levels in which case investors may sustain large losses.
In
addition, the stock market in general, and the stocks of small-cap biotechnology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market
and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The
realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,”
could have a dramatic and material adverse impact on the market price of our common stock.
Antidilution
provisions in certain of our outstanding warrants may affect the interests of our common stockholders.
The
warrants we issued in our January 2017 and March 2017 financing transactions, or the 2017 Warrants, contain price protection provisions
that could be triggered by our issuance of common stock in the future, if the offering price for any such future issuance is less than
the then-applicable warrant exercise price. The 2017 Warrants had an original exercise price of $6.90 per share. As a result of our February
2018 financing transaction, we adjusted the exercise price down to $4.25 per share pursuant to the terms of the 2017 Warrants. As of
result of the December 2019 equity offering, we adjusted the exercise price down to $3.66 per share pursuant to the terms of the 2017
Warrants. As June 7, 2021 there are 3,053,103 2017 warrants outstanding at a current exercise price of $3.66 per share.
On
March 16, 2018, Empery Asset Master, Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (collectively, “Empery”),
filed a complaint in the Supreme Court of the State of New York (the “NY Supreme Court”), relating to the notice of
adjustment of both the exercise price of and the number of warrant shares issuable under warrants issued to Empery in January 2017 (the
“Empery Suit”). The Empery Suit alleges that, as a result of certain circumstances in connection with our February 2018 offering,
the 166,672 warrants issued to Empery in January 2017 provide for adjustments to both the exercise price of the warrants and the number
of warrant shares issuable upon such exercise. Empery seeks monetary damages and declaratory relief under theories of breach of contract
or contract reformation.
While
we believe that we have complied with the applicable protective features of the 2017 Warrants and properly adjusted the
exercise price, if Empery were to prevail on all claims, the new adjusted total number of warrant shares could be as follows: 319,967
warrant shares for Empery Asset Master, Ltd., 159,869 warrant shares for Empery Tax Efficient, LP and 252,672 warrant shares for Empery
Tax Efficient II, LP, and the exercise price could be reduced from $3.66 to $1.57 per share. On March 9, 2020, we filed a motion
for summary judgment, which was denied by order of the Ny Supreme Court entered on August 20, 2020, except for the second claim
for relief for declaratory judgment which was dismissed as moot. On October 1, 2020, the Company filed a Notice of Appeal and appeal
of the NY Supreme Court’s denial of summary judgment remains pending. Trial of this matter was conducted from April 19,
2021 to April 21, 2021, and a decision was reserved pending post-trial briefing of various issues, to be fully submitted by June
30, 2021.
While
we asserted at trial and continue to asset several meritorious defenses against the claims, the ultimate resolution of
the matter, if unfavorable, could result in a material loss.
Anti-takeover
provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delaware
law, might discourage, delay or prevent a change in control of our company or changes in our Board of Directors or management and, therefore,
depress the trading price of our common stock.
Our
amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may depress the
market price of our common stock by acting to discourage, delay or prevent a merger, acquisition or other change in control that stockholders
may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These
provisions may also prevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors or our management.
Our corporate governance documents include provisions:
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providing
that directors may be removed by stockholders with or without cause;
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limiting
the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu
of a meeting;
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requiring
advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates
for election to our Board of Directors;
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authorizing
blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;
and
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limiting
the liability of, and providing indemnification to, our directors and officers.
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As
a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation
Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock from engaging in certain business
combinations with us. Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware
law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium
for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
The
existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the
future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that
you could receive a premium for your common stock in an acquisition.
Risks
Related to Employee Matters
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and
insider trading.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with
FDA regulations, to provide accurate information to the FDA, to comply with federal and state healthcare fraud and abuse laws and regulations,
to report financial information or data accurately, to disclose unauthorized activities to us or to comply with our code of business
conduct and ethics. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws
and regulations intended to prevent fraud, kickbacks, false claims, inappropriate promotion, self-dealing and other abusive practices.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained
in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. The precautions we take
to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could
have a significant impact on our business, including the imposition of significant fines or other sanctions.
Employee
litigation and unfavorable publicity could negatively affect our future business.
Our
employees may, from time to time, bring lawsuits against us regarding injury, creating a hostile work place, discrimination, wage and
hour disputes, sexual harassment, or other employment issues. In recent years there has been an increase in the number of discrimination
and harassment claims generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access
to a broad audience, these claims have had a significant negative impact on some businesses. Certain companies that have faced employment-
or harassment-related lawsuits have had to terminate management or other key personnel, and have suffered reputational harm that has
negatively impacted their business. If we were to face any employment-related claims, our business could be negatively affected.
Under
applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors
from benefiting from the expertise of some of our former employees.
We
generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees
and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients
for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees
work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants
developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a
former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests
of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information
or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent
our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be
diminished.
General
Risk Factors
The
increasing use of social media platforms presents new risks and challenges.
Social
media is increasingly being used to communicate about our research, development candidates, investigational medicines, and the diseases
our development candidates and investigational medicines are being developed to treat. Social media practices in the biopharmaceutical
industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of
noncompliance with regulations applicable to our business, resulting in potential regulatory actions against us. For example, subjects
may use social media channels to comment on their experience in an ongoing blinded clinical trial or to report an alleged adverse event.
When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or
we may not be able to defend our business or the public’s legitimate interests in the face of the political and market pressures
generated by social media due to restrictions on what we may say about our development candidates and investigational medicines. There
is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social
networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability,
face regulatory actions, or incur other harm to our business.
Unfavorable
U.S. or global economic conditions could adversely affect our business, financial condition, or results of operations.
Our
results of operations could be adversely affected by general conditions in the global economy and financial markets, including by the
current COVID-19 pandemic, or any other health epidemic. The most recent global financial crisis caused extreme volatility and disruptions
in the capital and credit markets. A severe or prolonged economic downturn, such as the most recent global financial crisis, could result
in a variety of risks to our business, including weakened demand for our investigational medicines and our ability to raise additional
capital when needed on favorable terms, if at all. A weak or declining economy could strain our suppliers, possibly resulting in supply
disruption, or cause delays in payments for our services by third-party payors or our collaborators. Any of the foregoing could harm
our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely
impact our business.