ITEM
1A. RISK FACTORS
You
should carefully consider the following risk factors, as well as the other information in this Quarterly Report, before deciding whether
to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial
condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking
statements we have made in this Quarterly Report and those we may make from time to time. When evaluating our business, you should consider
all of the factors described as well as the other information in our Annual Report, including our financial statements and the related
notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and
Item 1A, “Risk Factors.” We have marked with an asterisk (*) those risk factors that did not appear as risk
factors in, or contain changes to the similarly titled risk factors included in, Item 1A of our Annual Report. If any of the following
risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially
and adversely affected. In these circumstances, the market price of our common stock would likely decline and you may lose all or part
of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair
our business operations.
Risks
Related to our Business, Financial Condition and Capital Requirements
We
have not generated any revenue since our inception and expect to incur future losses and may never become profitable.*
We
have not generated any revenue. As of December 31, 2022, we had an accumulated deficit of approximately $51.9 million, which includes
a fair value adjustment for Milestone Warrants of approximately $26.6 million. The likelihood of our future success must be considered
in light of the expenses, difficulties, complications and delays often encountered in connection with the clinical trials that will be
conducted and on the development of new solutions to common addictions. These potential challenges include unanticipated clinical trial
delays, poor data, changes in the regulatory and competitive landscape and additional costs and expenses that may exceed current budget
estimates. In order to complete certain clinical trials and otherwise operate pursuant to our current business strategy, we anticipate
that we will incur increased operating expenses. In addition, we expect to incur significant losses and experience negative cash flow
in the future as we fund the operating losses and capital expenditures. We recognize that if we are unable to generate sufficient revenues
or source funding, we will not be able to continue operations as currently contemplated, complete planned clinical trials and/or achieve
profitability. Our failure to achieve or maintain profitability will also negatively impact the value of our shares. If we are unsuccessful
in addressing these risks, then we may need to curtail our business activities.
The
future success of our business cannot be determined at this time, and we do not anticipate generating revenue from product sales in the
near term. In addition, we have no experience in obtaining regulatory approval for and commercializing drug products on our own and face
a number of challenges with respect to development and commercialization efforts, including, among other challenges:
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having
inadequate financial or other resources to complete the development of our product candidate; |
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the
inability to manufacture our product in commercial quantities, at an adequate quality, at an acceptable cost or in collaboration
with third parties; |
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experiencing
delays or unplanned expenditures in product development, clinical testing or manufacturing; |
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the
inability to establish adequate sales, marketing and distribution channels; |
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healthcare
professionals may not adopt and patients may not accept our drug, if approved for marketing; |
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we
may not be aware of possible complications or other side effects from the use of our product since we have limited clinical experience
with respect to the actual effects from use of our product; |
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technological
breakthroughs in reversing ACIs and treating patients experiencing intoxication symptoms may reduce the demand for our product, if
it develops; |
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changes
in the market for reversing ACIs and treating patients experiencing intoxication symptoms, new alliances between existing market
participants and the entrance of new market participants may interfere with our market penetration efforts; |
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third-party
payors may not agree to reimburse patients for any or all of the purchase price of our product, which may adversely affect patients’
willingness to use our product; |
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uncertainty
as to market demand may result in inefficient pricing of our product; |
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we
may face third-party claims of intellectual property infringement; |
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we
may fail to obtain or maintain regulatory approvals for our product in our markets or may face adverse regulatory or legal actions
relating to our product even if regulatory approval is obtained; and |
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we
are dependent upon the results of clinical studies relating to our product and the products of our competitors. If data from a clinical
trial is unfavorable, we would be reluctant to advance the product for the indication for which it was being developed. |
If
we are unable to meet any one or more of these challenges successfully, our ability to effectively obtain regulatory approval for and
commercialize our products could be limited, which in turn could have a material adverse effect on our business, financial condition
and results of operations.
We
currently rely on a license from a third party, and in the future may rely on additional licenses from other third parties, in relation
to our development of ANEB-001, and if we fail to comply with our obligations under our current or future intellectual property license
agreements or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose
intellectual property rights that are important to our business.
We
are, and expect to continue to be, reliant upon third-party licensors for certain patent and other intellectual property rights that
are important or necessary to the development of our product candidates, including ANEB-001. On May 26, 2020, we entered into an exclusive
license agreement (the “License Agreement”) with Vernalis, pursuant to which Vernalis granted to us an exclusive license
to develop and commercialize our ANEB-001 product candidate. Under the License Agreement, we have the sole discretion to carry out the
development and commercialization of ANEB-001, including obtaining regulatory approvals. We retain the sole right over certain patent
rights (including patent applications) and know-how controlled by us that are necessary or reasonably useful to developing and commercializing
the licensed product during the term of the License Agreement. The License Agreement imposes, and we expect that any future license agreement
will impose, specified diligence, milestone payment, royalty, commercialization, development and other obligations on us and require
us to meet development timelines, or to exercise diligent or commercially reasonable efforts to develop and commercialize licensed products,
in order to maintain the license.
Furthermore,
our licensors have, or may have in the future, the right to terminate a license if we materially breach the agreement and fail to cure
such breach within a specified period or in the event we undergo certain bankruptcy events. In spite of our best efforts, our current
or any future licensors might conclude that we have materially breached our license agreements and might therefore terminate the license
agreements. If our license agreements are terminated, we may lose our rights to develop and commercialize product candidates and technology,
lose patent protection, experience significant delays in the development and commercialization of our product candidates and technology,
and incur liability for damages. If these in-licenses are terminated, or if the underlying intellectual property fails to provide the
intended exclusivity, our competitors or other third parties could have the freedom to seek regulatory approval of, and to market, products
and technologies identical or competitive to ours and we may be required to cease our development and commercialization of certain of
our product candidates and technology. In addition, we may seek to obtain additional licenses from our licensors and, in connection with
obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including
by agreeing to terms that could enable third parties, including our competitors, to receive licenses to a portion of the intellectual
property that is subject to our existing licenses and to compete with any product candidates we may develop and our technology. Any of
the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations
and prospects.
Our
License Agreement with Vernalis continues for an indefinite term and terminates, among other ways, under the following circumstances:
(i) on its terms when royalties and other sums cease to be payable thereunder; (ii) by us at any time by providing 60 days’ prior
notice; or (iii) upon an event of default, such as a material breach or insolvency of the other party. Upon termination, all rights and
licenses granted by Vernalis will revert immediately to Vernalis; all outstanding sums as of the termination date will be immediately
due and payable to Vernalis; and we will return or destroy, at Vernalis’s request, any regulatory or other materials provided by
Vernalis pursuant to the License Agreement.
Disputes
may also arise between us and Vernalis or future licensors regarding intellectual property subject to a license agreement, including:
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the
scope of rights granted under the license agreement and other interpretation-related issues; |
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our
financial or other obligations under the license agreement; |
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whether,
and the extent to which, our products, technology and processes infringe on intellectual property of the licensor that is not subject
to the licensing agreement; |
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our
diligence obligations under the license agreement and what activities satisfy those diligence obligations; |
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the
inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensor(s);
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the
priority of invention of patented technology. |
If
we do not prevail in such disputes, we may lose any or all of our rights under such license agreements, experience significant delays
in the development and commercialization of our products and technologies, or incur liability for damages, any of which could have a
material adverse effect on our business, financial condition, results of operations, and prospects. In addition, we may seek to obtain
additional licenses from our licensor(s) and, in connection with obtaining such licenses, we may agree to amend our existing licenses
in a manner that may be more favorable to the licensor(s), including by agreeing to terms that could enable third parties, including
our competitors, to receive licenses to a portion of the intellectual property that is subject to our existing licenses and to compete
with our products.
In
addition, the agreements under which we currently and in the future license intellectual property or technology from third parties are
complex and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation
disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology,
or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material
adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property
that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms,
we may be unable to successfully develop and commercialize any affected products or services, which could have a material adverse effect
on our business, financial condition, results of operations and prospects.
Absent
the license agreements, we may infringe patents subject to those agreements, and if the license agreements are terminated, we may be
subject to litigation by the licensor. Litigation could result in substantial costs to us and distract our management. If we do not prevail,
we may be required to pay damages, including treble damages, attorneys’ fees, costs and expenses and royalties or be enjoined from
selling ANEB-001, which could adversely affect our ability to offer products or services, our ability to continue operations and our
business, financial condition, results of operations and prospects.
We
currently have no product revenue and will need to raise additional capital in the future, which may be unavailable to us or may cause
dilution or place significant restrictions on our ability to operate.*
We
may be unable to generate sufficient revenue or cash flow to fund our operations. We expect that our cash at December 31, 2022, will
enable us to fund our current and planned operating expenses and capital expenditures into the second quarter of calendar year 2024.
We have based these estimates on assumptions that may prove to be incorrect, and we may exhaust our available capital resources sooner
than we currently expect. Because of the numerous risks and uncertainties associated with the development of our programs, we are unable
to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of
our product candidate. Until such time, if ever, as we can generate substantial product revenue from sales of any of our current or future
product candidates, we will need to seek additional equity or debt financing or potential collaboration, license or development agreements
to provide the capital required to maintain or expand our operations, continue the development of our product candidate, build our sales
and marketing capabilities, promote brand identity, develop or acquire complementary technologies, products or businesses, or provide
for our working capital requirements and other operating and general corporate purposes.
We
currently do not have any arrangements or credit facilities as a source of funds, and we make no assurance that we will be able to raise
sufficient additional capital in the future if needed on acceptable terms, or at all. If such financing is not available on satisfactory
terms, or is not available at all, we may be required to delay, scale back or eliminate the development of our current or future product
candidates and other business. This may materially adversely affect our operations and financial condition as well as our ability to
achieve business objectives and maintain competitiveness.
If
we raise additional capital by issuing equity securities and/or equity-linked securities, the percentage ownership of our existing stockholders
may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities and/or equity-linked
securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that
equity and equity-linked issuances are very common types of fundraising for companies like us, the risk of dilution is particularly significant
for our stockholders.
Debt
financing, if obtained, may involve agreements that include liens on our assets and covenants limiting or restricting our ability to
take specific actions such as incurring additional debt. Debt financing could also be required to be repaid regardless of our operating
results.
If
we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our current
or future products or revenue streams or to grant licenses on terms that are not favorable to us.
Any
additional capital raising efforts may divert the attention of our management from day-to-day activities, which may adversely affect
our ability to develop and commercialize our product candidates.
We
have limited operating history as a publicly-traded company, and our inexperience could materially and adversely affect us and our stockholders.
We
became a public company in May 2021 and, therefore, we have limited operating history as a publicly traded company. Our board of directors
and management team have overall responsibility for our management. As a publicly-traded company, we are required to develop and implement
substantial control systems, policies and procedures in order to satisfy our periodic SEC reporting and Nasdaq obligations. We cannot
assure you that management’s past experience will be sufficient to successfully develop and implement these systems, policies and
procedures and to operate our company. Failure to do so could jeopardize our status as a public company, and the loss of such status
may materially and adversely affect us and our stockholders.
Our
current and future operations substantially depend on our Founder and Chief Executive Officer and our ability to hire other key personnel,
the loss of any of whom could disrupt our business operations.
Our
business depends and will continue to depend in substantial part on the continued service of Joseph F. Lawler, M.D., Ph.D., our founder
and a director, and Simon Allen, our Chief Executive Officer and a director. The loss of the services of Dr. Lawler or Mr. Allen would
significantly impede implementation and execution of our business strategy and may result in the failure to reach our goals. Further,
the loss of either Dr. Lawler or Mr. Allen would be negatively perceived in the capital markets. We do not have “key-man”
life insurance for our benefit on the lives of either Dr. Lawler or Mr. Allen.
Our
future viability and ability to achieve sales and profits will also depend on our ability to attract, train, retain and motivate highly
qualified personnel in the diverse areas required for continuing operations. There is a risk that we will be unable to attract, train,
retain or motivate qualified personnel, both near term or in the future, and the failure to do so may severely damage our prospects.
Risks
Related to our Intellectual Property
If
we are unable to obtain and maintain patent protection for important aspects of ANEB-001, or if the scope of the patent protection obtained
is not sufficiently broad, our competitors could develop and commercialize products that are similar or identical to ours, and our ability
to successfully commercialize our current or future product candidates may be adversely affected.
Our
commercial success will depend, in part, on our ability to obtain and maintain patent protection in the United States and other countries
with respect to ANEB-001, our product candidate. On October 12, 2021, the United States Patent and Trademark Office issued to us U.S.
Patent No. 11,141,404, titled “Formulations and Methods for Treating Acute Cannabinoid Overdose.” The issued patent describes
the use of our investigational drug ANEB-001 to treat ACI, and is expected to provide patent protection through at least 2040. We seek
to protect our proprietary position by filing additional patent applications in the United States and abroad related to aspects of our
product candidate that are important to our business and maintaining and protecting our existing patent filings. Given that the development
of our product candidates is at an early stage, our intellectual property portfolio with respect to certain aspects of our product candidates
is also at an early stage. For example, we have filed or intend to file additional patent applications related to aspects of ANEB-001,
our product candidate; however, there can be no assurance that any such patent applications will issue as granted patents around the
world. The requirements for patentability differ in certain countries, and certain countries have heightened requirements for patentability.
Further, in some cases, we have only filed provisional patent applications on certain aspects of our technology and product candidate,
and provisional patent applications are not eligible to become an issued patent until, among other things, we file a non-provisional
patent application within 12 months of the filing date of the applicable provisional patent application. Any failure to file a non-provisional
patent application within this timeline could cause us to lose the ability to obtain patent protection for the inventions disclosed in
the associated provisional patent applications.
Further,
any changes we make to our product candidates to cause them to have what we view as more advantageous properties may not be covered by
our existing patent applications, and we may be required to file new applications and/or seek other forms of protection for any such
altered product candidates. There can be no assurance that we would be able to secure patent protection that would adequately cover any
such altered product candidates. There can also be no assurance that any such patent applications will be issued as granted patents,
and even if they do issue, such patent claims may be insufficient to prevent third parties, such as our competitors, from utilizing our
technology. Any failure to obtain or maintain patent protection related to aspects of our product candidates could have a material adverse
effect on our business, financial condition, results of operations, and prospects.
Even
if we obtain additional issued or granted patents with respect to our product candidates, we cannot be certain that such patents or any
of our existing patents will not later be found to be invalid and/or unenforceable.
The
patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our
research and development output before it is too late to obtain patent protection. Although we may enter into non-disclosure and confidentiality
agreements with parties who have access to patentable aspects of our research and development output, such as our employees, distribution
partners, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before
a patent application is filed, thereby jeopardizing our ability to seek patent protection.
The
patent position of pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent
years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our current
and future patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued, and
even if issued, the patents may not meaningfully protect our current or future product candidates, effectively prevent competitors and
third parties from commercializing competitive products or otherwise provide us with any competitive advantage. Our competitors or other
third parties may be able to circumvent our patents by developing similar or alternative products in a non-infringing manner.
Moreover,
the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted
after issuance. Patent applications we own currently or that in the future issue as patents may not be issued in a form that will provide
us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any
competitive advantage. Any patents to which we have rights may be challenged, narrowed, circumvented, or invalidated by third parties.
Consequently, we do not know whether our product candidates will be protectable or remain protected by valid and enforceable patents.
The
issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patents may be challenged
in the courts or patent offices in the United States and abroad. We may be subject to a third-party pre-issuance submission of prior
art to the United States Patent and Trademark Office (the “USPTO”) or post-issuance worldwide become involved in
opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or other similar
proceedings challenging our patent rights. An adverse determination in any such submission, proceeding, or litigation could reduce
the scope of, or invalidate or render unenforceable, such patent rights, allow third parties to commercialize our product candidates
or other technologies and compete directly with us, without payment to us, or result in our inability to manufacture or
commercialize products without infringing third-party patent rights. Moreover, our patents may be subject to post-grant challenge
proceedings in the United States, such as post-grant or inter partes review at the USPTO or oppositions proceedings in a foreign patent office, that
challenge our priority of invention or other features of patentability with respect to our patents and patent applications. Such
challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held
unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and
products, or limit the duration of the patent protection of our product candidates and other technologies. Such proceedings also may
result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is
favorable to us.
If
we are unsuccessful in any such proceeding or other priority or inventorship dispute, we may be required to obtain licenses from third
parties, including parties involved in any such post-grant or opposition proceedings or other priority or inventorship disputes. Such licenses may
not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain and maintain such licenses,
we may need to cease the development, manufacture, and commercialization of one or more of the product candidates we may develop. Termination
of these licenses or reduction or elimination of our rights under these licenses may result in our having to negotiate new or reinstated
agreements with less favorable terms, or cause us to lose our rights under these licenses, including our rights to important intellectual
property or technology. The loss of exclusivity or the narrowing of our owned and licensed patent claims could limit our ability to stop
others from using or commercializing similar or identical technology and products.
In
addition, given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting
such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our intellectual
property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Some
of our patents and patent applications may in the future be co-owned with third parties. In addition, future collaborators or licensors
may co-own their patents and patent applications with other third parties with whom we do not have a direct relationship. Our rights
to certain of these patents and patent applications may be dependent, in part, on inter-institutional or other operating agreements between
the joint owners of such patents and patent applications, who are not parties to our license agreements. If our future collaborators
or licensors do not have exclusive control of the grant of licenses under any such third-party co-owners’ interest in such patents
or patent applications or we are otherwise unable to secure such exclusive rights, such co-owners may be able to license their rights
to other third parties, including our competitors, and our competitors could market competing products and technology to the extent such
products and technology are not also covered by our intellectual property. In addition, we may need the cooperation of any such co-owners
of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us.
We
cannot be certain that our current and future patent rights will be effective in protecting ANEB-001 and related technologies. Failure
to protect such assets may have a material adverse effect on our business, operations, financial condition and prospects.
If
we do not obtain patent term extension and data and marketing exclusivity for any product candidates we may develop, our business
may be materially harmed.
Depending
upon the timing, duration, and specifics of any FDA marketing approval of ANEB-001 and related technologies we may develop, one or more
of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act
of 1984 (the “Hatch-Waxman Act”). The Hatch-Waxman Act permits a patent term extension of up to five years as compensation
for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond
a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug,
a method for using it, or a method for manufacturing it may be extended. Similar extensions as compensation for patent term lost during
regulatory review processes are also available in certain foreign countries and territories, such as in Europe under a Supplementary
Patent Certificate. However, we may not be granted an extension in the United States and/or foreign countries and territories because
of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable
deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover,
the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent
term extension or the term of any such extension is shorter than what we request, our competitors may obtain approval of competing products
following our patent expiration, and our business, financial condition, results of operations, and growth prospects could be materially
harmed.
We
may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.
Filing,
prosecuting and defending patent rights on important aspects of ANEB-001 in all countries throughout the world would be
prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than
those in the United States. 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 United States. Further, licensing partners may not prosecute patents in certain
jurisdictions in which we may obtain commercial rights, thereby precluding the possibility of later obtaining patent protection in
these countries. Consequently, we may not be able to prevent third parties from selling or importing products made using our
inventions in and into the United States or other jurisdictions. Competitors may develop their own products and may also export
infringing products to territories where we may have patent protection, but enforcement may not be as strong as that in the United
States. These products may compete with ANEB-001, and our patent 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 patent rights or marketing of competing products in violation of our proprietary rights generally.
We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we
will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our current or future product
candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have
an adverse effect on our ability to successfully commercialize our current or future product candidates in all of our expected significant
foreign markets.
Many
countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent
owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our future collaborators or
licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position
may be impaired, and our business, financial condition, results of operations, and prospects may be adversely affected. Changes in patent
law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect
our products.
Changes
in either the patent laws or interpretation of the patent laws in the United States or foreign patent offices could increase the uncertainties
and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements
for patentability are met, prior to March 16, 2013, in the United States, the first to invent the claimed invention was entitled to the
patent, while outside the United States, the first to file a patent application was entitled to the patent. On or after March 16, 2013,
under the Leahy-Smith America Invents Act (the America Invents Act) enacted on September 16, 2011, the United States transitioned to
a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent
application will be entitled to the patent on an invention regardless of whether a third-party was the first to invent the claimed invention.
A third-party that files a patent application in the USPTO on or after March 16, 2013, but before us could therefore be awarded a patent
covering an invention of ours even if we had made the invention before it was made by such third-party. This will require us to be cognizant
going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other
countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either
(i) file any patent application related to ANEB-001 or (ii) invent any of the inventions claimed in our patents or patent applications.
The
America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also
may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional
procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes
review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard
in United States federal courts necessary to invalidate a patent claim, a third-party could potentially provide evidence in a USPTO proceeding
sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first
presented in a district court action. Accordingly, a third-party may attempt to use the USPTO procedures to invalidate our patent claims
that would not have been invalidated if first challenged by the third-party as a defendant in a district court action. Therefore, the
America Invents 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, financial condition,
results of operations, and prospects.
Changes in European patent practice could also increase the uncertainties
and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. No earlier than June 1,
2023, European applications will soon have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the
jurisdiction of the Unitary Patent Court, or UPC. This will be a significant change in European patent practice. As the UPC is a new court
system, there is no precedent for the court, increasing the uncertainty of any patent litigation or revocation proceeding in Europe.
In
addition, the patent positions of companies in the development and commercialization of biopharmaceuticals are particularly uncertain.
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. This combination of events has created uncertainty with respect to the validity and enforceability
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 could have a material adverse effect on our existing patent portfolio and our
ability to protect and enforce our intellectual property in the future.
The
expiration or loss of patent protection may adversely affect our future revenues and operating earnings.
Patent
protection is important in the development and eventual commercialization of our product candidate. Patents covering our product candidate
normally provide market exclusivity, which is important in order for our product candidate to become profitable. We obtained one patent
in October 2021, which is expected to provide patent protection through 2040. Even if we are successful in obtaining further patents,
patents have a limited lifespan. In the United States, the natural expiration of a utility patent is generally 20 years after it is filed.
Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection,
we may be open to competition from generic versions of such compositions, methods and devices. As a result, our owned and licensed patent
portfolio may not provide us with sufficient rights to exclude others from commercializing products similar to ours.
Risks
Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
Delays
in the completion of, or the termination of, a clinical trial for ANEB-001, our lead drug candidate, could adversely affect our business.
Clinical
trials are very expensive, time-consuming, unpredictable and difficult to design and implement. The results of clinical trials may be
unfavorable, they may continue for several years, and they may take significantly longer to complete and involve significantly more costs
than expected. Delays in the commencement or completion of clinical testing could significantly affect product development costs and
plans with respect to our drug candidate. The commencement and completion of clinical trials can be delayed and experience difficulties
for a number of reasons, including delays and difficulties caused by circumstances over which we may have no control. For instance, approvals
of the scope, design or trial site may not be obtained from the FDA and other required bodies in a timely manner or at all, agreements
with acceptable terms may not be reached in a timely manner or at all with CROs to conduct the trials, a sufficient number of subjects
may not be recruited and enrolled in the trials, and third-party manufacturers of the materials for use in the trials may encounter delays
and problems in the manufacturing process, including failure to produce materials in sufficient quantities or of an acceptable quality
to complete the trials. Clinical trial delays could 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.
We
are relying on clinical trials performed by our licensor Vernalis, a third party, for a different indication, and the FDA or a foreign
equivalent regulator may disagree with our ability to reference clinical data from third-party trials.*
As
part of the preclinical characterization of ANEB-001, Vernalis demonstrated that oral administration of ANEB-001 reduced hypolocomotion
in mice after 30 minutes, effectively reversing the actions of THC. In 2006 and 2007, two Phase 1 studies for the treatment of obesity
were conducted by Vernalis for ANEB-001. The Vernalis clinical trials were not conducted or overseen by us. Nonetheless, we are relying
on these studies performed by a third party for a different indication. The FDA or a foreign equivalent regulator may disagree with our
ability to reference the clinical data generated by the third-party trials. Should this occur, we are likely to experience delays in
our ability to receive regulatory approval and commercialize our product candidate.
If
we are not able to obtain any required regulatory approvals for ANEB-001, we will not be able to commercialize our lead drug candidate
and our ability to generate revenue will be limited.
Our
drug candidate is a treatment in development for ACI. We must successfully complete clinical trials for our drug candidate before we
can apply for marketing approval. Even if we complete our clinical trials, it does not assure marketing approval. Our clinical trials
may be unsuccessful, which would materially harm our business. Even if our initial clinical trials are successful, we are required to
conduct additional clinical trials to establish our drug candidate’s safety and efficacy, before an NDA, or its foreign equivalents
can be filed with the FDA or comparable foreign regulatory authorities for marketing approval of our drug candidate.
Success
in early phases of preclinical and clinical trials does not ensure that later clinical trials will be successful, and interim results
of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage
of testing. We may experience unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our
ability to receive regulatory approval or commercialize our drug candidate. The research, testing, manufacturing, labeling, packaging,
storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject
to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ
from country to country. We are not permitted to market our drug in the United States until we receive approval of an NDA from the FDA,
or in any foreign countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires
the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure
its quality before an NDA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number
of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are eventually approved
for commercialization. If our development efforts for our drug candidate, including regulatory approval, are not successful for its planned
indications, or if adequate demand for our drug candidate is not generated, our business will be materially adversely affected.
Our
success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number
of risks, including the following:
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the
results of toxicology studies may not support the filing of an IND for our drug candidate or the FDA may require additional toxicology
studies; |
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the
FDA or comparable foreign regulatory authorities or IRB may disagree with the design or implementation of our clinical trials; |
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it
may be difficult to run clinical trials involving the administration of THC to subjects because THC is a controlled substance and
is illegal in certain jurisdictions; |
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we
may not be able to provide acceptable evidence of our drug candidate’s safety and efficacy; |
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the
results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required
by the FDA or other regulatory agencies for marketing approval; |
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the
dosing of our drug candidate in a particular clinical trial may not be at an optimal level; |
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patients
in our clinical trials may suffer adverse effects for reasons that may or may not be related to our drug candidate; |
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the
data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory
approval in the United States or elsewhere; |
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the
FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial supplies; and |
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the
approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering
our clinical data insufficient for approval. |
Failure
to obtain regulatory approval for our drug candidate for the foregoing, or any other reasons, will prevent us from commercializing our
drug candidate, and our ability to generate revenue will be materially impaired. We cannot guarantee that regulators will agree with
our assessment of the results of our ongoing and future clinical trials or that such trials will be successful. The FDA and other regulators
have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient
for approval and require additional clinical trials, or preclinical or other studies. In addition, varying interpretations of the data
obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of our drug candidate.
We
have not submitted an NDA or received regulatory approval to market our drug candidate in any jurisdiction. We have no experience in
filing the applications necessary to gain regulatory approvals and expect to rely on consultants and third party CROs, with expertise
in this area to assist us in this process. Securing regulatory approvals to market a product requires the submission of preclinical,
clinical, and/or pharmacokinetic data, information about product manufacturing processes and inspection of facilities and supporting
information to the appropriate regulatory authorities for each therapeutic indication to establish a drug candidate’s safety and
efficacy for each indication. Our drug candidate may prove to have undesirable or unintended side effects, toxicities or other characteristics
that may preclude us from obtaining regulatory approval or prevent or limit commercial use with respect to one or all intended indications.
The
process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially
based upon, among other things, the type, complexity and novelty of the drug candidate involved, the jurisdiction in which regulatory
approval is sought and the substantial discretion of the regulatory authorities. Changes in regulatory approval policies during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application
may cause delays in the approval or rejection of an application.
Even
if we receive regulatory approval for ANEB-001, our lead drug candidate, we may not be able to successfully commercialize the product
and the revenue that we generate from its sales, if any, may be limited.
If
approved for marketing, the commercial success of ANEB-001 will depend upon the product’s acceptance by the medical community,
including physicians, patients and healthcare payors. The degree of market
acceptance
for our drug candidate will depend on a number of factors, including:
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demonstration
of clinical safety and efficacy; |
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relative
convenience, dosing burden and ease of administration; |
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the
prevalence and severity of any adverse effects; |
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the
willingness of physicians to prescribe our drug candidate, and the target patient population to try new therapies; |
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efficacy
of our drug candidate compared to competing products; |
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the
introduction of any new products that may in the future become available targeting indications for which our drug candidate may be
approved; |
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new
procedures or therapies that may reduce the incidences of any of the indications in which our drug candidate may show utility; |
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pricing
and cost-effectiveness; |
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the
inclusion or omission of our drug candidate in applicable therapeutic and vaccine guidelines; |
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the
effectiveness of our own or any future collaborators’ sales and marketing strategies; |
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limitations
or warnings contained in approved labeling from regulatory authorities; |
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our
ability to obtain and maintain sufficient third-party coverage or reimbursement from government healthcare programs, including Medicare
and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government
bodies regulating the pricing and usage of therapeutics; and |
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the
willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals. |
If
our drug candidate is approved, but does not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we
may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community
and third-party payors on the benefits of our drug candidates may require significant resources and may never be successful.
In
addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize
our drug candidate successfully. For example, if the approval process takes too long, we may miss market opportunities and give other
companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be
limited or subject to restrictions or post-approval commitments that render our drug candidate not commercially viable. For example,
regulatory authorities may approve our drug candidate for fewer or more limited indications than we request, may not approve the price
we intend to charge for our drug candidate, may grant approval contingent on the performance of costly post-marketing clinical trials,
or may approve our drug candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization
of that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require risk management
plans or a Risk Evaluation and Mitigation Strategy (“REMS”) to assure the safe use of the drug. If the FDA concludes a REMS
is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without an approved REMS, if required.
A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools. The FDA may also require a REMS for an approved product when new safety
information emerges. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription
or dispensing of our drug candidate. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if
problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success
of our drug candidate.
Interim,
topline and preliminary data from our preclinical studies or clinical trials may change as more data become available, and are subject
to audit and verification procedures that could result in material changes in the final data.
From
time to time, we may publicly disclose preliminary, interim or topline data from our preclinical studies or clinical trials, which may
be subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions,
estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully
and carefully evaluate all data. As a result, the interim, topline or preliminary results that we report may differ from future results
of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and
fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially
different from the preliminary data we previously published. As a result, interim, topline and preliminary data should be viewed with
caution until the final data are available. Adverse differences between preliminary, interim or topline data and final data could significantly
harm our business prospects.
Further,
others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses
or may interpret or weigh the importance of data differently, which could impact the approvability or commercialization of the particular
drug candidate and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or
clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine to be material
or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be
deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug candidate
or our business. If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory
authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our drug candidates, our business,
operating results, prospects or financial condition may be harmed.
Even
if we obtain marketing approval for ANEB-001, we will be subject to ongoing obligations and continued regulatory review, which may result
in significant additional expense. Additionally, ANEB-001 could be subject to labeling and other restrictions and withdrawal from the
market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems
with ANEB-001.
Even
if we obtain regulatory approval for ANEB-001 for an indication, the FDA or foreign equivalent may still impose significant restrictions
on their indicated uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time-consuming
post-approval studies and post-market surveillance to monitor safety and efficacy. Our drug candidate will also be subject to ongoing
regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion,
recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA,
as well as continued compliance with current GCP regulations, for any clinical trials that we conduct post-approval. In addition, manufacturers
of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities
for compliance with CGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.
The
FDA has the authority to require a REMS as part of an NDA or after approval, which may impose further requirements or restrictions on
the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone
specialized training, limiting treatment to patients who meet certain safe-use criteria or requiring patient testing, monitoring and/or
enrollment in a registry.
With
respect to sales and marketing activities by us or any future partner, advertising and promotional materials must comply with FDA rules
in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries.
Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change.
If
we or a regulatory agency discovers previously unknown problems with our product, such as adverse events of unanticipated severity or
frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory
requirements, we may be subject to the following administrative or judicial sanctions:
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restrictions
on the manufacturing or marketing of the product (including complete withdrawal or recall of the product); |
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warning
letters or holds on post-approval clinical trials; |
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FDA’s
refusal to approve pending NDA’s or supplements to approved NDA’s; |
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suspension
or revocation of product license approvals; |
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product
seizures or detentions; |
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FDA’s
refusal to allow imports or exports of products; or |
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civil
penalties, criminal penalties or injunctions. |
The
occurrence of any event or penalty described above may inhibit our ability to commercialize our drug candidate and generate revenue.
Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product
liability exposure.
Any
products we develop may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices or healthcare
reform initiatives, thereby harming our business.
In
the United States, commercial sales of any products subject to regulatory approval could be conditioned on whether third-party payors
(such as government authorities, managed care providers, private health insurers and other organizations) are able to provide coverage
and reimbursement in connection with the products.
Coverage
and reimbursement of costs are areas of significant uncertainty for any products subject to regulatory approval. The process for determining
coverage versus reimbursement may vary widely among third-party payors. Third-party payors may also impose additional requirements on
and restrictions to coverage and reimbursement, which could influence the purchase of certain healthcare services and products.
Third-party
payors may limit coverage to specific drugs on an approved list, or formulary, which could omit some FDA-approved drugs for a particular
indication. Third-party payors may also place drugs at certain formulary levels that result in a lower reimbursement and higher cost-sharing
obligation for patients. A third-party payor’s decision to provide coverage for a product may not necessarily imply approval of
an adequate reimbursement rate. In addition, the unavailability of third-party reimbursement may affect our ability to maintain price
levels sufficient to realize an appropriate return on our investment in product development. Coverage by one third-party payor may not
necessarily indicate or imply coverage or reimbursement by other third-party payors. Also, the level or scope of coverage and reimbursement
may vary significantly among third-party payors. Further, commercial third-party payors often rely upon Medicare coverage policies and
payment limitations in setting their own reimbursement rates. In addition to scrutinizing the safety and efficacy of medical products
and services, third-party payors have increasingly begun to examine and challenge the price, cost-effectiveness and necessity of certain
products and services. Thus, to obtain and maintain coverage and reimbursement for any products approved for sale, the conducting of
expensive pharmacoeconomic studies may be required to demonstrate the medical necessity and cost-effectiveness of such products. There
is a chance that third-party payors may not consider our product medically necessary or cost-effective. If third-party payors make such
a determination, they may not cover the product after approval as a benefit under their plans. If third-party payors do cover the product,
the returns from sales of our product may not sufficiently yield a profit. Our inability to promptly obtain coverage, and adequate reimbursement
for new therapeutics we develop and for which we obtain regulatory approval could have a material adverse effect on our operating results,
our ability to raise capital needed to commercialize products and our financial condition.
Furthermore,
federal and state governmental authorities have increasingly shown an interest in implementing cost containment programs to limit government-paid
healthcare costs. Such cost containment programs include restrictions on coverage and reimbursement, price controls and requirements
to substitute branded prescription drugs with generic products. The adoption and expansion of such restrictive policies and controls
could impose limitations or exclusions from coverage for our product.
In
the United States, we expect third-party payors and government authorities to increase emphasis on managed care and cost containment
measures, which will impact the pricing and coverage for pharmaceutical products. Coverage policies and third-party reimbursement rates
may change at any time. Even if we achieve favorable coverage and reimbursement status for an approved product, less favorable coverage
policies and reimbursement rates could still be implemented in the future.
Current
legislation may increase the difficulty and cost for us to commercialize ANEB-001 and affect the prices we may obtain and our current
and future relationships with healthcare professionals, clinical investigators, consultants, patient organizations, customers, CROs and
third-party payors.
Healthcare
providers and third-party payors play a primary role in the recommendation and prescription of any product candidates for which the Company
obtains marketing approval. The Company’s current and future arrangements with healthcare professionals, including HCPs, clinical
investigators, CROs, third-party payors and customers may expose it to broadly applicable fraud and abuse and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which the Company markets, sells and
distributes its products for which it obtains marketing approval. Restrictions under applicable federal and state healthcare laws and
regulations include the following:
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the
federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the
referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under
a federal healthcare program such as Medicare and Medicaid. Moreover, the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) provides that the government may
assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false
or fraudulent claim for purposes of the civil False Claims Act; |
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the
federal civil and criminal false claims, including the civil False Claims Act, which can be enforced by private citizens through
civil whistleblower or qui tam actions, and civil monetary penalties laws prohibit individuals or entities from, among other things,
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making
a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
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the
FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; |
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws which may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers,
state laws that require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws
that require biotechnology companies to report information on the pricing of certain drug products, state and local laws that require
the registration of pharmaceutical sales representatives; |
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the
federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) prohibits, among other things, executing
or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
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federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm
consumers; |
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the
federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies
for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions,
to annually report to the Centers for Medicare & Medicaid Services (“CMS”) information regarding payments and other
transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other health
care professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as information regarding
ownership and investment interests held by physicians and their immediate family members; and |
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes
obligations, including mandatory contractual terms, on “covered entities,” including certain healthcare providers, health
plans, healthcare clearinghouses, and their respective “business associates” that create, receive, maintain or transmit
individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors, with respect
to safeguarding the privacy, security and transmission of individually identifiable health information, as well as analogous state
and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; |
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analogous
state laws and regulations, such as, state anti-kickback and false claims laws potentially applicable to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers;
and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report
information related to payments to physicians and other healthcare providers or marketing expenditures, state and local laws that
require the registration of pharmaceutical sales representatives, and state laws governing the privacy and security of personal data
(including personal health information) in certain circumstances, many of which differ from each other in significant ways and often
are not preempted by HIPAA, thus complicating compliance efforts; and state transparency laws that require the reporting of certain
pricing information; among other state laws. |
Efforts
to ensure that the Company’s current and future business arrangements with third parties will comply with applicable healthcare
laws and regulations will involve on-going substantial costs. If the Company’s operations are found to be in violation of any of
these laws or any other governmental regulations that may apply to it, it may be subject to significant penalties, including civil, criminal
and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government funded healthcare
programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations,
contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of the Company’s
operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources.
Therefore, even if the Company is successful in defending against any such actions that may be brought against it, its business may be
impaired.
ANEB-001,
our lead drug candidate, may face competition sooner than expected.
Our
success will depend in part on our ability to obtain and maintain patent protection for important aspects of ANEB-001 and technologies
and to prevent third parties from infringing upon our proprietary rights. We must also operate without infringing upon patents and proprietary
rights of others, including by obtaining appropriate licenses to patents or other proprietary rights held by third parties, if necessary.
However, the applications we have filed or may file in the future may never yield patents that protect our inventions and intellectual
property assets. Failure to obtain patents that sufficiently cover our formulations and technologies would limit our protection against
compounding pharmacies, outsourcing facilities, generic drug manufacturers, pharmaceutical companies and other parties who may seek to
copy our products, produce products substantially similar to ours or use technologies substantially similar to those we own.
Any
termination or suspension of, or delays in the commencement or completion of, any necessary studies of ANEB-001, our lead drug candidate,
for any indications could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial
prospects.
The
commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to:
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the
FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold; |
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subjects
for clinical testing failing to enroll or remain in our trials at the rate we expect; |
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a
facility manufacturing our drug candidate being ordered by the FDA or other government or regulatory authorities to temporarily or
permanently shut down due to violations of CGMP requirements or other applicable requirements, or contamination of our drug candidate
in the manufacturing process; |
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any
changes to our manufacturing process that may be necessary or desired; |
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subjects
choosing an alternative treatment for the indications for which we are developing our drug candidate, or participating in competing
clinical studies; |
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subjects
experiencing severe or unexpected drug-related adverse effects; |
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reports
from clinical testing on similar technologies and products raising safety and/or efficacy concerns; |
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third-party
clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials
on our anticipated schedule or employing methods consistent with the clinical trial protocol, CGMP requirements, or other third parties
not performing data collection and analysis in a timely or accurate manner; |
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inspections
of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRB’s finding regulatory violations that
require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical
hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications with the
FDA; |
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third-party
contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations
of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any
of the data produced by such contractors in support of our marketing applications with the FDA; |
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one
or more IRB’s refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of
additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective CROs and clinical
trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial
sites; |
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deviations
of the clinical sites from trial protocols or dropping out of a trial; |
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adding
new clinical trial sites; |
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the
inability of the CROs to execute any clinical trials for any reason; and |
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government
or regulatory delays or “clinical holds” requiring suspension or termination of a trial. |
Product
development costs for our drug candidate will increase if we have delays in testing or approval or if we need to perform more or larger
clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study
protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory
authorities, and IRBs for reexamination, which may impact the costs, timing or successful completion of that study. If we experience
delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, or other reviewing entities, or any of our clinical
study sites suspend or terminate any of our clinical studies of our drug candidate, its commercial prospects may be materially harmed
and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow
down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences
may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination
or suspension of, or a delay in the commencement or completion of, clinical studies may also ultimately lead to the denial of regulatory
approval of our drug candidate. In addition, if one or more clinical studies are delayed, our competitors may be able to bring products
to market before we do, and the commercial viability of our drug candidate could be significantly reduced.
Clinical
drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not
be predictive of future trial results.
Clinical
testing of our drug candidate is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can
occur at any time during the clinical trial process. The results of preclinical testing and early clinical trials may not be predictive
of the results of later-stage clinical trials. We cannot assure you that the FDA or comparable foreign regulatory authorities will view
the results as we do or that any future trials of our drug candidate will achieve positive results. Drugs in later stages of clinical
trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical testing and initial clinical
trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to
lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Any future clinical trial results for
our drug candidate may not be successful.
In
addition, a number of factors could contribute to a lack of favorable safety and efficacy results for our drug candidate. For example,
such trials could result in increased variability due to varying site characteristics, such as local standards of care and differences
in evaluation period, and due to varying patient characteristics including demographic factors and health status.
We
may be exposed to product liability risks, and clinical and preclinical liability risks, which could place a substantial financial burden
upon us should we be sued.
Our
business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing
of pharmaceutical formulations and products. We cannot be sure that claims will not be asserted against us. We cannot give assurances
that we will be able to continue to obtain or maintain adequate product liability insurance on acceptable terms, if at all, or that such
insurance will provide adequate coverage against potential liabilities. A successful liability claim or series of claims brought against
us, and any claims or losses in excess of any product liability insurance coverage that we may obtain, could have a material adverse
effect on our business, financial condition and results of operations.
ANEB-001,
our lead product candidate, may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received,
require it to be taken off the market, require it to include safety warnings or otherwise limit sales of the product.
Unforeseen
side effects from ANEB-001 could arise either during clinical development or, if approved, after the product has been marketed. This
could cause regulatory approvals for, or market acceptance of, the product to be harder and more costly to obtain.
To
date, no serious adverse events have been attributed to ANEB-001. However, development of ANEB-001 for weight loss was discontinued by
Vernalis after a different CB1 antagonist showed significant side effects after prolonged administration (months or more). While we current
expect ANEB-001 to be limited to a single dose to treat ACI, there may be unforeseen side effects from ANEB-001 for the treatment of
ACI or other indications we may explore. The results of our current or future clinical trials may show that our product candidate causes
undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to
obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory
authorities with restrictive label warnings. If our product candidate receives marketing approval and we or others later identify undesirable
or unacceptable side effects caused by the use of our product:
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regulatory
authorities may withdraw their approval of the product, which would force us to remove the product from the market; |
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication, or field alerts to physicians,
pharmacies and others; |
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we
may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change
the labeling of the product; |
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we
may be subject to limitations on how we may promote the product; |
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sales
of the product may decrease significantly; |
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we
may be subject to litigation or product liability claims; and |
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our
reputation may suffer. |
Any
of these events could prevent us or our potential future collaborators from achieving or maintaining market acceptance of the product
or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant
revenues from the sale of our product.
We
currently have no marketing and sales organization and we have no direct experience marketing pharmaceutical products. If we are unable
to establish our own marketing and sales capabilities, or enter into agreements with third parties to market and sell our products after
approval, we may not be able to generate product revenues.
We
do not have a sales organization for the marketing, sales and distribution of any pharmaceutical products. In order to commercialize
ANEB-001, we must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution
of our products, if approved. The establishment and development of a direct sales force will be expensive and time-consuming and could
delay our product launch, and we cannot be certain that we would be able to successfully develop this capability. As a result, we may
seek one or more partners to handle some or all of the sales, marketing and distribution of our products once approved. There also may
be certain markets within the United States and elsewhere for our product candidates that receive approval for which we may seek a co-promotion
arrangement. However, we may not be able to enter into arrangements with third parties to sell any of our products that may be approved
on favorable terms, or at all. In the event, we are unable to develop our own marketing and sales force or collaborate with a third-party
marketing and sales organization, we will not be able to commercialize our current or future product candidates following approval, which
will negatively impact our ability to generate product revenues. Furthermore, whether we commercialize our product candidates following
approval on our own or rely on a third party, our ability to generate revenue would be dependent on the effectiveness of the sales force.
In addition, to the extent we rely on third parties to commercialize any product candidate that may be approved in the future, we would
likely receive less revenues than if we commercialized such product candidates ourselves.
New
drugs, which may be developed by others, could impair our ability to maintain and grow our business and remain competitive.
The
pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our technologies
and product candidates non-competitive or obsolete. For example, Aelis Farma, which is developing a medication based on a pregnanolone
derivative to treat cannabis use disorders, and Opiant Pharmaceuticals, Inc., which is developing a drinabant injection to treat acute
cannabis overdose, could obtain regulatory approval before we are able to obtain regulatory approval for ANEB-001, which could materially
harm our business prospects. We also may be unable to keep pace with technological developments and other market factors. Technological
competition from medical device, pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying
into the field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities
and budgets than we do, as well as substantially more marketing, manufacturing, financial and managerial resources. These entities represent
significant competition for us.
Risks
Related to our Reliance on Third Parties
We
depend on third parties in connection with our preclinical testing and clinical trials, which may result in costs and delays that prevent
us from obtaining regulatory approval or successfully commercializing ANEB-001 or future product candidates.
We
engage third parties to perform various aspects of our preclinical testing and clinical trials. We have entered into agreements with
third parties, including Traxeus, Aptuit (Verona) SRL, Sterling Pharma Solutions, and Centre for Human Drug Research, which provide certain
pharmaceutical research and development services to us. We depend on these third parties to perform these activities on a timely basis
in accordance with the protocol, good laboratory practices, good clinical practices and other regulatory requirements. Our reliance on
these third parties for preclinical and clinical development activities reduces our control over these activities. Accordingly, if these
parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, our preclinical testing and
clinical trials may be extended, delayed, terminated or our data may be rejected by the FDA. If there are delays in testing or obtaining
regulatory approvals as a result of a third party’s failure to perform, our drug discovery and development costs will likely increase,
and we may not be able to obtain regulatory approval for or successfully commercialize our current or future product candidates.
Third
parties’ abilities to adequately and timely manufacture and supply our current or future product candidates is dependent on the
operation of their facilities which may be impacted by, among other things:
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availability,
performance or contamination of raw materials and components used in the manufacturing process, particularly those for which we have
no other source or supplier; |
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capacity
of their facilities; |
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the
performance of information technology systems; |
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compliance
with regulatory requirements; |
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inclement
weather and natural disasters; |
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changes
in forecasts of future demand for product components; |
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timing
and actual number of production runs for product components; |
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potential
facility contamination by microorganisms or viruses; |
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updating
of manufacturing specifications; and |
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product
quality success rates and yields. |
If
the efficient manufacture and supply of our current or future product candidates is interrupted, we may experience delayed shipments
or supply constraints, which may materially impact our ongoing and future preclinical testing and clinical trials.
Any
contract manufacturer must undergo a potentially lengthy FDA approval process, as well as other regulatory approval processes, and are
subject to continued review by the FDA and other regulatory authorities. If we or our third-party service providers cease or interrupt
production or if our third-party service providers fail to supply materials, products or services to us, we may experience delayed shipments,
and supply constraints for our current or future product candidates.
We
will be completely dependent on third parties to manufacture ANEB-001, and our commercialization of ANEB-001 could be halted, delayed
or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities,
fail to provide us with sufficient quantities of ANEB-001 or fail to do so at acceptable quality levels or prices.
We
do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture the API in ANEB-001 for use in our
clinical trials or for commercial product, if any. In addition, we do not have the capability to encapsulate our drug candidate as a
finished drug product for commercial distribution. As a result, we will be obligated to rely on contract manufacturers, if and when our
drug candidate is approved for commercialization. We have not entered into an agreement with any contract manufacturers for commercial
supply and may not be able to engage a contract manufacturer for commercial supply of our drug candidate on favorable terms to us, or
at all.
The
facilities used by our contract manufacturers to manufacture our drug candidate must be approved by the FDA or comparable foreign regulatory
authorities pursuant to inspections that will be conducted after we submit an NDA to the FDA or their equivalents to other relevant regulatory
authorities. We will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners
for compliance with CGMP regulations for the manufacture of both active drug substances and finished drug products. These CGMP regulations
cover all aspects of the manufacturing, testing, quality control and record keeping relating to our drug candidates. If our contract
manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of
the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA
or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our drug candidate or if it withdraws
any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability
to develop, obtain regulatory approval for or market our drug candidate, if approved.
Our
contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies
for compliance with CGMP regulations and similar regulatory requirements. We will not have control over our contract manufacturers’
compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could
result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market our drug
candidate, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly
and adversely affect our business. In addition, we will not have control over the ability of our contract manufacturers to maintain adequate
quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these
standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our drug candidate.
If,
for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and
we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain
that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate
manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our API
or finished products or should cease doing business with us, we could experience significant interruptions in the supply of our drug
candidate or may not be able to create a supply of our drug candidate at all. Were we to encounter manufacturing issues, our ability
to produce a sufficient supply of our drug candidate might be negatively affected. Our inability to coordinate the efforts of our third-party
manufacturing partners, or the lack of capacity available at our third-party manufacturing partners, could impair our ability to supply
our drug candidate at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify
a new bulk or finished product manufacturer, if we face these or other difficulties with our current manufacturing partners, we could
experience significant interruptions in the supply of our drug candidate if we decided to transfer the manufacturing of our drug candidate
to one or more alternative manufacturers in an effort to deal with the difficulties.
Any
manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally,
we rely on third parties to supply the raw materials needed to manufacture our potential product. Any reliance on suppliers may involve
several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules,
reliability and quality. Any unanticipated disruption to a future contract manufacturer caused by problems at suppliers could delay shipment
of our drug candidate, increase our cost of goods sold and result in lost sales.
We
cannot guarantee that our future manufacturing and supply partners will be able to reduce the costs of commercial scale manufacturing
of our drug candidate over time. If the commercial-scale manufacturing costs of our drug candidate are higher than expected, these costs
may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements.
However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements
may be subject to approval by such regulatory authorities.
We
cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot
guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize
output, we may not be able to reduce our costs over time.
Our
reliance on collaborations with third parties to develop and commercialize ANEB-001 is subject to inherent risks and may result in delays
in product development and lost or reduced revenues, restricting our ability to commercialize ANEB-001 and adversely affecting our profitability.
Our
ability to develop, obtain regulatory approval of, manufacture and commercialize ANEB-001 depends upon our ability to maintain existing,
and enter into and maintain new, contractual and collaborative arrangements with others. We also engage, and intend in the future to
continue to engage, contract manufacturers and clinical trial investigators.
In
addition, although not a primary component of our current strategy, the identification of new compounds or product candidates for development
may require us to enter into license or other collaborative agreements with others, including other pharmaceutical companies and research
institutions. Such collaborative agreements for the acquisition of new compounds or product candidates would typically require us to
pay license fees, make milestone payments and/or pay royalties. Furthermore, these agreements may result in our revenues being lower
than if we developed such product candidates and in our loss of control over the development of such product candidates.
Contractors
or collaborators may have the right to terminate their agreements with us or reduce their payments to us under those agreements on limited
or no notice and for no reason or reasons outside of our control. For example, we may be unable to maintain our relationship with Vernalis
on a commercially reasonable basis, if at all. If we are unable to retain Vernalis as a licensor on commercially acceptable terms, we
may not be able to commercialize ANEB-001 and we may experience delays in or suspension of the marketing of ANEB-001. The same could
apply to other product candidates we may develop or acquire in the future. Our dependence upon third parties to assist with the development
and commercialization of our product candidates may adversely affect our ability to generate profits or acceptable profit margins and
our ability to develop and deliver such product candidates on a timely and competitive basis.
If
our current or future licensees exercise termination rights they may have, or if these license agreements terminate because of delays
in obtaining regulatory approvals, or for other reasons, and we are not able to establish replacement or additional research and development
collaborations or licensing arrangements, we may not be able to develop and/or commercialize our product candidates. Moreover, any future
collaborations or license arrangements we may enter into may not be on terms favorable to us.
A
further risk we face with the collaborations is that business combinations and changes in the collaborator or their business strategy
may adversely affect their willingness or ability to complete their obligations to us. Our current or any future collaborations or license
arrangements ultimately may not be successful. Our agreements with collaborators typically allow them discretion in electing whether
to pursue various development, regulatory, commercialization and other activities. If any collaborator were to breach its agreement with
us or otherwise fail to conduct collaborative activities in a timely or successful manner, the preclinical or clinical development or
commercialization of the affected product candidate or research program would be delayed or terminated.
Other
risks associated with our collaborative and contractual arrangements with others include the following:
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we
may not have day-to-day control over the activities of our contractors or collaborators; |
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our
collaborators may fail to maintain, defend or enforce patents they own on compounds or technologies that are incorporated into the
product candidates we develop with them; |
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third
parties may not fulfill their regulatory or other obligations; and |
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we
may not realize the contemplated or expected benefits from collaborative or other arrangements; and disagreements may arise regarding
a breach of the arrangement, the interpretation of the agreement, ownership of proprietary rights, clinical results or regulatory
approvals. |
These
factors could lead to delays in the development and/or commercialization of our current or future product candidates, or could result
in us not being able to commercialize our product candidates, if approved. Further, disagreements with our contractors or collaborators
could require or result in litigation or arbitration, which would be time-consuming and expensive. Our ultimate success may depend upon
the success and performance on the part of these third parties. If we fail to maintain these relationships or establish new relationships
as required, development and/or commercialization of our product candidates will be delayed or may never be realized.
Risks
Related to Government Regulation of our Industry
Legislative
or regulatory reform of the healthcare system may affect our ability to sell our products profitably.*
In
both the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare
system in ways that could impact our ability to sell future products and profitability. Legislative and regulatory proposals have been
made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what
the impact of such changes on the marketing approvals of our drug candidate, if any, may be. In addition, increased scrutiny by the U.S.
Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent
product labeling and post-marketing testing and other requirements.
On
March 23, 2010, President Obama signed into law the ACA, which includes a number of healthcare reform provisions and requires most U.S.
citizens to have health insurance. The ACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries,
impose new taxes and fees on the health industry and impose additional health policy reforms. The law, among other things, imposes a
significant annual fee on companies that manufacture or import branded prescription drug products, addresses a new methodology by which
rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted
or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate
program to individuals enrolled in Medicaid managed care organizations, and establishes a new Medicare Part D coverage gap discount program,
in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries
during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Substantial
new provisions affecting compliance also have been added, which may require modification of business practices with healthcare practitioners.
The ACA also revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount
of Medicaid drug rebates to states. Further, the law imposed a significant annual fee on companies that manufacture or import branded
prescription drug products.
There
have been judicial, congressional, and executive branch efforts to repeal, modify or delay the implementation of the law. On June 17,
2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because
the “individual mandate” was repealed by Congress. In addition, on August 16, 2022, President Biden signed the Inflation Reduction
Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage
in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning
in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creates a new manufacturer discount program. It is possible
that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures
of the Biden administration will impact the ACA. We are continuing to monitor any changes to the ACA that, in turn, may potentially impact
our business in the future.
In
addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, the IRA, among other things, (1) directs the U.S. Department
of Health and Human Services (“HHS”) to negotiate the price of certain single-source drugs and biologics covered under Medicare
and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions
will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear
how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration
released an additional executive order on October 14, 2022, directing HHS to report on how the Center for Medicare and Medicaid Innovation
can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. It is unclear whether this
executive order or similar policy initiatives will be implemented in the future. We expect that additional
federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects
and reduce or eliminate our profitability. These new laws may result in additional reductions in Medicare and other healthcare funding,
which could have a material adverse effect on customers for the Company’s product candidates, if approved, and accordingly, the
financial operations.
Clinical
trials for ANEB-001 have and may in the future be conducted outside the United States and not under an IND, and where this is the case,
the FDA may not accept data from such trials.
Our
ongoing clinical trial for ANEB-001 is being conducted in the Netherlands and we may conduct future clinical trials outside of the United
States. Although the FDA may accept data from clinical trials conducted outside the United States and not under an IND in support of
research or marketing applications for our product candidates, this is subject to certain conditions set out in 21 C.F.R. § 312.120.
For example, such foreign clinical trials should be conducted in accordance with GCP, including review and approval by an independent
ethics committee and obtaining the informed consent from subjects of the clinical trials. The FDA must also be able to validate the data
from the study through an onsite inspection if the agency deems it necessary. The foreign clinical data should also be applicable to
the U.S. population and U.S. medical practice. Other factors that may affect the acceptance of foreign clinical data include differences
in clinical conditions, study populations or regulatory requirements between the U.S. and the foreign country. If the FDA does not accept
such foreign clinical data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects
of our business plan, and which may result in our drug candidate not receiving marketing approval.
Risks
Related to Ownership of Our Common Stock
The
trading price and volume of our common stock in the public markets has experienced, and may in the future experience, volatility due
to a variety of factors, many of which are beyond our control.*
The trading price and volume of our common stock on The Nasdaq Capital Market has experienced, and may in the future experience, volatility.
The market price of our common stock may fluctuate substantially as a result of many factors, some of which are beyond our control. These
fluctuations could cause you to lose all or part of the value of your investment in our common stock. Factors that could cause fluctuations
in the market price of our common stock include the following:
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quarterly
variations in our results of operations; |
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results
of operations that vary from the expectations of securities analysts and investors; |
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results
of operations that vary from those of our competitors; |
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changes
in expectations as to our future financial performance, including financial estimates by securities analysts; |
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publication
of research reports about us or the pharmaceutical industry; |
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announcements
by us or our competitors of significant contracts, acquisitions or capital commitments; |
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announcements
by third parties of significant claims or proceedings against us; |
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changes
affecting the availability of financing in the wholesale and consumer lending markets; |
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regulatory
developments in the pharmaceutical industry; |
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significant
future sales of our common stock, and additions or departures of key personnel; |
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the
realization of any of the other risk factors presented in this Annual Report; and |
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general
economic, market and currency factors and conditions unrelated to our performance. |
In
addition, the stock market in general has experienced significant price and volume fluctuations that have often been unrelated or disproportionate
to operating performance of individual companies. These broad market factors may seriously harm the market price of our common stock,
regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities,
securities class action litigation has often been instituted. A class action suit against us could result in significant liabilities
and, regardless of the outcome, could result in substantial costs and the diversion of our management’s attention and resources.
Future
sales, or the perception of future sales, of a substantial number of our shares of common stock could depress the trading price of our
common stock.
If
we or our stockholders, particularly our officers, directors and large stockholders, sell a significant percentage of our outstanding
common stock in the public market or if the market perceives that these sales could occur, the market price of shares of our common stock
could decline. These sales may make it more difficult for us to sell equity or equity-linked securities in the future at a time and price
that we deem appropriate, or to use equity as consideration for future acquisitions.
Our
principal stockholders and management own a substantial majority of our stock and will be able to exert significant control over matters
subject to stockholder approval.*
Certain
of our executive officers, directors and large stockholders own a substantial majority of our outstanding capital stock. As a result
of their share ownership, these stockholders have the ability to influence us through their ownership positions. These stockholders may
be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, can control elections
of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction.
This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best
interest as one of our stockholders.
Anti-takeover
provisions in our charter documents could discourage, delay or prevent a change in control of our company and may affect the trading
price of our common stock.*
Our
corporate documents and Delaware corporate law contain provisions that may enable our board of directors to resist a change in control
of our company even if a change in control were to be considered favorable by you and other stockholders. These provisions:
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authorize
the issuance of “blank check” preferred stock that could be issued by our board of directors to help defend against a
takeover attempt; |
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provide
that vacancies on our board of directors, including vacancies as a result of removal or enlargement of the board of directors, may
be filled by directors then in office, even though less than a quorum; |
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establish
that our board of directors is divided into three classes, with each class serving three-year staggered terms; |
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specify
that special meetings of our stockholders can be called only by our board of directors, chief executive officer or the chairman of
our board of directors; |
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establish
an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons
for election to our board of directors; |
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include
a forum selection clause, which means certain litigation can only be brought in Delaware; and |
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require
supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws. |
In
addition, Delaware corporate law prohibits large stockholders, in particular those owning 15% or more of our outstanding voting stock,
from merging or consolidating with us except under certain circumstances. These provisions and other provisions under Delaware corporate
law could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage
proxy contests and make it more difficult for our stockholders to elect directors of their choosing and cause us to take other corporate
actions our stockholders desire.
Our
certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially
all disputes between us and our stockholders, and federal district courts will be the sole and exclusive forum for Securities Act claims,
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, unless we consent in writing to the selection of an alternative forum, the Court of Chancery
of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii)
any action asserting a claim of breach of a fiduciary duty owed by our directors, officers or other employees to us or to our stockholders,
(iii) any action asserting a claim against us or any director, officer or other employee arising pursuant to any provision of the Delaware
General Corporation Law, our certificate of incorporation or bylaws or (iv) any action asserting a claim governed by the internal affairs
doctrine, in all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable
parties named as defendants; provided that these provisions of our certificate of incorporation will not apply to suits brought to enforce
a duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction.
Our
certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive
forum for resolving any complaint asserting a cause of action arising under the Securities Act, unless we consent in writing to the selection
of an alternative forum. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations
thereunder. 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. The choice of forum provisions may limit
a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our current or former
directors, officers, or other employees or stockholders, which may discourage such lawsuits against us and our current or former directors,
officers, and other employees or stockholders. Alternatively, if a court were to find the choice of forum provisions 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 harm our business, financial condition and results of operations.
We
do not expect to pay any dividends on our common stock.
We
currently expect to retain all future earnings, if any, for future operation, expansion and debt repayment and have no current plans
to pay any cash dividends to holders of our common stock. Any decision to declare and pay dividends in the future will be made at the
discretion of our board of directors and will depend on, among other things, our operating results, financial condition, cash requirements,
contractual restrictions and other factors that our board of directors may deem relevant. In addition, we must comply with the covenants
in our credit agreements to be able to pay cash dividends, and our ability to pay dividends generally may be further limited by covenants
of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment
in our common stock unless you sell our common stock for a price greater than that which you paid for it.
General
Risk Factors
If
we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability
to operate our business could be harmed.
Ensuring
that we have adequate internal control over financial reporting in place so that we can produce accurate financial statements on a timely
basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles. In connection with our IPO, we began the process of documenting,
reviewing, and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”), which will require annual management assessment of the effectiveness of our internal control over
financial reporting. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner,
or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements.
If that were to happen, the market price of our common stock could decline and we could be subject to sanctions or investigations by
the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.
Implementing
any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing
processes, and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal
controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis,
could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate
or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and could have a material and
adverse effect on our business, results of operations and financial condition.
We
are incurring significantly increased costs as a result of operating as a public company, and our management is required to devote substantial
time to compliance efforts.
As
a public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company. For example,
we are subject to the reporting requirements of the Exchange Act, the accounting and internal controls provisions of the Foreign Corrupt
Practices Act of 1977, as amended, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act, and the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), as well as rules and regulations
subsequently implemented by the SEC and Nasdaq, including the establishment and maintenance of effective disclosure and financial controls
and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time and
resources to complying with these requirements. Moreover, these rules and regulations are increasing our legal and financial compliance
costs and will make some activities more time-consuming and costly. In particular, we expect to incur significant expenses and devote
substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase
when we are no longer an “emerging growth company,” as defined by the JOBS Act. These new obligations will require substantial
attention from our management team and could divert their attention away from the day-to-day management of our business. We will need
to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and maintain
an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company
or the timing of such costs. These rules and regulations could also make it more difficult for us to attract and retain qualified persons
to serve on our board of directors and board committees or as executive officers, and more expensive for us to obtain director and officer
liability insurance.
Changes
in accounting principles or guidance, or in their interpretations, could result in unfavorable accounting charges or effects, including
changes to our previously filed financial statements, which could cause our stock price to decline.
We
prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. These principles
are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance.
A change in these principles or guidance, or in their interpretations, may have a significant negative effect on our reported results
and retroactively affect previously reported results, which, in turn, could cause our stock price to decline.
We
are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to
public companies may result in our financial statements not being comparable to those of some other public companies. As a result of
this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.
As
a company with less than $1.07 billion in annual revenue, we qualify as an “emerging growth company” under the JOBS Act.
An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to
public companies. In particular, as an emerging growth company we:
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not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over
financial reporting pursuant to the Sarbanes-Oxley Act; |
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are
not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing
how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”); |
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are
not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements
(commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes); |
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are
exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure; |
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may
present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis
of Financial Condition and Results of Operations (“MD&A”); and |
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are
eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of
the JOBS Act. |
We
have and intend to continue to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in
periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act. Our election to use the
phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging
growth companies that have opted out of the phase-in periods under Section 107 of the JOBS Act.
Certain
of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller
reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation
and report regarding management’s assessment of internal control over financial reporting, are not required to provide a compensation
discussion and analysis, are not required to provide a pay-for-performance graph or CEO pay ratio disclosure, and may present only two
years of audited financial statements and related MD&A disclosure.
Under
the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our
initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, or such earlier time
that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be
an “emerging growth company” if we have more than $1.07 billion in annual revenue, have more than $700 million in market
value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year
period. Under current SEC rules, however, we will continue to qualify as a “smaller reporting company” for so long as we
have a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business
day of our most recently completed second fiscal quarter, or have annual revenue is less than $100.0 million during the most recently
completed fiscal year and have a public float of less than $700 million as of the last business day of our most recently completed second
fiscal quarter.
We
cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find
our securities less attractive as a result of our election, we may have difficulty raising all of the proceeds we seek in this offering.
Changes
in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash
flow, financial condition or results of operations.*
New
income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect our
business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted,
changed, modified or applied adversely to us. For example, legislation enacted in 2017 informally titled the Tax Cuts and Jobs Act, the
Coronavirus Aid, Relief, and Economic Security Act and the Inflation Reduction Act enacted many significant changes to the U.S. tax laws.
Future guidance from the Internal Revenue Service and other tax authorities with respect to such legislation may affect us, and certain
aspects of such legislation could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various
states will conform to federal tax laws. Future tax reform legislation could have a material impact on the value of our deferred tax
assets, could result in significant one-time charges, and could increase our future U.S. tax expense.
Our
ability to use net operating loss carryforwards and certain other tax attributes to offset future taxable income or taxes may be limited.*
Under
current law, federal net operating losses incurred in tax years beginning after December 31, 2017, may be carried forward indefinitely,
but the deductibility of such federal net operating losses is limited to 80% of taxable income. It is uncertain if and to what extent
various states will conform to federal tax laws. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended,
and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as
a greater than 50% change in its equity ownership value over a three-year period, the corporation’s ability to use its pre-change
net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We may
have experienced an ownership change in the past and we may also experience additional ownership changes in the future as a result of
subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability
to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing
our future tax obligations. In addition, at the state level, there may be periods during which the use of net operating loss carryforwards
is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, if we earn net taxable
income, we may be unable to use all or a material portion of our net operating loss carryforwards and other tax attributes, which could
potentially result in increased future tax liability to us and adversely affect our future cash flows.
If
securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they
change their recommendations regarding our stock adversely, or if our actual results differ significantly from our guidance, our stock
price and trading volume could decline.
The
trading market for our common stock is influenced by the research and reports that industry or securities analysts may publish about
us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock
adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst
who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.
In
addition, from time to time, we may release earnings guidance or other forward-looking statements in our earnings releases, earnings
conference calls or otherwise regarding our future performance that represent our management’s estimates as of the date of release.
Some or all of the assumptions of any future guidance that we furnish may not materialize or may vary significantly from actual future
results. Any failure to meet guidance or analysts’ expectations could have a material adverse effect on the trading price or volume
of our stock.
Health
epidemics or pandemics may adversely affect our business, financial condition and results of operations.*
Health
epidemics or pandemics may negatively impact worldwide economic and commercial activity and financial markets. For example, Covid-19
has previously resulted in significant business and operational disruptions, including business closures, supply chain disruptions,
travel restrictions, stay-at-home orders and limitations on the availability of workforces. Our Netherlands Trial was previously
delayed due to Covid-19 and it is possible we may encounter similar delays or other disruptions associated with Covid-19 or other health
epidemics or pandemics. If we or any of our business
partners, clinical trial sites, suppliers and other third parties with whom we conduct business, were to experience shutdowns or
other business disruptions as a result of Covid-19 (including new variants) or other health epidemic or pandemic, our ability to conduct our business in the manner and on the timelines presently planned could be
materially and negatively impacted. For example, if our development of ANEB-001 were to be delayed, it may have a material adverse
effect on our business, results of operations and financial condition. In addition, an epidemic’s or pandemic’s impact on the medical
community and the global economy could have an adverse impact on future sales upon which we expect to derive royalties and
milestones, which could lead to a decrease in our revenues, net income and assets. If the adverse effects of a health epidemic or pandemic continue for a prolonged period or result in sustained economic stress, higher inflation levels or recession, many
of the other risks described in this “Risk Factors” section could be exacerbated, such as those relating to our reliance
on a limited number of suppliers and our need to raise additional capital to fund our existing operations.
Unstable
market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.*
The global credit and financial markets have recently experienced
extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence,
declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that
further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy
may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market
conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult,
more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development
plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive
an economic downturn, which could directly affect our ability to attain our operating goals on schedule and on budget.
Inflation
may adversely affect us by increasing our costs.
Recently,
inflation has increased throughout the U.S. economy. Inflation can adversely affect us by increasing the costs of clinical trials and
research, the development of our product candidates, administration and other costs of doing business. We may experience increases in
the prices of labor and other costs of doing business. In an inflationary environment, cost increases may outpace our expectations, causing
us to use our cash and other liquid assets faster than forecasted. If this happens, we may need to raise additional capital to fund our
operations, which may not be available in sufficient amounts or on reasonable terms, if at all, sooner than expected.
If
our internal information technology systems or sensitive information, or those of our third-party CROs or other contractors or consultants,
are or were compromised, we could experience adverse consequences from such compromise, including but not limited to, a material disruption
of the development of our product candidates, regulatory investigations or actions, litigation, fines and penalties, reputational harm,
loss of revenue or profits, and other adverse consequences.*
We
are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course
of business, we may process confidential, and sensitive information, including personal data (such as health-related data), intellectual
property, and trade secrets (collectively, “sensitive information”). It is critical that we do so in a secure manner to maintain
the confidentiality and integrity of such confidential information. We also have outsourced elements of our operations to third parties
in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication
technology, employee email, and other functions. Our ability to monitor these third parties’ information security practices is
limited, and these third parties may not have adequate information security measures in place. We may share or receive sensitive information
with or from third parties.
Cyberattacks,
malicious internet-based activity, and online and offline fraud are prevalent and continue to increase. These threats come from a variety
of sources, including traditional computer “hackers,” threat actors, personnel (such as through theft or misuse), sophisticated
nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including,
without limitation, nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During
times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks,
including cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute
our goods and services.
We
and the third parties upon which we rely may be subject to a variety of evolving threats, including, but not limited to
social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a
result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or
error, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets,
adware, telecommunications failures, earthquakes, fires, floods, and other similar threats. Ransomware attacks, including by
organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe
and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds.
Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments
due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in
frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party
partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in
a breach of or disruption to our information technology systems or the third-party information technology systems that support us
and our services. Additionally, our workforce works remotely at least part of the time which poses increased risks to our
information technology systems and data as a result of utilizing network connections outside our
premises. Future or past business transactions (such as acquisitions or integrations) could also expose us to additional
cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or
integrated entities’ systems and technologies.
Any
of the previously identified or similar threats could cause a security incident or other interruption. A security incident or other interruption
could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure
of, or access to our sensitive information. A security incident or other interruption could disrupt our ability (and that of third parties
upon whom we rely) to conduct our business operations. For example, a security incident could result in a material disruption and delay
of the development of our product candidates. In addition, the loss of pre-clinical study data or future clinical trial data for our
product candidates could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce
the data.
We
may expend significant resources or modify our business activities to try to protect against security incidents. Certain data privacy
and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security
measures to protect our information technology systems and sensitive information.
While
we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will
be effective. We may be unable in the future to detect vulnerabilities in our information technology systems because such threats and
techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred.
Despite our efforts to identify and remediate vulnerabilities, if any, in our information technology systems, our efforts may not be
successful. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Applicable
data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly,
and the disclosures or the failure to comply with such requirements could lead to adverse consequences. If we (or a third-party upon
whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences.
These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections);
additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation
(including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions
in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences
may cause interruptions in our operations and could result in a material disruption of our programs. For example, the loss of clinical
trial data for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs
to recover or reproduce the data.
Our
contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in
our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.
We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out
of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or
that such coverage will pay future claims.